Explain whether a third party is required to have constructive notice of the contents or requirements of a company’s constitution: corporate law Assignment, VUC, Malaysia


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corporate law Assignment

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Individual Written Assessment – Corporate Law

Syarikat Best Gas Sdn Bhd (“Best Gas”), is a registered gas contractor which handles LPG (liquified petroleum gas) gas stove and piping needs of commercial and industrial food processing kitchens in the Klang Valley. The company’s place of business is in Petaling Jaya, Selangor. Best Gas’ directors are Charles, Daud, Ellango, Fuad and Gerald.

Charles is the Managing Director of the company. Except for Gerald (who did not hold any shares), the other four directors are also shareholders. There are ten (10) other shareholders.
Best Gas was incorporated in January 2015, under the previous Companies Act 1965. Its memorandum and association (constitution) adopted Table A of the 1965 Act, with the following modified provision: Clause 20A – All contracts must be signed by the Managing Director, and the Managing Director must be authorized by the Board of Directors.

All five (5) directors jointly managed Best Gas’ business. As per the requirements of Clause 20A, all contracts were left to Charles to sign.
Gerald, an executive director, joined Best Gas six (6) years ago. His contract of service with Best Gas provided that Gerald agreed not to solicit Best Gas’ clients upon leaving his employment.

Around March 2023, Gerald met his ex-classmate, Hamdan, who is the Managing Director of Syarikat Indah Paradise Sdn Bhd (“Indah Paradise”). Indah is a company that runs a chain of restaurants throughout Malaysia. Hamdan suggested to Gerald to try to get Best Gas to provide gas piping installation and services to Indah Paradise’s chain of restaurants.

On 15-3-2023, Gerald forged Charles’ signature to sign a contract on behalf of Best Gas with Indah Paradise (“the Indah Paradise contract”). The contract stated that Best Gas agreed to
provide gas piping installation and maintenance services to Indah Paradise for a period of five (5) years.
Gerald asked Hamdan to pay Best Gas a “service deposit” of RM50,000/-. Gerald gave a bank account to Hamdan. The next day (16-3-2023), Hamdan, on behalf of Indah, transferred the amount of RM50,000/- to the said bank account. Although Hamdan noticed that the bank account belonged to Syarikat Johan Gas Sdn Bhd (“Johan Gas”), he thought that both
companies were related companies. On 29-3-2023, Gerald submitted a resignation letter to Best Gas’ board of directors. He cited a personal emergency as his reason for resignation, and the resignation was to take effect on 31-3-2023. Best Auto’s board accepted Gerald’s
resignation in good faith.

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During a board meeting on 2-5-2023, Charles informed the board that Indah Paradise had written to Best Gas to instruct Best Gas to send a team to Kuching (Sarawak) to provide onsite service to Indah Paradise’s branch restaurant there. Charles told the board that he had denied that Best Gas had signed any contract with Indah. Charles also argued that Best Gas was not bound by the Indah contract since the contract did not comply with Clause 20A of the constitution. Indah Paradise, in turn, demanded a return of the service deposit amount of RM50,000/-.

Charles also informed the board that Gerald’s wife, Katherine, had registered a company, Syarikat Johan Gas Sdn Bhd, on 15-2-2023. Gerald was not listed as a director or shareholder of Johan Gas. Instead, Johan’s directors and shareholders were Katherine and Katherine’s friend, Lenny.

Daud and Ellango then stated that a few customers had stopped dealing with Best Gas since March, and these customers had mentioned Johan Gas as their new service provider. Best Gas’ directors wished to prevent Johan Gas from continuing to solicit business from its customers.

Answer the following questions with reference to the Companies Act 2016
and/or relevant cases.

(a) Explain whether a third party is required to have constructive notice of the contents or requirements of a company’s constitution and whether he needs to know of the company’s internal procedures. (10 marks)

(b) Discuss whether Best Gas is bound by the contract with Indah Paradise and whether Best Gas is bound to refund the service deposit amount of RM50,000/-. (8 marks)

(c) Give FOUR (4) suggestions on what should have been done by Hamdan on 15-3-2023 when Indah Paradise made a contract with Best Gas and when Hamdan was asked by Gerald to pay Best Gas a “service deposit”. (8 marks)

(d) Assume that Best Gas wishes to resolve its dispute with Indah Paradise peacefully by offering to enter into a fresh contract with Indah Paradise. Give THREE (3) suggestions on the terms that Best Gas may include in the proposed fresh contract. (6 marks)

(e) Assume the following different facts: There was a defect in Gerald’s appointment as a director of Best Gas. This fact was not known to anyone in Best Gas or Indah Paradise
at the time when the Indah Paradise contract was made on 15-3-2023.
(i) Explain whether the validity of a director’s act is affected by any defect in his
appointment or qualification. (4 marks)
(ii) Discuss whether Gerald’s act of signing the Indah Paradise contract was valid.
(4 marks)

(f) Discuss whether Best Gas can obtain an injunction against Johan Gas to restrain the latter from continuing to solicit business from Best Gas’s customers. (10 marks)

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