All C Law Issues

1, 2—LEGAL NATURE OF COMPANIES

• Which type of company is the best?

• Can the corporate veil be lifted and the owners be sued for liabilities? • The functions of company secretary and registered office? • The registers that a company is required to maintain?

3—PROMOTION, PRE-INCORPORATION CONTRACTS

• Can 3rd party sue company/promoter when company is not formed yet?

o S41(2)  Prior to ratification, person entering into contract in company’s name or on company’s behalf is bound by and entitled to benefit of contract unless express agreement to the contrary

• Can company enforce terms of the contract signed before its formation on 3rd parties?

o Only if it ratifies  once ratified, company can sue and be sued based on contract • Can sue the promoter?

o S41(2)  Prior to ratification, person entering into contract in company’s name or on company’s behalf is bound by and entitled to benefit of contract unless express agreement to the contrary

o Upon ratification, whether promoter is bound is not stated in CA • Remedies for company?

o Rescission  any bars to rescission?

o Secret profit (only if property does not belong to promoter)

4, 5—CORPORATE CAPACITY, COMPANY CONSTITUTION

• Can 3rd party sue company for an ultra vires act? (OR can company claim that an act was ultra vires and that contract is not valid?)

o S 25(1)  3rd party can enforce obligation by the company created by an ultra vires act

o S 25(2)  Liquidators/members/agents can sue directors for ultra vires act • Can amend article in the constitution?

o General procedure to amend article  special resolution at GM o Check if got any EP

o Obstacles to alteration  (1) Not bona fide (2) If alteration requires to take or subscribe for more shares…

• Can a member enforce his members’ rights against other members?

o S 39  Members can enforce his rights against other members under the M&A which is a statutory contract

• Can enforce non-members’ rights in the constitution? o Non-members’ rights (e.g. perks, entitlement to air tickets) o Eley’s case  not clear if it applies in Singapore

o However, possible that the right as stated in Constitution was incorporated in employment contract  enforce by claiming breach of employment contract

o Must also determine if (1) terms of contract incorporates terms of constitution (2) terms of contract change with change of constitution?

• How to secure position as director (a non-member right) or protect one’s interests? o Shareholder’s agreement  e.g. Roger and Quincy must vote for him as director o Employment contract  e.g. terms of employment, compensation for termination,

remuneration terms

o Be a shareholder  to be able to enforce his rights in constitution (assuming Eley’s case apply)

o Pass resolution to include EP  to protect provision saying Sam is director (assuming Eley’s case apply)

6,7—MEMBERSHIP, SHARES AND INTERESTS IN SHARES, CLASS RIGHTS

• Prepare Register of Directors’/CEO’s Shareholdings o How much registered shareholdings? o How much deemed interest? ▪ S 7(4), S 7(4A)

▪ S 7(5) Definition of associate for purpose of S 7(4) ▪ S 7(6) What constitutes deemed interest?

▪ S 7(9) What does not constitute deemed interest? • Can issue additional preference shares?

o Is it a variation of class rights? S 74(6) Yes, issue of pref shares parri passu is deemed variation

o Procedures to comply with MOR clause o Procedures to issue new shares?

▪ For shares with no voting rights  S A(3) special resolution ▪ For shares with voting rights  S 161 ordinary resolution

• Can amend rights to Class A shares in the constitution? (e.g. change dividend 5% to 3%)

o Is it variation of class rights?

o Procedures to comply with amendment of MOR clause

o General procedure to amend article in constitution  S26 special resolution at GM • Can amend MOR clause?

o Is it variation of class rights? Yes, S 74(7) amendment of MOR is deemed variation o Procedures to comply with amendment of MOR clause

o General procedure to amend article in constitution  S26 special resolution at GM • What are avenues of relief for affected shareholder?

o S 74(1)-(5)  min 5% of total no. of issued shares of that class, must have MOR o S 216  no min, no need for MOR

• If got EP that protects rights of a Class of shares o Then comply with procedures in EP additionally o Or remove EP  only if all members agree S26A • Converting Class A shares to Class B shares—S74A

o Check if constitution authorizes conversion of one class of shares to another o Check if rights of Class B shares are set out

o Conversion amounts to variation of Class A rights (because Class A is pref shares)  need Class A consent

o Conversion amounts to variation of Class B rights (because Class B is pref shares)  need Class B consent

o Pass special resolution for conversion of shares as required by S74A • Want to amend Table A, Article 4 o By nature, Article 4 is a MOR clause

o Amendment of Article 4 is deemed variation of class rights o Need to seek 75% of Class A, 75% of Class B

o General procedures to amend article in constitution  S 26 special resolution in

GM

8,9—CORPORATE ORGANS, LAW OF MEETINGS, CORPORATE CONTRACTING

• Is there procedural irregularity? o Identify the irregularities

o Determine using Aim and Purpose test whether (1) Procedural injustice or (2) Substantive injustice

▪ Aim and purpose test

• Gives right/entitlement  substantive injustice

• Merely a manner of carrying out  procedural injustice ▪ If substantive injustice, resolution is invalid

▪ If procedural injustice, determine whether got substantial injustice using Thio Keng Poon case 3 points:

• Link between procedural irregularity and injustice • Injustice must be substantial

• May have a different result, but not to show certainly a different result • Corporate contracting o Is there actual authority? ▪ Express

▪ Implied  (1) Acquiescence (2) By position o Is there apparent authority? ▪ Representation to company

▪ Representation made by person with authority ▪ Reliance on representation

o Can 3rd party use indoor management rule to argue for “reliance on representation”? No if… ▪ Third party knows agent lacked authority

▪ Third party is insider (e.g. director or officer of company) ▪ Third party is put on inquiry by nature of transaction

o Can 3rd party enforce contract if directors give authority to someone to enter contract when in fact they do not have the right to do so (e.g. need prior approval of shareholder to authorize…) ▪ S 25B—In favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorize others to do so, shall be deemed to be free of any limitation under the company’s constitution  Company is not bound to enquire about directors’ powers

o Can PSPL who enters into a contract with 3rd party (who is a company owned by son of PSPL’s director) avoid enforcement of the contract? ▪ S 25C—For transactions whose validity depends on S25B, if the parties to the transaction include (i) a director of the company or of its holding company, or (ii) a person connected with any such director, the transaction is voidable at the instance of the company

10—INTRODUCTION TO CORPORATE GOVERNANCE

11—OFFICE OF A DIRECTOR

12, 13—DIRECTOR DUTIES (PART 1)

• What are the possible breaches of duties that a director is liable for? o Duty to act with reasonable care and diligence ▪ Objective test ▪ Subjective test ▪ Delegation & reliance ▪ Business judgment rule ▪ S 157(1)

o Duty to not engage in wrongful/reckless trading  ▪ S 339(3)

▪ Business judgment rule

o Duty to act in good faith in the interests of the company

▪ Whose interests  are these interests aligned with company’s interests? ▪ Objective test  “honest and intelligent man” test ▪ S 157(1)

o Duty to retain discretions / not to fetter discretions  usually linked to shares ▪ Duty to act for a proper purpose  usually for issue of shares ▪ 2-step analysis under Howard v Ampol

• What is the power in question? Legal purpose which power may be used?  as stated in constitution and 157(1)

• What is the actual purpose for which the director exercised the power?  use facts of case, AND analyze intention

▪ Proper or improper purpose? ▪ The power to issue shares

• Can director be “excused” from liability arising from breach of duties? o Yes  Ratification by members’ ordinary resolution EXCEPT

• Can director exempt himself from liability for breach of duties? o No  S 172(1) and (2)

o Yes  S 172A Can purchase insurance for liability arising from breach of duties o Yes  S 172 B Can give indemnity to officer for liability incurred by officer to persons other than the co EXCEPT

14,15—DIRECTOR DUTIES (PART 2)

• What are the possible breaches of duties that a director is liable for? o Duty to avoid conflict of interests