Articles Of Association 5g6i6d

ARTICLES OF ASSOCIATION

AOA – OUTCOMES • Define and explain nature of AOA • List and cite the contents and formalities required for AOA for different types of company • Compare and contrast contractual effect of AOA in different scenarios – company & member , & , company and outsiders • AOA and External Contract - based on articles – by incorporation • Review the conditions for alteration of MOA and the restriction • Explain effect of Alteration and impact on pre existing contract.

NATURE OF ARTICLES • Regulate internal affairs of the company • Subordinate to Memorandum and cannot overwrite Memorandum Ashbury Railway Carriage and Iron Co v Riche • Public document open for inspection(S 11 (2)) • Together with MOA forms the constitution of the company • A Statutory contract via S33 between co and member and member inter se

REQUIREMENT FOR ARTICLES ( S29) • Mandatory to be ed Company limited by guarantee Company limited both by shares and guarantee Unlimited company Optional Company limited by shares ( s 16 (1) and S 29(1) ) Regulations under Table A ( 4th Schedule) regarded as articles if elect not to ( s 30 (2))

COMPANY LIMITED BY SHARES TABLE A -ADOPTION Company limited by shares If articles –then unless expressly excluded or modified - Table A regulations will apply

INDICATIVE CONTENT OF AOA • ed Office • Exclusion wholly or in part Table A • Classes of shares and variation of class rights • Company Seal • s • Dividend and reserves

• Lien on shares • Calls on shares and forfeiture for non payment, transfer and transmission • Alteration and reduction of share capital • General Meeting and notice to • Directors • Winding up

CONTENT OF AOA FOR PRIVATE CO Must contain prohibition under S 15

 restrictions on right to transfer shares Limitation member not more than 50

Prohibit invitation to public to subscribe for shares in or debentures of the company Prohibit invitation to public to deposit money

FIRST DIRECTOR &FIRST SECRETARY S 122 (3) – must name first director either in MOA or AOA S 16(7) – Registrar cannot MOA or AOA unless either contains name of first two directors

S 139(1) (A) – must name first secretary either in MOA or AOA

FORM OF ARTICLES AND SUBSCRIBERS S 29(2)(a) and (b) Where ed require articles to be printed and divided into numbered paragraphs S 29 (2) ©  Articles to be signed by each subscribers and the signature attested by at least one witness ( not subscribers) whose address is added.

EFFECT OF AOA S 33 (1) CA Statutory contract  Co and Member – in capacity as member  Between  Not contractual effect Company and outsider ( nonmember) Co and member ( where member seek to enforce right in some other capacity than member) Company and its officers

BETWEEN COMPANY AND Co enforced AOA Art against member to refer dispute to arbitration Hickman v Kent or Romney Marsh Sheep – Breeders Association H a member of Association an incorporated non profit making company. H began a court action complaining of irregularities in association affairs. Art 49 of AOA provided for an arbitration clause. Association succeeded to stay H action on ground of Art 49 and to refer dispute to arbitration per Art 49

MEMBER AND MEMBER Wong Kim Fatt v Leong & Co Sdn Bhd & Anor Co had 2 shareholders . Pursuant to AOAholder of 7/10 of issued capital may serve requisition notice . Here other shareholder ( 250,000) requisitioned for the purchase of share of Wong the minority shareholder ( 50,000) Held : contractual right permitted by AOA and enforceable

MEMBER AND MEMBER Wong Kim Fatt v Leong & Co Sdn Bhd & Anor “It is quite true that the articles constitute a contract between each member and the company and that there is no contract in between the individual but the articles do not any the less, in my opinion regulate their rights inter se. Such rights can only be enforced by or against a member through the company …. Chang Ming Tat J

MEMBER AND MEMBER

MEMBER V CO Woods v Odessa Waterworks Co Member of co successful in obtaining an injunction to prevent co from implementing an ordinary resolution which was ed to pay a dividend by way of debenture bonds bearing interest redeemable at par by annual drawing extending over 30 years. AOA empowered Co to declare “dividend to be paid” . Held that phrase meant to be paid in cash . The debenture bonds were not payment in cash but agreement to pay and not per AOA. Injunction granted against Co.

OUTSIDER CANNOT ENFORCE AOA Raffles Hotel Ltd v Malayan Banking Bhd Hotel AOA provided for the appointment of the bank (non member) representative to be on the BOD. Bank not a member of Hotel. Federal Court held that AOA was not a contract between hotel and bank and AOA not confer any enforceable rights on outsider Bank.

OUTSIDER CANNOT ENFORCE AOA Raffles Hotel Ltd v Malayan Banking Bhd Art 77 does not confer any right on the Df to appoint a director the plaintiff board of directors. ..the defendants not being of the plaintiff company or parties to the articles can acquire no rights under the latter’s AOA

OUTSIDE CAPACITY – HICKMAN V KENT Asbury J …I think this much is clear, first, that no article can constitute a contract between the company and a third person ; second , that no right merely purporting be given by an article to a person , whether as a member or not , in a capacity other than of a member, as , for instance, as solicitor, promoter, director, can be enforced against the company; and third that articles regulating the rights and obligations of the generally as such do create rights and obligations between them and the company respectively.

OUTSIDE CAPACITY – ELEY V POSITIVE GOVERNMENT SECURITY LIFE Co articles drafted by Eley provided that he was to be its permanent solicitor and only can be dismissed for misconduct. No separate contract of employment entered. He was also a shareholder. The company ceased to employ him and he brought an action for breach of contract against the company but failed. Held : articles conferred no rights on a member who seeks to enforce a right in capacity other than member. He should have entered separate contract in his non member capacity.

OUTSIDE CAPACITY – BROWNE V LA TRINIDAD B was a shareholder of La Trindad. The company’s articles provided that he was also to be director of Co for 4 years. Before expiry he was removed as director. He challenged removal arguing breach of contract based on AOA provision. Held: he could not rely on AOA as the right to be a director was not given to him in capacity as a member

OUTSIDE CAPACITY – BROWNE V LA TRINIDAD Lindley LJ It would be remarkable that upon the shares being allotted to him a contract between him and the company , as a matter not connected with the holding of shares , should arise.

CONTRACT BY INCORPORATION

Articles provision conferring non hip rights are not enforceable against the company. However it may successfully be incorporated as evidence of contract between company and non member.

CONTRACT BY INCORPORATION Re New British Iron –Art 62 provided remuneration of D as 1.000 pounds per annum. D accepted appointment without express agreement for remuneration. D were not paid . Co went into liquidation .  Held Art 62 not itself a contract between co and directors. However it could be relied upon by director to incorporate the term of remuneration in an external contract implied by conduct of the parties

CONTRACT BY INCORPORATION Swabey v Port Darwin Gold Mining Co (1889) AOA provided for director fees of 200 pounds per year . Special resolution ed reducing it to 5 pounds per month. S claimed 3 moths arrears at old rate. Held: AOA themselves not contract between director and Co but they provided the upon which directors were serving under external contract . Co has right to amend AOA but not retrospectively

-BREACH OF CONTRACT DUE TO ALTERATION – SOUTHERN FOUNDRIES LTD V SHIRLAW

S appointed MD of Southern under written agreement for 10 years. New articles allowed co to remove director by written notice. Co relied on provision and remove S. He sued for breach of agreement . Held : co can not be precluded from altering AOA but would be liable if altered articles caused breach of pre existing contract. S awarded 12,000 pounds for wrongful dismissal

-BREACH OF CONTRACT DUE TO ALTERATION – SOUTHERN FOUNDRIES LTD V SHIRLAW

A company cannot be precluded from altering its articles thereby giving itself power to act upon the provision of the altered articles – but to so act may nevertheless be a breach of contract if it is contrary to a stipulation in a contract validly made before the alteration. Nor can an injunction be granted to prevent the adoption of the new articles ….but for the company to act upon them will nevertheless render it liable in damages if such action is contrary to previous engagement of the company .

ALTERATION OF AOA Amended by Special Resolution unless restricted by MOA ( s 31(1)) Restriction MOA – provision may restrict or impose additional requirements – higher majority than 75 % , consent of particular person or particular condition being fulfilled CA S 33 (3) – cannot increase existing member liability or require existing to increase shareholding unless written consent given Peter American Delicacy v Heath – any agreement by co and and between member to restrict alteration of AOA is of no effect.

ALTERATION OF AOA Basic right to alter Punt v Symons Co purchased Mr Symons business and contract of sale said co would not alter its articles which appointed him to be governing director and the right to appoint and remove director which ed to trustees upon his death. After he dies co proposed to alter AOA depriving the trustees of this power. Court held that company cannot contract itself out of its statutory right to alter it AOA either by an agreement inside AOA or an external agreement

ALTERATION OF AOA – BONAFIDE TEST Allen v Gold Reef Of West Africa ( 1900) AOA gave co a lien on partly paid up shares for debts owed to Co. Z died owing Co 6000 ponds on partly unpaid shares . After his death AOA altered articles to extend lien over fully paid up shares as well. Z was only holder of fully paid up shares. A his executor challenged Alteration.

ALTERATION OF AOA – BONAFIDE TEST Allen v Gold Reef Of West Africa ( 1900) Held power to alter shares subject to requirement that it is bona fide for the benefit of the Co as a whole. Made no difference Z was only member affected. Test is subjective – bonafide view of the majority not court view of alteration

ALTERATION OF AOA Amended by Special Resolution unless restricted by MOA ( s 31(1)) Restriction MOA – provision may restrict or impose additional requirements – higher majority than 75 % , consent of particular person or particular condition being fulfilled CA S 33 (3) – cannot increase existing member liability or require existing to increase shareholding unless written consent given Peter American Delicacy v Heath – any agreement by co and and between member to restrict alteration of AOA is of no effect.

ALTERATION OF AOA Greenhalgh v Arderne Cinemas ( 1951) Co AOA were altered to allow majority shareholders in family co to sell shares to an outsider by obtaining a ordinary resolution. This replaced a AOA provision that required to offer to sell shares first to existing shareholder. G a minority shareholder sought declaration the alteration to AOA void as it sacrificed minority interest to majority without any benefit to Co.

Lord Evershed held alteration valid ; that though depreive right of minority to preemption C was unable to show it was not bona fide for benefit of company and there was no discrimination as it allowed any member to sell shares to outsider.

ALTERATION OF AOA- MEANING BONA FIDE FOR BENEFIT OF CO AS A WHOLE Lord Evershed M.R. in Greenhalgh v Arderne Cinemas In the first place I think it is now plain that bona fide for the benefit of the company as a whole means not two things but one thing. It means that shareholder must proceed in what is in his honest opinion is for the benefit of the company as a whole.

ALTERATION OF AOA- MEANING BONA FIDE FOR BENEFIT OF CO AS A WHOLE Lord Evershed M.R. in Greenhalgh v Arderne Cinemas The second thing is that the phrase “the company as a whole” does not …mean the company s a commercial entity, distinct from the corporators; it means the corporators as a general body. That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is in the honest opinion of those who voted in its favour, for that person benefit.

ALTERATION OF AOA Peters American Delicacy v Heath & Ors AOA allowed undivided profits to be capitalized by distributing the same as a special dividend or bonus shares to existing shareholders in proportion to shares held by them. Art altered by special resolution that in future bonus payment based upon amount paid on existing shares. Share capital 2/3 fully paid. Pt brought action for declaration alteration not bona fide for the interest of co as a whole. Held that resolution valid as it was bonafide for the company as a whole

ALTERATION OF AOA Peters American Delicacy v Heath & Ors Latham J having stated that it is immaterial that it SR prejudices or diminishes rights of partly paid up share or benefits fully paid shares If however the resolution was ed fraudulently or oppressively or was so extravagant that no reasonable person could believe that it was for the benefit of the company; it should be held invalid.

EFFECTIVE DATE OF ALTERED AOA S 31 (2) Take effect on date resolution ed or at a later date mentioned in resolution

 Define and explain nature of AOA  List and cite the contents and formalities required for AOA for different types of company  Compare and contrast contractual effect of AOA in different scenarios – company & member , & , company and outsiders  AOA and External Contract - based on articles – by incorporation  Review the conditions for alteration of MOA and the restriction  Explain effect of Alteration and impact on pre existing contract.