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Company Law Case Essay

2942 words - 12 pages

Question 1

The main parties involved in this issue are Wong Siu Long (“SL”) and Wong Siu Foong (“SF”), who are siblings. Both of them are involved in the running of their family business, Weng Fatt Jewellers Pte Ltd (“WFJ”), which manufactures and sells contemporary fine jewellery. In WFJ, SL handled the core business while SF was in charge of designing and ensuring the quality of the jewellery. In 2000, SF effectively retired from the business, but SF still had a significant influence on the company. Furthermore, SF held 25% of share capital when WFJ was duly incorporated. Later, SF was appointed as a director of the company. Subsequently, SL insisted that the following provision be ...view middle of the document...

Astbury J said that “no right merely purporting to be given by an article to a person… in a capacity other than that of a member, as, for instance… director, can be enforced against the company.” Hence, SF cannot enforce the provision against WFJ as the position of director is “in a capacity other than that of a member.” However, there has been much debate over the Hickman principle. It was argued that “a member had a membership right to require the company to act in accordance with its articles, which right could be enforced by the member even though the result was indirectly to protect a right which was afforded to him in another capacity, for e.g., as a

director.”1 This effectively goes against the Hickman principle. The English Company Law Review tried to determine if a reform regarding the Hickman principle was necessary, but there was a lack in response to the proposition. Thus, the Hickman principle continues to stand in the law as of today. The provision is, therefore, ineffective. Another alternative argument is that SF did not exercise her duty as a director of WFJ. Under s157(1) of the CA, it states that: “A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.” This means that “directors must exercise their discretion bona fide in what they consider is in the interests of the company.”2 The amount of remuneration stated in the provision could be better used for the business’s operations i.e. marketing efforts to gain more customers. Thus, the provision is ineffective for SF is not acting in the interest of WFJ. SF was also no longer interested in performing an active role in WFJ. According to Walter Woon, “Directors who do not perform valuable services for the company are not entitled to the right to be remunerated.”3 The group concludes that the provision is ineffective. The arguments are based on the Hickman principle and that SF did not exercise her duty as a director nor contribute substantive service to the company. Hence, SF has no right to enforce the provision against the company. II. Question 2

WFJ issued a writ against First World (“FW”) to claim damages for breach of warranties and misrepresentation. Due to the financial crisis, FW’s assets were devalued and were transferred to its parent company. Assuming that FW does not have enough resources to pay WFJ for the damages, Samuel (WFJ’s managing director) should be concerned about the restructuring of the group because it will affect the amount that it can claim from the FW or the group. Therefore, the bigger issue is whether WFJ can claim the damages from FW’s parent company. In Salomon v A Salomon & Co Pte Ltd [1897], it was held that the veil of incorporation creates a separate legal personality and a company should be treated like an independent person. In Gramaphone and Typewriter Ltd v Stanley [1908], it was held that the business run by the subsidiary was not the holding company’s business. In the...

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