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NUR FATIHA BT MAT YUSOF

SITI HASLINDA AZIANA BT HAMZAH


ISSUES
1. Whether there are abuse of majority rule and
should it be subject to the exception of the rule?
2. Whether the actions that have been taken by the
majority members are consider as a fraud on
minority?
3. Whether the minority members can bring an
action against the majority members in the name
of company
INTRODUCTION
Majority Rule
Any decisions is duly convened and held at the
board or shareholders meetings and through a
property cast votes of the majority becomes
binding on the company.
Foss v Harbottle.


LAW
The application of the Majority Rule sometimes
creates many problems.
The freedom with no limit given to the majority may
cause them to act in a manner that unfairly
discriminatory to the minority members as well as to
the company as an entity.
For purpose of justice, the rule in Foss v Harbottle
has been declared as not a universal rule.
It is a rule subject to exceptions, and the exceptions
depend very much on the necessity of the case.

Exceptions to the rule in Foss v Harbottle.
a. Where the act of the company is ultra vires.
b. Where the act of the company requires a
special majority.
c. Where the members personal rights are
infringed.
d. Where the majority has perpetrated a fraud on
the minority.
e. Where the interest of justice require.

Fraud On Minority
If the actions of the majority constitute a fraud on the
minority and the wrongdoers are in control of the
company, a minority member may bring an action to
enforce the companys rights.
Fraud in the context of fraud on the minority means
an abuse of power whereby the majority secures an
unfair gain at the expense of the minority, the injured
party need not actually be the minority shareholders.
The injured party may also be the company itself.
The circumstances that amount to fraud on the
minority are many but the most common are where
the majority :
a. Appropriates the rights, advantages and
property belonging to the company.
b. Appropriates the rights, advantages and
property belonging to other shareholders.
c. Ratifies directors breach of duties.
d. Obtains a benefit at the expense of the
company.
APPLICATION
Fizah and Fahmi have caused the company to sell its land at
Sepang at lower price compared to the market value to the
Fahmis sister, Nurul.
This case relate to the circumstances of fraud on the
minority which is appropriates the rights, advantages
and property belonging to the company.
It is a duty of a director to use the assets and property of
the company for a proper purpose and in a proper manner.
A fraud on the minority exists where the majority
endeavors directly or indirectly to appropriate to
themselves money, property or advantages which belong
to the company.
It same with case Daniels v Daniels.


Daniels v Daniels
3 minority shareholders wished to bring an action against the 2
majority, who were also the directors.
It was alleged that the company, Ideal Homes Ltd, had sold
property to one of the directors at a price considerably less than
its true value.
They brought an action but fraud was not alleged against the
Defendants.
The Defendants applied to have the statement of claim struck out
as disclosing no reasonable cause of action.
Templeman J nevertheless allowed the minority shareholder to
maintain the action on the basis that a minority shareholder who
has no other remedy may sue where directors use their power
intentionally or unintentionally, fraudulently or negligently in a
manner which benefits themselves at the expense of the
company.
The case can be applied to this situation :
If Nazri and Apek can prove that the land sold at
the lower value compare to the market value.
If Nazri and Apek has no other remedy may sue
where directors use their power intentionally or
unintentionally, fraudulently or negligently in a
manner which benefits themselves at the expense of
the company.
The company has made bad investment when purchased a
land by Fizah and Fahmi near a slum clearance
programme in
Ulu Yam for a price of RM 5.5 million. Nazri and Apek
made a
complaint according to this matter but their complaint
have
gone unheeded.
This case relate under circumstances of fraud on
minority which is ratification of the directors breach
of duty.
The general meeting has a power to ratify an act of
director which amount to breach of duty and to
exonerate them from liability arising from such breach.
It can refer to case North-West Transportation Co v
Beatty.

North-West Transportation Co v Beatty
The court has clearly stated that such power given to
the general meeting has a limit, provided that the
ratification is not brought by unfair or improper
means and in illegal manner or fraudulent or
oppressive towards other shareholders.
Where it is clear that the directors have acted in their
own interests rather than in the interests of the
company, the ratification made by majority be
challenged by the minority.
The ratification of directors breach of duty by the
majority may constitute a fraud of minority if it can
be shown that the majority in ratifying failed to act
bona fide for the benefit of the company as a whole.
The case can be applied to this situation :
If Nazri and Apek can prove that the land have been
purchased by Fahmi and Fizah from Fizahs
brother, Din have conflict interest between Fizah
and Din because have close relationship between
them.
If the purchased of land not give benefit to the
company as a whole and only give benefit to the
majority shareholders.
CONCLUSION
Apek and Nazri can bring an action against Fizah and
Fahmi in the name of the company and can take
derivative action.
Derivative action is an action taken on behalf of the
company in order to enforce the companys right.
Apek and Nazri can sue Fizah and Fahmi on behalf of
the company as they used advantages on the company
for their own interest and they also made purchased
for their company with the related party.



Whether protect action can be taken by the
minority members on their own behalf?

The protections given to the minority for
redressing any wrong act done either to him or
to the company.
Section 181- which covers a very broad range
of conduct.
Conduct
Oppressive
conduct
Conduct in
disregard of
interest
Prejudicial
conduct
Unfairly
discriminatory
LAW AND PROVISIONS
Section 181 - any member or holder of a debenture of a
company may apply to the court for an order under this
section on the ground.

- The affair of the company or the power of director are being
conducted in the manner oppressive to one or more the
members
- The affairs of the company or the power of director are
being conduct in the manner disregard the interest as
members or debenture holders.
- The act of the company has been done or is threatened or
some resolution of the members or is proposed which
unfairly discriminates against to one or more of members
- The act of the company has been done or is threatened or
some resolution of the members or is proposed which
prejudicial to one or more member


APPLICATION TO THE QUESTION
Fizah and Fahmi :
- refuse to pay dividend to Nazri and Apek
- had excluded the Nazri and Apek from the
profit of the company
- made payment of high salaries
Section 181(1)(a) court gave a restrictive
meaning to oppressive conduct, a member
usually found it difficult to obtain a remedy
except in extreme circumstances.
Section 181(1)(b) the term of unfairly
prejudicial and unfairly discriminatory
means that a remedy is available even in cases
where the company is run in good faith but the
effect of its action or will cause unfair
prejudice or unfair discrimination to the
interest of one or more of the members.


CASES
Singapore case - Re Gee Chan Trading
Co Ltd

The court held that the act of the directors in
paying themselves directors fees and
salaries but not declaring dividend had
constituted as unfair prejudicial.


Australia case - Sanford v Sanford Courier
Service

- Majority had excluded the minority from the profit of
the company. The majority also made payment of
high salaries, made provisions for motor vehicle and
retirement benefits. At the same time, they refuse to
pay dividend. This meant that a distribution of a
significant part of the profit was made to the majority.
- Court:
- Allowed the minority to bring action under the
equivalent of the section 181 and ordered the other
shareholders purchase the minority shares as the act
of the minority amounting to oppressive conduct
The case can be applied to Apek and Nazri situation:
- If Apek and Nazri want to seek a remedy own their
behalf, they have to prove that dividend not declared
even the company made considerable profits and the
payment of high salaries to the directors.
- If they fails, they will not get the statutory remedies
for the minority members.

CONCLUSION
Apek and Nazri can seek a remedy on their
own behalf and take representative action
- Proper to be brought whenever the right
infringed by the company is the right given
generally to members.
- Apek or Nazri can take this issues on their
own behalf of all against the company.
- The court will allowed the minority to bring
this action under the equivalent of the section
181.