DECEMBER 2002 STUDY GUIDE PROFESSIONAL EXAMINATION

Paper 2.2(MYS) Corporate and Business Law (Malaysia)

Introduction

This booklet includes the syllabus and study guide for Paper 2.2(MYS): Corporate and Business Law (Malaysia).

If you have any queries concerning the new study guide, please direct them to: Education Department ACCA 29 Lincoln's Inn Fields London WC2A 3EE United Kingdom tel: +44 (0)20 7396 5891 fax: +44 (0)20 7396 5858 e-mail: education@accaglobal.com Additional information can be accessed on the ACCA website at: www.accaglobal.com The Association of Chartered Certified Accountants June 2000 ISBN

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Paper 2.2(MYS) Corporate and Business Law (Malaysia)

AIM To develop knowledge and understanding of the general legal framework within which an accountant operates in Malaysia. To develop an awareness of and an ability to understand both common law and statute in relation to specific legal areas of central importance to business. Although all of the work done in other OBJECTIVES On completion of this paper candidates should be able to: Analyse and evaluate situations from a legal perspective Identify and explain the key features of the Malaysian Legal System, in particular, the main sources of law, the court system and the administration of justice Explain and demonstrate an ability to use the essential principles relating to the formation, content and remedies for breach of contract Explain the rules of agency as they apply to sole traders, partnerships and companies Explain the law relating to partnerships Distinguish companies from other forms of business enterprise, describe the different types of companies and explain, as well as apply, the rules relating to their financing, management, administration and regulation Explain the main aspects of employment law, including the contract of employment, its termination and remedies for unjustifiable termination. SYLLABUS CONTENT 1 Malaysian Legal System This section provides an introduction to some key features of the Malaysian legal system and will facilitate understanding of the sources of law, how law is administered and how legal rules emerge in the legal system a Sources of Malaysian Law In Part 3, Paper 3.2(M) Advanced Taxation, will require an ability to understand and apply tax law. Paper 3.6(M) Advanced Corporate Reporting will address the issue of corporate insolvency. 3 Agency and Partnership This section will familiarise the student with those general rules of agency which find specific application in relation to partnerships and companies. It also examines the legal rules governing the operation of partnerships. a Creation of agency b Principal and agent: reciprocal rights and duties c Authority of the agent d Formation of partnerships e Internal regulation of partnerships f Partnerships and outsiders g Dissolution of partnerships. papers in Part 2 takes place within the legal framework, legal regulation is particularly relevant to Paper 2.1 Information Systems, Paper 2.3 (M) Business Taxation in relation to taxation of corporate businesses and unincorporated businesses and Paper 2.6(M) Audit and Internal Review in relation to statutory requirements for the preparation of accounts. Questions in Paper 2.2M will not assume, or draw on, any knowledge from those papers. POSITION OF PAPER IN THE OVERALL SYLLABUS There is no requirement for any prerequisite knowledge for this paper although the generic skills developed in Part 1 will provide the basis for the substantive study undertaken. 2 General principles of the law of contract This section deals with major features of the formation, content and discharge of a contract and will provide an understanding of the basic nature of contractual agreements. a Formation: proposal(offer), acceptance, consideration, capacity, intention to create legal relations b Contents: terms, exclusion clauses and their control c Vitiating factors: coercion, duress, undue influence, mistake, misrepresentation, illegality d Discharge of contracts and remedies. b The system of the courts and the administration of justice c Legislation and subsidiary legislation d Precedent and statutory interpretation.

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Paper 2.3: Business Taxation (United Kingdom) (Continued)

Corporate and Business Law (Malaysia)

4 The Corporate form This section deals with the nature and types of corporations and compares the incorporated association, in particular, the registered company, with unincorporated ones, in particular, the sole proprietorship and the partnership. a Nature and types of corporations b Consequences of separate legal personality and the lifting of the veil of incorporation c The registered company distinguished from partnerships and sole proprietorships. 5 The formation and constitution of the company This section examines the legal requirements controlling the setting up of companies. a The formalities involved in registering a company b The constitutional documents of the company: memorandum and articles of association c Contractual capacity of the company d Statutory books, records and returns. 6 Capital and financing of companies This section deals in broad outline with the capital and financing of companies, covering share and loan capital. a Share capital: ordinary and preference shares b Loan capital: debentures and company charges c Capital maintenance and dividend law

d A basic outline of the Listing Rules and the Stock Exchange. 7 Management and administration of a company This section takes an overview of the legal obligations of the management in relation to the administration of the company. The role of key personnel is identified and the rights and obligations they have are explored. a Directors: appointment, termination of office and disqualification; duties and powers b Company secretary: appointment; duties; powers c Auditors: appointment, removal, resignation; duties; powers d Capital market offences: Insider Trading with brief reference to the Securities Industry Act 1983. 8 Company meetings This section deals with the functions and conduct of company meetings. a Types of company meetings b Types of resolutions c Proxies and voting procedure. 9 Majority control and minority protection This section examines the way in which potential abuse of majority power may be prevented or remedied. a Rule in Foss v Harbottle and the derivative action

b Statutory remedy for oppression, disregard etc under s.181 Companies Act 1965 c Winding up on the just and equitable ground under s.218(1)(i) Companies Act 1965 d The power of the Securities Commission to recover loss or damage on behalf of a company under s.155 of the Securities Commission Act 1993. 10 Insolvency and Corporate Restructuring This section will introduce to the ways in which near insolvent and insolvent companies may be dealt with. a Voluntary liquidation b Compulsory liquidation c Arrangements and Reconstructions: s.176 Companies Act 1965 d Receivers and managers. 11 Employment law This section focuses on the major legislative and common law principles which govern employment relationships. a Contracts of service and for services b Redundancy and unfair and wrongful dismissal c Remedies of employee. EXCLUDED TOPICS The syllabus does not attempt to cover every aspect of the various subject areas it deals with. Please refer to the Study Guide for details.

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Paper 2.3: Business Taxation (United Kingdom) (Continued)

Corporate and Business Law (Malaysia)

KEY AREAS IN THE SYLLABUS Company law, as set out in sections 410 above, is central to the syllabus and it will provide a possible 50% of the total marks allocated in any particular paper. APPROACH TO EXAMINING THE SYLLABUS The assessment will be by way of a 3 hour written examination paper. Section A will contain short, knowledge based questions. Section B will be problem-based and will test communication skills and the ability to appraise and analyse information. Number of marks Section A: Choice of 6 from 8 questions of 10 marks each Section B: Choice of 2 from 4 questions of 20 marks each 40 100 ADDITIONAL INFORMATION Knowledge of new legislation will not be expected until at least six months after the last day of the month in which the Royal assent is given, or six months after the specific provision comes into effect, which ever is the later. The Study Guide provides more detailed guidance on the syllabus. Wider reading is also encouraged especially to relevant parts of suggested reference texts. 60

RECOMMENDED TEXT Ahmad Ibrahim, Ahilemah Joned The Malaysian Legal System Kuala Lumpur Dewan Bahasa dan Pustaka, 1995, ISBN 9836249257 Wu Min Aun The Malaysian Legal System Kuala Lumpur, Longman 1999, ISBN 9837410876 Beatrix Vohrah, Wu Min Aun The Commercial Law of Malaysia Petaling Jaya, Pearson Education Malaysia Sdn Bhd, 1999, ISBN 9837415878 Lee Mei Pheng General Principles of Malaysian Law Petaling Jaya Penerbit Fajar Bakti Sdn Bhd 1997, ISBN 9676541389 Samsar Kamar Latif Partnership Law in Malaysia Kuala Lumpur, ILBS, 1998, ISBN 9678909480 ER Ivamy, Vincent Powell-Smith Malaysian Law of Partnership-Cases and materials Malaysia, Butterworths Asia, 1995, ISBN 0409997315 Walter Woon Company Law (Student Edition) Singapore, FT Law & Tax Asia Pacific, 1997, ISBN 9813069317 K Arjunan, Low C K Lipton and Herzbergs Understanding Company Law in Malaysia (Student Edition) Sydney, LBC Information Services I995, ISBN 0 455 21400 X Dunstan Ayadurai The Employer, Employee and the Law in Malaysia Singapore, Butterworths 1985, ISBN 0409995045

Dunstan Ayadurai Industrial Relations in Malaysia: Law and Practice Malaysia, Butterworths Asia, 1992 ISBN 0409996254 Wu Min Aun The Industrial Relations Law of Malaysia Kuala Lumpur, Longman, 199 ISBN 9679762742 REFERENCE TEXT Chan & Kohs Company Law: Malaysian Corporate Service Kuala Lumpur, Sweet and Maxwell Asia, 1998, ISBN 0421628200 CCH Malaysian and Singapore Company Law and Practice Singapore, CCH Asia Pte Limited, 1990, ISBN 981002798 RELEVANT STATUTES Candidates are required to have knowledge of relevant parts of the following Acts, including all amendments up to six months before the date of examination: Companies Act 1965 Securities Industry Act 1983 Securities Commission Act 1993 Contracts Act 1950 Partnership Act 1961 Registration of Businesses Act 1956 Employment Act 1955 Industrial Relations Act 1967 Companies Commission Act 2001.

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Corporate and Business Law (Malaysia)

STUDY GUIDE 1 Malaysian Legal System Syllabus reference 1(a) Sources of Malaysian Law Introduction to the concept of law and legal systems Distinguish between written and unwritten laws Understand the main features of Federal and State Constitutions and their importance as sources of law Understand the importance of legislation by parliament and the State Legislative Assemblies as well as subsidiary legislation, as sources of law Explain the application of English common law and equity as sources of law Understand other sources of law such as case law, local customs and muslim law.

Marital and describe their nature and function. 3 Malaysian Legal System Syllabus reference 1(c), (d) Legislation and subsidiary legislation Explain the legislative process, i.e. how laws are passed Analyse the importance of subsidiary legislation and the need for its control. Precedent and statutory interpretation Understand the operation of the doctrine of binding judicial precedent, and evaluate its importance Explain the advantages and disadvantages of the doctrine Discuss the rules and presumptions used by the courts in interpreting statutes. 4 General Principles of the Law of

In particular, candidates should be able to: Distinguish an offer from an invitation to treat Distinguish acceptance from counter offer Explain the requirement of consideration and its exceptions, distinguishing, where necessary, the English position from the Malaysian position Discuss the position of minors and persons of unsound in relation to contractual capacity Explain the presumptions applied by the courts in relation to intention to create legal relations Identify the above issues and apply them to given situations. 5 General principles of the law of contract 2 Syllabus references 2(b). Contents Differentiate terms from mere representations Identify conditions, warranties and innominate terms and explain their nature and effect Consider the nature and effect of exclusion clauses and evaluate their control.

2 Malaysia Legal System 2 Syllabus reference 1(b). System of the Courts and the Administration of Justice Describe the Malaysian court structure and identify the various courts Understand the composition and jurisdiction of the various courts Explain the importance of a system of appeals Identify other judicial and quasi judicial bodies such as the Industrial court, the labour court and the court

Contract 1 Syllabus Reference 2(a) Formation Overview of the importance of contract law in the context of business transactions Analyse the nature of a simple contract Understand the legal requirements for the creation of a valid contract, viz. Proposal (offer), acceptance, consideration, capacity and intention to create legal relations.

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Corporate and Business Law (Malaysia)

6 General principles of the law of contract 3 Syllabus reference 2(c) Vitiating factors Identify the various vitiating factors, especially coercion, duress, undue influence, mistake, misrepresentation and illegality Consider the nature and effect of such vitiating factors Evaluate the effect of each of those vitiating factors. 7 General Principles of the law of contract- 4 Syllabus reference 5(d) Discharge of contract and remedies for breach of contract Explain the ways in which contracts may be discharged and the effect of such discharge. In particular, candidates must be able to demonstrate knowledge of the following : i Discharge by impossibility ii Discharge by breach iii Discharge by performance iv Discharge by agreement Explain the various remedies for breach of contract and their applicability to given situations. The following remedies must be considered i i Damages Specific Performance

8 Agency 1 Syllabus reference 3(a)(c) Creation of agency Define agency and understand its role and importance in business transactions Explain how an agency relationship is established Authority of the agent Discuss the scope of the authority of the agent and the limitations on such authority.

11 Partnership 2 Syllabus reference 3(e) Internal regulation of partnerships Appreciate the fiduciary nature of the relationship of partners to one another Analyse the rights and duties of partners to one other Discuss the liability of partners towards one other Determine what constitutes partnership properly 12 Partnership 3

9 Agency 2 Syllabus reference 3(b) Principal and agent: reciprocal rights and duties Analyse the reciprocal rights and duties of the principal and the agent Detail the relationship between the agent and third parties. 10 Partnership 1 Syllabus reference 3(d) Formation of Partnership Define and explain the role of the partnership form in the context of contemporary business organisation Consider how partnerships are formed explain the rules for determining the existence of a partnership.

Syllabus reference 3 (f),(g). Partnership and outsiders Determine the extent to which the acts of one partner may bind the firm and the other partners Explain the liability of the firm to third parties for the wrongs/torts of a partner or the misapplication of money or property received by the firm Consider the liability of persons for holding out as partners Dissolution of partnerships Explain the ways in which partnerships may be dissolved. 13 Company Law 1 Syllabus reference 4(a) (b) The corporate form Explain the concept of the company as a separate person and its consequences

iii Injunction iv Quantum meruit.

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Corporate and Business Law (Malaysia)

Cite the instances when the corporate veil will be lifted Analyse the different types of companies, especially private and public companies, limited and unlimited companies. 14 Company Law 2 Syllabus reference 4(c) The corporate form Distinguish the registered company from partnerships and sole proprietorships Compare the advantages and disadvantages of the registered company with that of a partnership. 15 Company Law 3 Syllabus reference 5 (a) (d) 4 The formation of the company Describe the procedures for registering companies, both public and private Understand the importance of the certificate of incorporation and its conclusive effect Explain the role of the promoter and his duties and liabilities Discuss pre-incorporation contracts and their effect Statutory books, records and returns Detail the statutory books, records and return that companies must keep or make.

16 Company Law 4 Syllabus reference 5(b) (c) The constitution of the company Describe the memorandum and articles of association and their main content Discuss, in particular, the importance of the objects clause and the ultra vires doctrine Examine the contractual effect of the registration of the memorandum and articles of association Explain the procedure for the alteration of the articles of association and the restrictions on such alteration Contractual capacity of the company Consider the application of the rule in RBB v Turquand (Indoor management rule) and rules of agency in relation to company transactions. 17 Company Law. Syllabus reference 6(a) Share Capital Examine the different meanings of capital Define shares and illustrate the difference between the various classes of shares Explain class rights and describe the procedure for variation of class rights Describe the procedure for transfer of shares and explain the restrictions on the right to transfer shares.

18 Company Law Syllabus reference 6(b) Loan capital. Define companies' borrowing powers Explain the meaning of debenture and describe the different types of debentures Explain the concept of a company charge and distinguish between fixed and floating charges Detail the need and the procedure for registering company charges and explain the effect of non-registration of registrable charges Examine the rules concerning priority of charges Consider the remedies of debenture holders. 19 Company Law Syllabus reference 6(c) (d) Capital maintenance and dividend law Explain the doctrine of maintenance of capital Examine the restrictions and exceptions, if any, on the power of the company to: i issue shares at a discount v issue shares act a premium vi Purchase its own shares vii Give financial assistance for the purchase of its own shares viii Reduce its capital Explain the rules governing the distribution of dividends

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Corporate and Business Law (Malaysia)

Appreciate the role of the Stock Exchange and the importance of the Listing Rules. 20 Company Law 8 Syllabus reference 7(a) Directors 1 Explain the role of directors in the operations of the company Detail the rules pertaining to appointment of directors Examine the disqualification of directors including disqualification orders Describe the procedure for removal of directors from office Distinguish between the powers of the board of directors, the managing director and individual directors to bind the company. 21 Company Law 9 Syllabus reference 7(a),(d) Directors 2 Explain the various common law as well as statutory duties that directors owe to their companies Demonstrate an understanding of some of the ways in which the companies legislation has attempted to control directors Capital Market Offences Insider trading Explain the offence of insider trading with reference to the Securities Industry Act 1983.

22 Company Law 10 Syllabus reference 7(b), (c) Company secretary. Detail the appointment procedure relating to and explain the duties and powers of, a company secretary Auditors Detail the appointment, removal and resignation procedure relating to auditors Explain the duties and powers of company auditors. 23 Company Law 11. Syllabus reference 8 Company meetings and resolutions Distinguish the different types of meetings; annual general meetings, extraordinary general meetings, statutory meetings and class meetings Explain the procedure for calling such meetings and the rules that govern the conduct of such meetings Distinguish between ordinary resolutions special resolutions, and resolutions requiring special notice Describe the voting procedure and the position of proxies. 24 Company Law 12 Syllabus reference- 9(a) Majority rule and minority protection 1 Explain the rule in Foss v Harbottle considering both the proper plaintiff principle as well as the majority principle Evaluate the importance of the rule

Discuss the exceptions to the rule Consider the importance of the derivative action as a protection for minority shareholders. 25 Company law 13 Syllabus reference 9(b),(c), (d) Majority rule and minority protection 2 Evaluate the statutory remedy for oppression, disregard, unfair discrimination and prejudice under s.181 of the Companies Act 1965 Explain the importance of winding up on the just and equitable ground under s. 218(1)(i) of the Companies Act 1965 as a remedy for minority shareholders and detail the situations when the court will consider it just and equitable to wind up the company Consider the power of the Securities Commission to recover loss or damage on behalf of a company under s.155 of the Securities Commission Act 1993. 26 Company law 14 Syllabus reference 10(a),(b),(c),(d). Insolvency and Corporate Restructuring. Explain the meaning and procedure involved in voluntary liquidation Explain the meaning and procedure involved in compulsory liquidation Consider the importance and application of Schemes of Arrangement and Re-constructions, under sections 176-180 as an alternative to winding up

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Corporate and Business Law (Malaysia)

Discuss the role, duties and liabilities of Receivers and Managers. 27 Employment law 1 Syllabus reference 11(a) Contracts of service and for services Distinguish between employees and independent contractors Explain the importance of such distinction Explain the nature of the contract of employment and examine the main duties placed on the parties to such a contract. 28 Employment law 2 Syllabus reference 11(b), (c) Redundancy and, unfair and wrongful dismissal Understand the concepts of termination, dismissal (including constructive dismissal), redundancy, and lay-off, distinguishing the Malaysian position from the English position Explain the termination and lay-off benefits that employees are entitled to Remedies of employee Discuss the scope of the remedies of re-instatement, re-engagement and compensation in lieu of reinstatement, for an employee who has been unjustifiably dismissed.

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