Identification of Issue
1. Whether Perfect Living Berhad had the rights and obligations to pay the debts incurred by ABC Berhad? 2. Whether the ABC directors incur any personal liability from the scandal? 3. Whether Damien(Purchasing Manager) has breach his duty as an operation manager and ABC Bhd can take legal action against the breach of Damien`s duty? 4. Whether the directors of ABC Bhd can be made personally liable for any lawsuits behind the corporate veil? Explanation of Law
In the case of Salomon v Salomon & Co 1, the principle of separate legal entity stated that a company is a separate person from its members and those who manage its operations. Section 16(5) Companies Act 1965 (CA 1965) has listed down the consequences of an incorporated company, namely: 1. A company can own property in its own name. In the case of Kosmopoulos v Constitution Insurance Co of Canada  1 SCR 22 where the insurer refused to indemnify Mr Kosmopoulos on the grounds that the corporation owned the property, even though he was the sole-shareholder of the corporation. The insurers position was consistent with the 1925 decision of the House of Lords in Macaura v Northern Assurance Co Ltd  AC 6193. 2. A company’s liabilities are its own, not those of its members. This is illustrated in the case of Salomon v Salomon & Co  where an action was brought against Mr Salomon to repay the debts owed to the company’s creditors. However, the court held that the members of a company cannot be sued for the debts of the company under the principle of separate legal entity. 3. A company may sue and be sued in its own name. The proper organ to commence a legal action on behalf of the company is the board of director; Foss v Harbottle 4. The rule in this case is best seen as the starting point for minority shareholder remedies. A single director or the members of company has no authority to sue on the company’s behalf unless specifically authorized to carry out such action. 4. A company can contract with its controlling participants, as illustrated in the case of Lee v Lee’s Air Farming 5. Where of the 3,000 issued shares, 2,999 of the shares were allotted to Mr. Lee, and the other one share was held by his solicitor as his nominee. Mr. Lee was not only the beneficial owner of all the shares in the company, he was also its managing director and employed by the company as a pilot. Mr. Lee was killed whilst at work, and his widow claimed for payment under the policy. The Privy Court held that the company was a separate legal entity from Mr. Lee and thus, could enter into a contract of employment with him. Thus, the court held that Mr. Lee was an employee and his widow was entitled to claim compensation.
5. A company has perpetual succession which means it’s immortal, as shown in Re Noel Tedman Holdings Pty Ltd  QDR 5616. Husband & wife were the shareholder and the directors of the company. Tragically, both of them died in a car crashed. They left one infant child but the company will still be continuing its business where the court allow the executor to appoint a director then transfer the share to the infant child. Which means a company is immortal even though its managing directors had passed away. Upon the incorporation of the company, general rule stated that the company and the members or officers are separated legal entity and thus the debts and obligations of one is not enforceable on the other. In the case of Abdul Mohd Khalid bin Haji Ali & 2 Ors v Dato Hj Mustapha Kamal & Anor  AMEJ 02337, Rajo Sdn Bhd, a wholly owned company by M.K. Associates Sdn Bhd (second defendant) has developed a housing estate. Dato' Hj Mustapha Kamal (first defendant) was the executive chairman of Rajo Sdn Bhd where he owned 40% of the equity in the company and the balance 60% equity were owned by the other parties. Due to the delay in delivering vacant possession of properties, the house buyers from the housing estate...
References: 1. Chan Wai Meng,, (2012) Company Law in Malaysia. Cengage Learning.
2. Companies Act 1965 (Act 125).
3. Mohd. Sulaiman, A. N. & Bidin, A., Hanrahan, P., Ramsay, I. & Stapledon, G., (2008). Commercial applications of company law in Malaysia. (3rd ed.). Kuala Lumpur: CCH.
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