Tutorial 5

Q1)
Identification of issues
Whether the common law duties were breached by Benny and David?
Whether Mary and Raymond may claim damages from Golden Gate Sdn Bhd?

Explanation of law
In Great Eastern Railway v Turner (1872) LR 8, a director is an agent for company and thus
owes a fiduciary duty towards the company. In the cases of Re W & M Roith Ltd (1967) 1 WLR
432, it states a director of a company shall at all times exercise his powers in accordance with
this Act (CA 2016), for a proper purpose and in good faith in the best interest of the company.
Refer to cases of Fairview Schools Bhd v Indrani a/p Rajaratnam & Ors (No 2)[1998] 1 MLJ
110, it states a director has a general duty to make disclosure on particulars relating to shares,
debentures, participatory interests, right, options and contracts. Director must make full and
frank disclosure. In addition, a director or officer of a company shall not, without the consent or
ratification of a general meeting. If director use any opportunity of the company which he
became aware of, in the performance of his functions as the director or officer of the company.
In Cook v Deeks [1916] 1 AC 554, it means director cannot take up the corporate opportunity.
Under cases of Voo Nyuk Fah @ Peter Tawau City Motors Sdn Bhd v Lam Yat Kheong & Anor
(2002) ML JU 224, it state a director or officer of a company shall not, without the consent or
ratification of a general meeting use the property of the company. In Paul A Davies (Australia) P
ty Ltd v Davies [1983] 1 NSWLR 440 cannot abuse your position to make your company funds
for your personal purpose. In Bell v Lever Bros Ltd [1932] AC 161, it refer a director or officer
of a company shall not, without the consent or ratification of a general meeting to engage in
business which is in competition with the company, to gain directly or indirectly, a benefit for
himself or any other person, or cause detriment to the company. In Aberdeen Railway Company
v Blaikie Bros (1854) UKHL 1, the director have to avoid putting himself in a conflict of interest
situation.
Application of law

Benny
In the cases, Benny bought the car for his wife to drive their daughter to school therefore he
bought the car 1.5 million is not related to company business it prove he was abusing the
company funds. It is similar to cases of Paul A Davies (Austialia) Pty Ltd v Davies [1983] 1
NSWLR 440, the director cannot misuse company’s funds. In Voo Nyuk Fah @ Peter Tawau Cit
y Motors Sdn Bhd v Lam Yat Kheong & Anor (2002) ML JU 224, Benny breached the duties by
letting the wife to use the car to send the daughter to school without the company’s approval and
this kind of action is not benefiting the company. In Fairview Schools Bhd v Indrani a/p
Rajaratnam & Ors (No 2)[1998] 1 MLJ 110, Benny did not get approval from shareholders to
buy the car and did not make the full disclosure.

David
Refer to the Cook v Deeks [1916] 1 AC 554, David set up a company and making use of
corporate information opportunity. Follow by cases of Bell v Lever Bros Ltd [1932] AC 161,
David set up the company to sell same products as Golden Gate (cannot compete with company).
He also put himself in a conflict of interest situation because as a director of Golden Gate he
must look after the interest of Golden Gate. On the other hand, the company with his brother s
family business which he is also expected look after the interest of this family business.
According to Aberdeen Railway A Blaikie Bros, he has to avoid this situation. In Fairview
Schools Bhd v Indrani a/p Rajaratnam & Ors (No 2)[1998] 1 MLJ 110, he also did not disclosure
to the shareholders and obtain shareholders approval.

Concluding advice

As the company director, Benny and David breached the common law duties and caused the firm
losses. Raymond and Mary can claim back from Benny the RM1.5 million on the car because
purchasing on the car is not benefiting to the company and not best interest in the company.
Other than that, Raymond and Mary also can claim back all the profit that David made in new
company because this action no approval from shareholders.
Q2)
Identification of issue
Whether Max, Ah Toi and David as directors acted in good faith and in the best interest of Elega
nce Fashion House Sdn Bhd?
Whether Max, Ah Toi and David has breached his fiduciary duty as a director?
Whether the contract to purchase the land from Joanne is valid under Section 228 CA 2016?
Whether the company can claim from the director for the losses?

Explanation of law
According to s.213(1) CA 2016, it represents that a company’s director should always exercise hi
s duties and powers for proper purpose in his good faith and in the consideration of the company’
s best interest. Based on section 218(1)(c) CA 2016, a company’s director or officer shall not mis
use his position to obtain benefits or advantages for himself without the consent of a general mee
ting. According to Section 221(1) CA 2016 , directors must disclose to shareholders in the contra
ct. According to Section 228(1) CA 2016, company cannot transfer or dispose substantial asset to
someone connected to the director. By referring to s.197(1)(a) of Companies Act 2016 (CA 201
6), a person shall be deemed to relate to a company’s director if that person is a member of the di
rector’s family. According to s.197(2)(a) CA 2016, a member of the director’s family means the
director’s spouse, parent, child, adopted child and stepchild, brother, sister, and the spouse of the
director’s child, brother or sister. According to S.228(2) CA 2016, it must get shareholders’ appr
oval, without approval, the transaction is void. According to S.228(8) CA 2016, value of the land
cannot more than RM250,000 or 10% of the company’s net asset value.

According to Section 221(12) CA 2016, if you did not disclose your interest, you are subject to
maximum RM3 million fine, or 5 years maximum jail term or both. According to Section 213(3)
CA 2016, if the director breached their duties, he will subject to maximum RM3 million fine, or
5 years maximum jail term or both. According to Section 228 CA 2016, if you breached your
duties because you go and have contract with someone connected to the director, you will subject
to maximum RM3 million fine, or 5 years maximum jail term or both. According to Section 198
(6) CA 2016, if the director is involving in dishonesty, then he will be disqualified to be a
director for 5 years.
Application of law
The piece of land was being purchased at RM3 million which the land can be initially purchased
at the prevailing market price of RM1 million. This property purchased at RM3 million which is
exceeded RM250,000, and all this is without the shareholder’s approval. The director actually
committed an offence. But for Max is more serious, Joanne who sold a piece of land to Elegance
Fashion House Sdn Bhd is deemed to connect with Max as she is the spouse of the director’s brot
her according to s.197(2)(a) CA 2016. According to Section 228 CA 2016, since the director did
not make disclosure to the shareholder and also did not get the approval, they have breached
their duty under the CA 2016.
Besides, by referring to s.213(1) CA 2016, Max did not perform his duties well in his good faith
and did not act in the best interest and the standpoint of Elegance fashion House Sdn Bhd. This is
because the contract was being done for the benefit of Max’s family but not for the benefit of the
company itself. Under s.218(1)(c) CA 2016, Max has agreed the contract between Elegance Fash
ion House Sdn Bhd and Joanne without the consent of a general meeting, and he obtained the be
nefits for himself from the business transactions with his family member .

Concluding advice
All the three directors fail to comply with the sections in CA 2016 for buying a piece of land abo
ve market value which cause company suffers losses. The company can apply to court to rescind
the contract to claim for damages and return of the land to Joanne. The company also can keep th
e land but claim for the RM2 million losses from Max. Max did not act in his good faith and in th
e consideration of the company’s best interest. Therefore, he has breached his fiduciary duty as a
director. All directors can be charged under all the sections in the explanation of law.
Q3.
Identification of the issue:
Whether Gongli as a non-Malaysian qualified to be a director in My Dream Home Design Sdn B
hd?

Explanation of law
According to Section 2 of the Companies Act (CA) 2016, a "director" is defined as "any person o
ccupying the position of director of a corporation by whatever name called," and "an alternate or
substitute director" is defined as "any person occupying the position of director of a corporation
by whatever name called."
S.196(1) CA 2016 stated that the appointment of directors of a private company shall have a min
imum of one directors. According S.196(4) CA 2016, the minimum number of directors shall ord
inarily reside in Malaysia by having a principal place of residence in Malaysia and shall not inclu
de an alternate or substitute director. S.196(2) CA 2016 mentioned that the appointment of direct
ors must be a natural person of at least 18 years of age.
According to S. 201 CA 2016, a Statutory Declaration must be signed by the directors and shareh
olders before they can register a company. A company must have at least one shareholder and o
ne director.
S.198(1) CA 2016 stated that a director will disqualification if he is an undischarged bankrupt,
he has been convicted of an offence relating to the promotion, formation or management of a cor
poration.

Application of law:
Gongli provides interior designing services to My Dream Home Design Sdn Bhd. My Dream Ho
use Design Sdn Bhd was formed in Malaysia, according to S.196(4) CA 2016, thus it's safe to as
sume that the business already has at least one director who is usually located in Malaysia. Accor
ding to S. 196(2) CA 2016, Gongli is a natural person of Chinese citizenship who is 18 years old
or older. Despite the fact that he is not a Malaysian citizen, Gongli can apply for a director positi
on because the CA 2016 does not specify the nationality of anyone who wishes to become a dire
ctor in a Malaysian company.
Gongli has not given his written agreement to be a director, and so, under S.201 CA 2016, a pers
on cannot be appointed as a director if he or she has not given his or her written consent to be a d
irector for a firm. Gongli must also declare that he is not disqualified to be a director of My Drea
m Design Sdn Bhd under S. 198 (1) CA 2016.
Concluding Advice
Gongli wishes to become a director at My Dream House Design Sdn Bhd. He make sure he is no
t disqualified for any reason under the CA 2016 before being appointed as a director. He must als
o ensure that he comply with S.196(4) CA 2016 if the company have directors already residing i
n Malaysia or not. If no then he must make sure he has his principal place of resident in Malaysia.