QUESTION 1:

Issue:

Whether Alif and Bhaa are personally liable to pay the creditors with reference to the Companies Act
2016?

Principal / Law

Incorporation of a company has the following effects as derived from Sections 20 and 21 of the
companies Act 2016. There are six effects of incorporation which is the company is a separate legal
entity, has a perpetual succession, may sue and be sued in its own name, may acquire,own, hold,
develop or dispose of any property and the liability of the member may be limited.

Based on section 20 (a) the law treats a company as a separate legal person from its member and
the persons who manage its operation. The principle is known as the “ veil of incorporation”. This
means there are a veil that separates the company from its members.

This can be seen on case of Salomon & Co. Ltd. Mr. Salomon was a boot and shoe manufacture.
Later on he decided to incorporate his business and become a substantial shareholder. When the
company went into liquidation, the liquidator clamied that Mr. Salomon should be reponsible for the
company’s debt. Hoevwr, the court held that Mr. Salomon owned the majority of share in the
company.

Section 192 (1) stated the liability of the company’s members may be limited. The liabilities of the
company are its own, not those of its members. A company is liable for its own debt.

This can referred on case of Re Application of Yee Yut Ee. Yee was a director of the company. The
company retrenched its staff without paying them retrenchment benefits. The retrenched staff
brought the case to the Industrial Arbitration. The Arbitration then made an award that Yee should
be responsible for the retrenchment benefits. The case was later brought to the High Court. The
High Court quashed the award made by the Arbitration, stating that the director is not liable for a
debt of an incorporated company.

Application:

From the question, Ali and Bhaa formed a virgin coconut oil company. After ten years, the company
suffered losses because they mishandle the company. They could not pay their liabilities to the
creditors that cause the company went to liquidation. The liquidator claimed that Ali and Bhaa are
personally responsible to pay the creditors because they are the shareholder of the company.

However, based on the section 20(a), Ali and Bhaa are two separate entities with the company.
They did not personally bound to responsible to pay the company’s debt. The company need to pay
the debts on its own.

Next, section 192(1) stated that Ali and Bhaa as a members of the company did not liable for any
debts. They have limited liabilities because of their are separate entities. The company have to
responsible on their own liabilities.

Conclusion:

Ali and Bhaa are not personally liable to pay the creditors with reference to the Companies Act 2016.
Question 2:

Issue:

1. Whether incorporation of Sinar Sdn Bhd has the effect of incorporation?

Principle of Law:

A company is an incorporated association. This mean that a company is a corporate body. Once
formed and registered a company becomes an artificial legal person that exists independently from
its individual members. Expect for professional firms, any business organization with more than 20
members must be incorporated as a company. There is no limit to the number of the members
except for a private company which maximum number of member is 50. A company is governed by
the law and is registered under the Companies Act 2016 (CA 2016).

Incorporation of a company has the following effects as derived from Sections 20 and 21 of the
companies Act 2016. There are six effects of incorporation likes Separate legal entity under section
20(a) and the liability of the member may be limited under section 192 (1).

Section 20 stated that the company is a body corporate with the power of an incorporated company
which is the legal personality that is separate from its members and a company has a perpetual
succession [Section 20 (a) and Section 20 (b)].

Section 21 of the companies Act 2016 stated that a company may sue and being sued in its own
name (Section 21(1)(a)), a company may acquire, own , hold , develop or dispose of any property
(Section 21(1)(b)) and a company may enter into transactions (Section 21 (1)(c)).

Based on section 20 (a) the law treats a company as a separate legal person from its member and
the persons who manage its operation. The principle is known as the “ veil of incorporation”. This
means there are a veil that separates the company from its members.

This can be seen on case of Salomon & Co. Ltd. Mr. Salomon was a boot and shoe manufacture.
Later on he decided to incorporate his business and become a substantial shareholder. When the
company went into liquidation, the liquidator clamied that Mr. Salomon should be reponsible for the
company’s debt. However, the court held that Mr. Salomon owned the majority of share in the
company.

Based on section 21(1)(b), a company can own property on its own behalf. Even if a person owns all
shares in the company, he does not own the company's property. All assets, right and liabilities
incidental to the company's activities belong to the company and not to any members or
shareholders.

This can be seen from case of Macaura v Northen Assurance Co. Ltd. Macaura owned a timber
estate. He sold all the timbers on the estate to a company in exchange of shares in the company. He
also insured all the timbers sold in his own name rather than in company's name. Two weeks later,
the timbers were destroyed in a fire. Macaura claimed for the loss but the insurance company
refused to pay. The court held that when Macaura sold the timbers to the company, he gave up his
interest in it. The insurance claim was void since he bought the insurance in his own name, but the
timbers belonged to the company. Thus, the insurance company was not obliged to pay.
Next, In certain situations, the veil of incorporation may be lifted. Therefore, the company and the
members/ become no longer a separate body. The effect of this is that the members and the officers
can be made liable for the company's debts or liabilities. This is known as the lifting up of the
company veil.

Based on Section 539(3) and Section 540(2), when debts are contracted at the time when the
company has no ability to pay. The officer must really acknowledge the ability of the company to
repay debts when he made a make a contract with the company. If he knows or has reasons to
believe that the company is not in a position to repay debts, but still entered into the contract, he
will be personally liable for the debts when the company goes to liquidation. He did not liable for the
debts if he did not know about the company’s financial problems before.

thirdly, When the company is used to evade legal obligation or abuse of legal rights.
The separate personality doctrine cannot be used for evading legal duties or to commit fraud. If this
happens, the court will more often than not, lift the veil of incorporation.

This can referred on case of Jones v Lipman. Lipman agreed to sell a piece of property to Jones. For
some reason, he changed his mind. To avoid having to transfer the property to Jones, Lipman set up
a company of which he was the sole controller and transferred the property to the company.
Eventually, Lipman offered to pay damages for the breach of contract. Jones sought an order of
specific performance. A defence was raised that the company was not the party against whom
specific performance could be ordered. Held: the company was a creature of Lipman, a device and a
sham, a mask that he holds before his face in an attempt to avoid the eyes of law. Both Lipman and
the company were ordered to specially perform the contract to sell the property.

Application:

From the question, Sheila and her husband are two separate entities with the company. Sheila and
her husband

Conclusion:

In conclusion, incorporation of Sinar Sdn Bhd has the effects which is section 20(a) and Section 21(1)
(b).

Juara Sdn Bhd

Saleem can take legal action to Sheila. He will get the apartment.