Paper 2.

2(MYS)
Corporate and
Business Law
(Malaysia)

PART 2

TUESDAY 7 DECEMBER 2004

QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A SIX questions ONLY to be answered

Section B TWO questions ONLY to be answered

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination

hall

The Association of Chartered Certified Accountants

Section A – SIX questions ONLY to be attempted

1 Sources of Malaysian law comprise both written as well as unwritten law.

Explain these sources.

(10 marks)

2 (a) Explain the term ‘consideration’ in relation to the law of contract. (3 marks)

(b) Explain, with reference to the Contracts Act 1950, what are the exceptions to the rule that contracts without
consideration are void. (7 marks)

(10 marks)

3 With reference to the Partnership Act 1961 define a partnership and explain its main elements.

(10 marks)

4 (a) An agent is in a fiduciary position towards the principal and as such he has a duty not to make any secret profit
out of the performance of his obligations.

Explain this duty. (3 marks)

(b) Discuss the remedies available to a principal when the agent has breached his duty not to make a secret
profit. (7 marks)

(10 marks)

5 Where there has been a breach of contract, the aggrieved party has recourse to a number of remedies.

In this context, explain the nature and scope of the following remedies:
(a) Injunction. (5 marks)

(b) Damages. (5 marks)

(10 marks)

6 In the context of employment law:

(a) Explain what is meant by ‘constructive dismissal’. (4 marks)

(b) Discuss the remedies available to an employee who has been unjustifiably dismissed. (6 marks)

(10 marks)

2
7 Whilst generally respecting the corporate principle, the courts have nevertheless been prepared to cast it aside in a
number of situations, in the interest of justice and equity. A number of statutory provisions have also provided for the
casting aside of the corporate veil, in certain situations.

Explain the corporate principle and any FIVE situations where the veil of incorporation may be cast aside.

(10 marks)

8 (a) Explain briefly how a company may reduce its capital under the Companies Act 1965. (4 marks)

(b) Critically consider whether creditors who might be prejudiced by such a reduction are adequately protected.
(6 marks)

(10 marks)

3 [P.T.O.
Section B – TWO questions ONLY to be attempted

9 (a) Five years ago, Jamie, an orphan then aged 16, wanted to pursue a degree course in music. Her uncle, Charles,
who had looked after her since her parents passed away when she was 14, offered to pay for her studies on
condition that upon her graduation she would work in his music studio for a minimum period of two years or
alternatively, reimburse him a fixed sum of RM100,000. She agreed and a formal contract was signed between
them.
She has now completed her studies and has been offered a lucrative job with an international college of music.
She does not wish to work for her uncle nor reimburse him the sum of RM100,000 and seeks your legal advice
as to the validity of the contract.

Required:
Advise Jamie. (5 marks)

(b) On 2 January 2004, Ali wrote a letter to his friend, Bakar, offering to sell to him (Bakar) his durian orchard for
RM1 million. The letter expressly stated that Ali would keep the offer open for seven days. This letter reached
Bakar on 3 January 2004. On 4 January 2004, Ali changed his mind and sent a letter to Bakar revoking his
offer. On the same day Bakar sent a letter to Ali accepting his offer. Ali’s letter of revocation reached Bakar on
6 January 2004. Upon receiving the letter Bakar immediately telephoned Ali informing him that he accepted his
(Ali’s) offer and reminded Ali that Ali could not revoke his offer as he (Ali) had promised to keep the offer open
for seven days.

Required:
Advise Bakar whether a valid contract has arisen between him and Ali. (5 marks)

(c) Maniam entered into a contact with Chong under which he agreed to sell to Chong, ‘200 packets of first class
seeds ready for planting’.
No seeds were delivered to Chong. Chong wishes to sue Maniam for breach of contract.

Required:
Advise Chong on his chances of success. (4 marks)

(d) Darul wanted to renovate his house and entered into a contract with AB Contractors Sdn Bhd for this purpose.
Under the terms of the contract the contractors agreed to do the following renovations according to given
specifications:
(i) Extend the kitchen
(ii) Re-tile the floor of the entire house
(iii) Construct an additional room and
(iv) Re-construct the ceiling.
The total cost of renovation was agreed at RM80,000. After the construction of the additional room and the
extension to the kitchen, the foundations of the house gave way due to poor soil conditions causing the entire
house to collapse. The contractors are now demanding payment for the work already done, amounting to
RM50,000. Darul refuses to pay.

Required:
Advise AB Contractors Sdn Bhd. (6 marks)

(20 marks)

4
10 (a) Anjali and Banu decided to form a company to be called Anba Sdn Bhd (the company). After the relevant
documents for registration had been submitted to the Companies Commission of Malaysia but before the
company obtained its certificate of incorporation Anjali purchased a piece of land from Chong at a bargain price
of RM70,000 (the market value of the land was RM100,000). After the company was formed, she sold it to
the company for RM100,000 without disclosing her purchase price. The company has now discovered the true
facts and wishes to rescind the sale, or alternatively, claim from Anjali the profit of RM30,000 which she made
on the sale.

Required:
Advise Anba Sdn Bhd. (10 marks)

(b) A week before the company obtained its certificate of incorporation, Banu acting on behalf of it, entered into a
contract with Suria Sdn Bhd, whereby Suria Sdn Bhd was to supply RM20,000 worth of stationery to the
company. After the company’s incorporation, it refused to honour the contract.

Required:
(i) Advise Suria Sdn Bhd as to whether it can enforce the contract against the company, or alternatively
against Banu personally. (8 marks)
(ii) State whether it would make any difference to your answer if the contract contained a clause, which
stated that Banu was not to incur personal liability for breach of the contract. (2 marks)

(20 marks)

11 Three months ago, Jenny, Kenny, Lam and Mani were appointed as the directors of Superhomes Construction Sdn
Bhd. Kenny, Lam and Mani hold 30% of the company’s issued shares. Jenny does not hold any shares at all. The
company’s main activity is the construction and renovation of houses. The company’s articles of association state,
among other things, that all directors must acquire and hold at least 10,000 shares in the company.
Last month, Jenny entered into a contract on behalf of the company with Nazri for the renovation of his house at an
agreed price of RM250,000.
Last week Kenny, who recently celebrated his 73rd birthday, was required by the board of directors to negotiate a
contract for the building of five dwelling houses, with Datuk Roo Mah. Kenny successfully concluded the deal at a
price of RM3 million.
Ozimi, a minority shareholder, who had voted against the appointment of all the present directors because she
doubted their competence and capability, has now discovered that Lam was convicted for reckless driving and
sentenced to three years imprisonment. He was released from prison last year. Further, she has also found out that
Mani has been a director of a number of companies in the last five years. Each of those companies is now in insolvent
liquidation.

Required:
Advise Ozimi, who wishes to know:
(a) whether each of the directors may be disqualified from acting as a director on any ground under the
Companies Act 1965. (14 marks)

(b) whether, in the event Jenny and Kenny are disqualified to act as directors, the contracts entered into by them
on behalf of the company can be invalidated on the ground that they were so disqualified. (6 marks)

(20 marks)

5 [P.T.O.
12 Tra Bell Sdn Bhd was established in the year 2001, specializing in event management. Until the end of 2002 it was
quite successful and made reasonable profits. However, in the year 2003 the company faced problems in securing
sufficient contracts in the light of severe market competition. In order to withstand the competition, the directors of
the company decided to allow clients a 90 day credit. The company then resorted to heavy borrowing.
In February 2003, it borrowed RM100,000 from one of its own directors, Mr Las Risot. This loan was unsecured.
In May 2003 it borrowed RM500,000 from Fine Finance Bhd, on the strength of a debenture secured by a floating
charge over all the company’s assets and undertaking. This charge expressly stated that the company was prohibited
from creating any other charge, whether fixed or floating, on all or any part of its assets.
In August 2003 the company borrowed a further RM200,000 from Samokesh Bank. This loan was secured by a
fixed charge on the company’s office premises.
In January 2004, the company needed more operating capital and borrowed RM300,000 from Freeloan Bank. This
loan was secured by a floating charge on all the assets and undertaking of the company. It was an express term of
this charge that it was to rank in priority to all other floating charges created by the company.
In July 2004, the company fell deeper into debt by borrowing a further sum of RM200,000 from its director, Mr Las
Risot. As security, the company issued Mr Las Risot a debenture for RM300,000 (taking into account the loan of
RM100,000 given by Mr Las Risot in February 2003), secured by a floating charge on its book debts.
Last week, a winding up order was made against Tra Bell Sdn Bhd. A liquidator has been appointed. The company’s
liabilities far exceed its assets.
The liquidator seeks your advice on the order of priority in which the above debts are to be paid.

Required:
Advise the liquidator.

(20 marks)

End of Question Paper