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7.3.3.1 Directly or Indirectly purchase Its Own Shares The common law position is very strict, and a company is prohibited from purchasing its own shares even if it is allowed to do so in its Constitution or authorised by shareholders in the general meeting. 40 The underlying principle for such prohibition is that by purchasing its own shares a company is using its own financial resources and it is equivalent to reducing its own capital. 41 Lord Hershell commented that the stringent procedures required in order to reduce share capital would be futile if companies were allowed to purchase their own shares. 42 The common law position is incorporated in the statute and a company is prohibited from purchasing its own shares except otherwise provided for in the statute. 43 Since purchasing its own shares amounted to depleting the company‟s assets, the law has laid down strict procedures that need to be complied with. 44 Section 257A of the Australian Corporations Act 2001 permits the purchase if it does not materially prejudice the company’s ability to pay its creditors. (Emphasis added). The requirement is related to the company‟s solvency and directors may be subjected to personal liability under section 588G if conditions stated therewith have been fulfilled. In Malaysia, in addition to the stringent procedures, there must be a solvency declaration by the directors that the company is solvent at the time of 40 Re Exchange Banking Co, Flitcroft’s Case (1882) 21 ChD 519 at 533. 41 Trevor v Whitworth (1887) 12 App Cas 409. 42 Trevor v Whitworth (1887) 12 App Cas 409 at 416. 43 See section 658(1) of the UK Companies Act 2006; section 67A of the Malaysian Companies Act 1965; section 257A of the Australian Corporations Act 2001. 44 Section 690 of the UK Companies Act 2006; the procedures are laid down in Chapter 4 of the Act; Part 2J.1 Division 2 of the Australian Corporations Act 2001. 158
purchase or will not become insolvent as a consequence of it. 45 The purchase must also made in good faith and in the interest of the company. 46 7.3.3.2 Give Financial Assistance for the Purpose of or in Connection with the Acquisition of its Shares or Shares of its Holding Company The rule against financial assistance was a product of a statutory reform recommended by the Greene Committee and was introduced in the UK Companies Act 1929. 47 The restriction on the company providing finance in order to assist another in purchasing its shares is akin to the company purchasing its own shares, hence depleting the company‟s capital. 48 However, in reality, it does not directly reduce the company‟s share capital and creditors will only be affected when assistance is given when the company‟s solvency is doubtful. 49 Shareholders, on the other hand, will be more affected since their shareholding will be diluted. In such a situation, when the company is on the verge of insolvency, there are other provisions deemed to be material to protect creditors such as directors‟ duties and insolvent and wrongful trading. 50 45 Section 67(2)(a) of the Malaysian Companies At 1965. 46 Section 67(2)(c) of the Malaysian Companies At 1965. 47 Davies above n32 at [13-26]. For historical background of the rule see also at [13-26]- [13-27]. 48 Section 67 of the Malaysian Companies Act 1965; Section 256A of the Australian Corporations Act 2001 and Part 18 of the UK Companies Act 2006. The Greene Committee considered the assistance offended against the spirit if not the letter of the rule in Trevor v Whitworth (1887) 12 App Cas 409. 49 Company Law Reform Modern Company Law for a Competitive Economy Company Formation and Capital Maintenance (1999, DTI, London) at [3.41]. at 20 March 2009. [The Company Law Review Steering Group Company Formation and Capital Maintenance]. 50 Ibid. 159
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http://researchcommons.waikato.ac.n
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ABSTRACT This study examines the le
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TABLE OF CONTENTS ABSTRACT i ACNOWL
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CHAPTER 5 THEORY OF THE CORPORATION
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7.3.3.3 Distribute its Capital to M
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10.2.5.1 Meaning of Insolvency 10.2
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10.6.2.2 Carrying on of any Busines
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CHAPTER 12 CONCLUSION AND RECOMMEND
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CLC Australian Company Law Cases CL
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Stanford LR Stanford Law Review Ste
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Facia Footwear Ltd (in administrati
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Re Avon Chambers Ltd [1978] 2 NZLR
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Re Produce Marketing Consortium Ltd
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Ultraframe (UK) v Fielding & Ors [2
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Mountford v Tasman Pacific Airlines
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Australia 3M Australia Pty Ltd v Ke
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Linton v Telnet Pty Ltd (1999) 30 A
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Malaysia Abdul Aziz bin Atan v Lada
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Perman Sdn Bhd & Ors v European Com
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Other Jurisdictions Singapore Rahj
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Companies Act 2006 Section 60(3)(c)
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Section 993 Section 993(2) Section
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Insolvency Act 1985 37, 70 Insolven
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Section 251 255 Part II Schedule 6
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Section 52(1) Section 52(2) Section
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Section 272(2) Section 272(2)(a) Se
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Section 385(4)(b) Section 385(4)(b)
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AUSTRALIA Absent Debtors Act (NSW)
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Section 206D(1)(b)(b)(ii) 374 secti
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Section 588FE(2)(a) Section 588FE(2
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section 588H (5) 241 Section 588H(6
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Section 598(3)(b) Section 598(3)(c)
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Bankruptcy Act 1967 MALAYSIA Sectio
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Section 130A(6) 391 Section 131 221
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Companies Regulation 1966 Regulatio
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CHAPTER 1 THE STRUCTURE OF THE THES
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A discussion of directors’ duties
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The far-reaching implication of cor
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2.2.1 The United Kingdom The common
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2.2.3 Australia Australia has been
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CHAPTER 3 LITERATURE SURVEY - AN OV
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shareholders, had failed to mitigat
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was mainly responsible for the chal
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3.3 Interests in the Company-Shareh
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contributed by the shareholders and
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Statutes have attempted to address
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how the matter should be dealt with
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4.2 Development of Corporate and In
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colonies. 14 The emergence of compa
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originally incorporated in order to
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usiness fraud. 42 In 1825, the Bubb
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Companies Act also reveals providin
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Companies Ordinance 1953 of Sabah a
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In 1977, the Cork Committee was app
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the Committee foresaw difficulty du
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operation and termination of a comp
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enforceability of security interest
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procedure, and dispensed with the o
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The creditors‟ protection princip
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shareholders and on personal bankru
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directors as trustees. 162 Members
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4.3.3 Development of Insolvency Leg
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In Australia, the government respon
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appointment of an administrative re
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the current statutes were not effic
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insist on protection to directors i
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and judgment to run the company. 21
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due to the difficulty in obtaining
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The Australian Law Commission in 19
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instead, enacted section 135 253 in
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4.5 Conclusion Malaysia, New Zealan
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CHAPTER 5: THE THEORY OF THE CORPOR
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needs someone to run it on its beha
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The implication of the decision is
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English decisions as guidance and t
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Shareholders who have to incur high
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interests of shareholders by maximi
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situation, directors have a duty to
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concluded purchasing goods from thi
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stipulates directors “may conside
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subsidiary and may continue to pros
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A holding company may use a subsidi
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section 187 of the Australian Corpo
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its holding company), act in a mann
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is just and equitable, to make an o
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Syndicates (NZ) Limited (in liq) 13
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a) Extent to which the Related Comp
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That the management did not differe
Page 177 and 178: equirement of insolvency and it doe
Page 179 and 180: The House of Lords in Woolfson v St
Page 181 and 182: subsidiary. Abdul Malik J held that
Page 183 and 184: defendant company. During a meeting
Page 185 and 186: Uniphoenix Corporation Bhd v Raymon
Page 187 and 188: justice alone is not sufficient; th
Page 189 and 190: lenders, employees, suppliers and c
Page 191 and 192: company and as the residual claiman
Page 193 and 194: The claim that shareholders‟ righ
Page 195 and 196: particularly lack of effective mana
Page 197 and 198: management of the companies. Credit
Page 199 and 200: players‟ interests intertwine wit
Page 201 and 202: important for directors to build lo
Page 203 and 204: Despite having included favourable
Page 205 and 206: at the intersection of a number of
Page 207 and 208: Directors must weigh any particular
Page 209 and 210: Directors will also enlist the serv
Page 211 and 212: Contractarians regard employees in
Page 213 and 214: terms to their liking, they either
Page 215 and 216: to boycott the company. 134 The com
Page 217 and 218: On the other hand, the duty owed to
Page 219 and 220: and experiences in order to dischar
Page 221 and 222: CHAPTER 7: A CONCEPTUAL ANALYSIS OF
Page 223 and 224: Economists divided real capital whi
Page 225 and 226: the transformation of shares as rea
Page 227: the company‟s ability to pay its
Page 231 and 232: available where special resolution
Page 233 and 234: The idea that maintaining share cap
Page 235 and 236: must be satisfied by the company in
Page 237 and 238: 7.4 Conclusion The doctrine of capi
Page 239 and 240: and once a resolution is passed, to
Page 241 and 242: The term 'insolvency' has also long
Page 243 and 244: equivalent to medical negligence ca
Page 245 and 246: meaning of inability to pay debts.
Page 247 and 248: It is important to distinguish as t
Page 249 and 250: long as the accounts give true and
Page 251 and 252: current assets must be taken stock
Page 253 and 254: cases the presumption of insolvency
Page 255 and 256: It is interesting to note in reachi
Page 257 and 258: CHAPTER 9 THE COMMON LAW DUTIES OF
Page 259 and 260: Voluntary creditors can be divided
Page 261 and 262: are not personally liable for any l
Page 263 and 264: confidence, a trustee who has been
Page 265 and 266: interests of various parties in the
Page 267 and 268: overriding duty is to the sharehold
Page 269 and 270: to look at the directors‟ purpose
Page 271 and 272: 9.3.3 Duty not to Fetter Discretion
Page 273 and 274: The decisions of the Federal Court
Page 275 and 276: case, directors should disclose the
Page 277 and 278: misconception that the case law and
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other reference as to the developme
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Australia and Malaysia have express
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out “ ...the judgment is in the b
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the prospect of success as well as
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judge adopted the principle of iden
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individual trading through a compan
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liability can be imposed on them wh
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liquidators when it is insolvent. C
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CHAPTER 10 DIRECTORS’ DUTY TO PRE
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Malaysia did not make any changes o
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interpretation of these provisions.
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sum of money that is owed or due.
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Hence, action can be brought agains
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Directors in Australia can be held
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to the director to prove that he or
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expect that the company was solvent
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In the case of Secretary of State f
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trading at a deficit. 64 In other w
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maintained in section 213 of the In
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not „a party‟ if he knew that m
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econcile the two judgments with one
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carrying it on (whether because of
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10.3.1.3 For any other Fraudulent P
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company. In this aspect, section 21
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to Australia and New Zealand which
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even though it was evident from the
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the steps taken were with the aim o
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decisions. 150 Therefore, directors
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The Law Commission proposed that th
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to reform the law, namely to reduce
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A similar issue was raised in the E
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The decision was later upheld by th
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10.4.3 Duty in relation Obligation
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fraudulent purpose.” 201 Although
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from the carrying on of the busines
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The first civil version of the inso
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amounts. 223 In Hussein v Good, 224
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of law of contract. The court must
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defendant. 244 Therefore, a directo
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additional capital, as well as a re
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trading without any other action ta
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Another defect of the section is in
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argue that there are reasonable gro
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10.6.2 Responsibility for Fraudulen
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Siow Yoon Keong v H Rosen Engineeri
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The courts have acknowledged that t
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The defendant in the case relying o
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To date, there have been few cases
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ability of the company to pay off i
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can be disqualified from taking par
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power to do so is an archaic equita
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is for a short period of time. This
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ights against the company are froze
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involves a situation where the comp
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11.2.3 Winding-up Liquidation is a
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11.2.3.1 Effects of Successful Avoi
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transactions, 59 the provisions cle
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11.2.3.1.2 Recovery from Third Part
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ecover the proceeds of sale or to p
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order. 83 If the value of the asset
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Without this class action, the unse
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the power to apply for a compensati
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defraud, which implies their culpab
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also be enforced by the company. 11
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The court has the power if it think
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contravention or pecuniary penalty
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discretion to order the director‘
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Marketing Consortium (No 2) 147 cle
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discovered that the director had en
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compensatory. 163 Damages are asses
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of causation similar to torts in as
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ecause the court considered that it
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It should be noted that Re Cyona Di
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11.3.7.2.3 Duration The court also
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contribution order is made to the
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This is similar to the case of frau
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company is using funds belonging to
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Since section 304(1) originates fro
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11.3.8.2 Problems of Enforcement/Pr
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However, extracting promise of inde
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In relation to an action against a
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Investments Commission is entitled
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The position in Australia has clear
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Disqualification on the grounds of
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As a result of the recommendations
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exercised by the Registrar or the O
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actions which are committed with a
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The court has to deduce evidence of
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11.4.2.1 Standard of Proof Disquali
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11.4.2.2 Court’s Order Section 6
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of disqualification. 322 However, t
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mitigating factors considered by th
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11.5 Other Remedies 11.5.1 Mareva I
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for under the Act. 348 The action p
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of trust or breach of duty in relat
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CHAPTER 12 CONCLUSION AND RECOMMEND
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The separate legal personality conc
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deemed to be an alien concept to Br
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positive action to minimize losses
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insolvent. In Malaysia, there is no
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BIBLIOGRAPHY BOOKS and ARTICLES AHM
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BENNETT, Howard, 'Late Floating Cha
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COBURN, Niall F, 'Insolvent Trading
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http://ssrn.com/abstract=988944 at
Page 487 and 488:
FISHER, Gregory, LEE , Janet and JO
Page 489 and 490:
GUNASEKARA, Gehan and TOY, Alan, 'L
Page 491 and 492:
HOPT, Klaus J., 'Comparative Compan
Page 493 and 494:
KEAY, Andrew and Murray, Michael, '
Page 495 and 496:
McCHESNEY, Fred S., 'Economics, Law
Page 497 and 498:
OTTOLENGHI, S, 'From Peeping Behind
Page 499 and 500:
ROSS, Mike, Corporate Reconstructio
Page 501 and 502:
SCHWARTZ, Alan, ‗A Normative Theo
Page 503 and 504:
WALTERS, Adrian, 'Void Dispositions
Page 505 and 506:
WORTHINGTON, Sarah, 'Subrogation Cl
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REPLIES TO EXAMINERS APPENDIX 1 Pag
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Page 220-it is asserted that direct
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What are the criteria for determini
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addition it provides incentive for
Page 515 and 516:
See also Secretary of State for Tra
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Most jurisdictions in Australia hav
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