Memorandum and Article of Association

MEMORANDUM AND
ARTICLE OF ASSOCIATION

GLUL3033 - memorandum & Article

1

THE COMPANY’S
CONSTITUTION


2

Memorandum: Objects and powers
Object clause contains the objectives or
purpose of the incorporation of the company.
Object clause identifies the activities in which
the company wishes to engage in.
Object v powers?
Anything outside the objects and powers of a
company is ultra vires.
The effect of ultra vires differs under the
common law and Companies Act 1965


3

Memorandum: Objects and powers
Public Bank Bhd v Metro Construction Sdn Bhd
[1991] 3 MLJ 56
3 main types of provisions in object clause:
Main or independent objects;
dependent objects; Bell Houses Ltd v City Wall
Properties Ltd [1996] 2 QB 656
powers

Attorney-General v Great Eastern Railway Co
(1880) 5 App Cas 473
Arab-Malaysia Finance Bhd v Meridien International
Credit Corp ltd London [1993] 3 MLJ 193


4

Doctrine of ultra vires under the Common
Law
Any

ultra vires act by a company is void

◦ Ashbury Railway Carriage & Iron Co. lwn Riche
(1875) LR 7 HL 653
A

company may not enforce an ultra vires
contract
◦ Re Jon Beauforte (London) Ltd [1953] Ch 131

A

company may not sue the parties under an ultra vires
contract
 A third party acting bona fide cannot rely on the ground that
he has no notice of the company having no power to act.
 A company acts within its object but power had been illegally
exercised. Re Introduction Ltd [1970] Ch 199

5

Lessening the strictness of the
doctrine of ultra vires
Cotman

v Brougham [1918] AC 514
Bell Houses ltd v City Wall Properties ltd [1966] 2
QB 656
HA Stephenson & Son Ltd v Gillanders Artbuthnot
& Co (1931) 45 CLR 476


6

The doctrine of ultra vires under the
Companies Act 1965
The

doctrine has been modified by S 20(1) – If a
transaction is valid, it is immaterial if the
company did not have the capacity to enter into
it.
S.20(1): “No act or purported act of a
company…. and no conveyance or transfer of
property.. to or by a company shall be invalid
by reason only of the fact that the company was
without capacity or power to do the act or to
execute or take the conveyance or transfer”.
S 20(1) strikes down the effect of ultra vires
doctrine.

7

The doctrine of ultra vires under the
Companies Act 1965
 Exceptions:

The ultra vires doctrine is however applicable
under these 3 circumstances –
 S.20(2)(a)

◦ “.. In proceedings against the company by any member, holder of debentures
secured by floating charge or the trustee of those debentures to restrain the
doing of any act or acts or the conveyance or transfer of any property to or by
the company;

◦ Hawkesbury Development
◦ Pamaron Holdings Sdn Bhd lwn Ganda Holdings Bhd

S.20(2)(b)
◦ “.. In proceedings by the company or by any member of
the company against present or former officers of the
company”; and
SS.20(2)( c)
◦ “.. Any petition by the Minister to wind up the company”.


8

Alteration of object clause


9

Alteration of the memorandum
S.21(1)

– the memorandum may be
altered only in accordance with the Act
Alteration of name[s.23]
Alteration of capital [s.62 & 64]


10

Article of Association


11

Article of Association
 1.

◦
◦
◦
◦
◦

Contract between company and members
Beh Chun Chuan v Paloh Medical Centre Sdn Bhd [1999] 3 MLJ 262
Wong Kim Fatt v Leong & Co. Sdn. Bhd [1976] 1 MLJ 140
Hickmen v Kent [1915] 1 Ch 881
Pender v Lushington (1877) 6 Ch D 70
Eley lwn Positive Government Security Life Assurance (1875) 1 Ex D
20

 2.

Contract among members inter se

 3.

No contract between company and outsiders

◦ Rayfield v Hands [1960] Ch 1
◦ Re Carrati Holding Co. Pty. Ltd

◦ Raffles Hotel Ltd v Malayan Banking Bhd.
◦ Forbes v NSW Trotting Club Ltd
◦ Southern Foundries v Shirlaw [1940] 2 AllER 445


12

Alteration of Articles
S.31

– a company may by special resolution
alter or add to its article
S.31(2) – any alteration or addition to the
articles is as valid as if originally contained in
the articles
Limitations on alteration of articles:
◦
◦
◦
◦

S. 33(3)
S. 181(4)
S.65
Prinsip ‘majority rule’

13

Doctrine of constructive notice
The

company’s constitution
(memorandum & articles) is available for
inspection at CCM.
Thus under constructive notice, the law
will deem that an outsider dealing with
the company has the knowledge of any
limitation on authority of the company’s
organs, officers or agents as provided for
by the constitution.

14

Exceptions to the rule in Turquand’s
case
The

outsider has actual knowledge of the
irregularity or is put upon inquiry by the
circumstances of the case and fails to
make inquiries;
The outsider knew or ought to have
known of the limitation; thus they could
not rely on the rule as an outsider;
If the outsider dealing with the company
is put on inquiry and fails to inquire, the
rule has no application.

15

Indoor management rule
Also

known as the rule in Turquand’s case (Royal
British Bank v Turquand (1856 6E & B327) – a
person dealing with a company is taken to have
constructive notice of the contents of the
company’s public documents, they need not go
further to ensure that the internal proceedings of
the company have been properly carried out.
Aik Ming (M) Sdn Bhd v Chang Ching Chuen [1995]
2 MLJ 770
Pekan Nenas Industries Sdn Bhd v Chang Ching
Chuen [1998] 1 MLJ 465

16

Memorandum and Article of Association

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Memorandum and Article of Association