Doctrine of Ultra Vires Effect on Malaysian Company Law

Doctrine of Ultra Vires victoriouss on Malaysian telephoner rightDiscuss the doctrine of radical vires and its effect in Malaysian conjunction Law.According to s18 Contr dress operate 1965, every keep social club formed should have got a account printed and split up into paragraph and with the date stated. In s18 (b) Contr figure make for 1965, it acquaints that the requirement of the record of Association (M/A) required a statement of design article. The object clause can be used to describe the nature of the business such as manu occurrenceuring business, merchandising business or service business. Besides, it besides show the federation power, its purpose and the legal capacity of the high society.1Furthermore, the purpose of the object of M/A should be pr numberice of rightfulnessful as stated in s14 (1) phoner turning 1965. The consequence of unlawful purpose and incompatible to peace, welf atomic number 18, security, public position, impregnable laun ch or morality in Malaysia will be recording machine of Company will refuse for the registration of the phoner as followed to s16(8)(a) Company comprise 1965.As it has been stated that object of M/A social occasion as recognize the legal capacity of the follow, in the same time, it has restrict the gild which it require the keep company to act based on the statement. If the process of the company is different with the object of M/A, radical vires will be recognized. Ultra means beyond whereas vires means power where immoderate vires happened when an act is against the object clause. Although the company want to ratify the act, the act is demoralise at initio. This can be further explained by the super C law and statue.However, if the company wants to prevent revolutionary vires, the company must alter the object clause. there are certain requirement as stated s28 Company Act 1965. In s28 (1) Company Act 1965, it stated that alteration can be made based on a picky res olution. Besides, by memory this special resolution, divisions and debentures carrier of the company should be given 21days of nonification to the special resolution as according to s28 (2) Company Act 1965.Common LawThe doctrine of ultra vires chthonic common law refers to the rules that company must act at heart their objects clause that is stated in the memorandum of association. whatever activity that is distant from the company capacity is void. N all the company nor the leash caller could enforce this. In other words, ultra vires act is void and the castrate can non be ratified even if the company wishes to. Under common law, the companys look at is void cod to internal or external context. Externally, when a third base party peg downing with a company, if the bid was not fulfill the objects of company that stated in memorandum of association, and indeed the contract was ultra vires and void. Internally, if the company and the handler enter into an ultra vi res contract, the company may immediately stop the act of the director and claim return from the director who br all(prenominal) his fiduciary duties by entering into the contract which is external from the companys capacity. If the company could not fulfill the main object in their memorandum, then they would have to be wound up.According to Ashbury railroad line passenger car Iron Company v Riche (1875) LR 7HL 653, the case stated that the companys objects in their memorandum was to make, sell and hire railroad carriages. The company entered into contract with Riche and the contract was approved by the shareholders at general meeting, then the company agreed to give Riche and his brother a loan to figure of speech a railway in Belgium. After that, the company changed their mind and refused the agreement. Riche marchd the company. The woo held that the construction of a railway was ultra vires, because construct a railway was not stated in their companys memorandum of asso ciation. Thus, the contract is void because the construction of a railway is outside from the company capacity. Furthermore, since it is outside from the company capacity, so the company could not ratify the contract. Therefore, ultra vires pull through and the contract is void even if all of the shareholders approved the contract.From Ashbury Railway Carriage case, we can behold that the company could not sue or be sued by the third party for not performing the contract. This is because the contract is cipher and void. Thus, the company could annul for not performing the contract and could not be sued by the third party because it is outside form the companys capacity. Although it seems unfair for the other party but the object clause of a company is for sale at public for inspection. The other party should have checked whether the company has the capacity to enter into contract with them or not. necessity to say if company itself can sue the director and SH?Shareholders pay slight concerned on the corporation on how the director corporate as long as the business generates dividend to them. However this will put the creditor in high risk. This is because if the creditors credit sales the goods and services to the particular company, and the company has bankrupt in later dates, the creditor could not claim any debts. Common law stated that an ultra vires act is null and void to protect the member or the creditors of the company who has invested the money into the company and expect the investment is plainly used for the companys business.According to Cotman v Brougham (1918) A.C. 514, the objects clause of company contained 30 sub clauses, however, the first sub clause stated the company to develop rubber plantations. In the fourth clause, it empowered the company to hold in any shares of any company. Besides, the memorandum likewise stated that each sub clauses acts as the individual objects for the company. The company down the stairswrote and h ad allotted to it shares in an fossil oil company. After that, the oil company wound up and their company was on the list of contributories. The question arose is that whether this is intra vires the companys objects. The coquet held that the 30 independent object clause in the rubber companys memorandum was an independent. Hence, the power to deal with the share in an oil company was within the legal power. Therefore, the company is reasonable for the underwriting.From the Cotman case, the company did not clearly mend the main object where constitution of Memorandum are not bound by using plain business language. Companies could no longer avoid a contract based on the grounds that it was beyond the company objects which they have been done in the traditional ultra vires doctrine. This has increased a wider range of object clauses in the Memorandum as a go forth of each sub clause is independent which are not coordinated with the main clause. Hence, the object are not restric ted to review on the main clause. This has rendered the companies to introduce a standard type of object clause to render almost all potential commercial objectives intra vires.Position under Companies Act 1965According to s20 (1) of Companies Act 1965, any act or give of property that made by the company shall not be disenable with the reason that company dont have the power or capacity to do act. The effect for this section is transaction will bring forth irrelevant with the fact that the company did not have the capacity to enter into it, even though a certain transaction is otherwise valid. Besides, the company can sued or be sued as acts against its object clause.In order to protect the amuse of the shareholders and creditors, s20 (2) Companies Act 1965 has provided the remedies to restrain the ultra vires act. According to s20 (2) (a) Companies Act 1965, company is liable if a member of the company or the company itself has issued the debentures are available with a floati ng post. The shareholders and debenture holders can sue the company for the taking any action outside the company and they can claimed the compensation from it.Besides, it also stated that the relief of s20 Companies Act 1965, the ultra vires only apply to particular someone and not an outsider as refer to Pamaron Holdings Sdn Bhd v Ganda Holdings Bhd 1988 3 MLJ 346. According to Pamaron Holdings Sdn Bhd v Ganda Holdings Bhd case, the complainant and the Defendant entered into an agreement for sale and secure of shares in a private limited company. The Defendant defaulted in the pay of the purchase price and the plaintiff applied for summary judgment against it. In opposing the application, the suspect proclaim that among the transaction was ultra vires the plaintiff company. Allowing the application, the court held that under s.20 a person other than a debenture holder or the minister may not raise ultra vires. The defendant being an outsider and not a debenture holder or the minister had no right under the section. The Defendant was liable for not being able to settle the payment of the purchase price. The Defendant also didnt purchase any shares or debentures from the Plaintiff Company, thus it cannot raise ultra vires. Defendant should purchase the shares or debenture from the plaintiff in order for the defendant have the right to raise ultra vires.From this case, only the person that are sufficient proximate to the company can apply ultra vires. Ultra vires is an actionThis act will only available to the contract that has been entered, yet to be holy as refer to the Hawkesbury Development Co Ltd v drainage area finance Pty Ltd ( 1969 ) 2 NSWR 786. According to Hawkesbury Development Co. Ltd v Ladmark Finance Pty Ltd case, Plaintiff holds all of the shares in the Landmark Finance Pty Ltd. Landmark Finance has issued two debentures to United Dominion Corp (UDC). A pass along has been sent to court by Plaintiff about declaring both(prenominal) debe ntures to be invalid due that it is a company object ultra vires. Plaintiff also request that the court to prohibit the enforcement of UDC of the debentures. However, application that request by the plaintiff is rejected and the approval of court to void the declaration of the UDC had failed to be obtained. Due that the plaintiffs are the shareholders of the Landmark Finance, the application should make to Landmark Finance instead of UDC is a third party.If the company is make the act of ultra vires by issuing the debentures to the outsiders, the shareholders or debenture holders have the right to sue the company. However, s20 (2) (a) Companies Act 1965 does not given its protection to debentures holders that secured by float charge and creditors who did not have any charge.According to s20 (2) (b) Companies Act 1965, military officers are in person liable for any action taken by member of the company or the company itself. The shareholders or the company itself can sue the office rs either former or current that who committed any Ultra Vires proceeding which must be completed and realized. However, if any law suit against the officer will not affect the validity as stated in s20 (1) CA 1965, the act will be valid to the ground.According to s20 (2) (c) Companies Act 1965, any petition that may conducted by the Minister to the court to reverse up the company that had committed ultra vires actions. The court will conducted its apprehension when the company has changed the business totally from its original business.According to s20 (3) Companies Act, if any party has suffered any damage or divergence due to the unauthorized act or transfer is yet to be performed and to be restrained under s20 (2) Companies Act 1965, the parties who have sustained the damage can be compensated.By comparing the common law and Companies Act 1965, under the doctrine of ultra vires, it is prefer to go for common law. This is because, under common law, the act of ultra vires is nu ll and void, so the company could avoid for not performing the contract which is outside from their capacity. Besides, the company could not sue or be sued by others party just because they did not perform the contract. However, under the Companies Act 1965, it provides completed transactions remain valid as between the company and the third party and both of the party may sue each other. lets compare the case of Ashbury Railway Carriage Iron Company v Riche under common law and the case of Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd under Companies Act 1965, we can see that under Ashbury case, the ultra vires are meant to protect the company by elimination the contract because it is outside the companys capacity. The other party could not sue the company although they had entered into the contract because ultra vires exist. Whereas, under the Hawkesbury case, the plaintiff failed to restrain the debentures to the third party although it is a company object ultra vir es because the plantiff are the shareholders of the Landmark Finance and it should make declaration to Landmark Finance instead of the third party.ConclusionFor under the common law, the contract entered by the director of the company or the company itself is ultra vires, the contract is find outed void due that it is beyond the companys capacity to perform it. If the contract made by the company with the third party is not fulfill the objects of the company that stated in memorandum of association also considered as ultra vires thus become void. When the contract has become void, the company could not sue or be sued by the third party for not performing the contract.For under the Companies Act 1965, any act that made by the company cannot be declare as invalid by using incapable to perform the act as an excuse. The transactions still remain valid between both the company and the third party that they may able to sue or be sued by each other. Thus, both companies and the third par ty should consider the capabilities of the company to perform the any act from the contract in order to avoid any ultra vires that may happen and cause the loss to the creditors, shareholders, debenture holders or any related parties.1 Pg 205 principle of business law and corporation