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| NOTICE: Due to overwhelming response in posting questions and limited volunteer panel lawyers, we have to temporarily stop receiving questions. Please do not post any questions till further notice. |
| Area of Law: Company Law | | Q: | My company has signed a contract with Company A. Subsequently, this Company A has breached the contract. However, I discovered that they are only a 2 dollar company (paid-up capital is only RM2.00). The contract sum is RM75,000. Can I sue them and get the RM75,000 or am I only entitled to RM2.00 from them? Lina from Puchong |
| | A: | It really depends on what type of Company A is before considering whether to present a Section 218 action pursuant to the Companies Act 1965 (“the Act”) to wind-up Company A. Hence it is necessary to peruse the Memorandum and Articles of Association of Company A to determine what is the best remedy for you.
Assuming that Company A is a company limited by shares, Section 4(1) of the Act defines “a company limited by shares” to mean “a company formed on the principle of having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them”. Section 214(d) of the Act states that “in the case of a company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member.”
If the shareholders have fully paid up its shares, there is no further liability to contribute to the payment of the company’s debts should the company become insolvent. The practice in Malaysia when incorporating a new company would generally be to subscribe to an authorized capital of RM100,000, hence, on the face of the question, it would seem there is a remedy for you.
Ivan Chen
Advocate & Solicitor |
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| Note: Click the Question to read the Answer | | Area of Law: Company Law | | | A: | Firstly, it is advisable to lodge a police report against the salesman concerned immediately for criminal breach of trust as there are criminal elements here.
Secondly, you may institute a civil suit against the salesman concern to recover the payment allegedly paid by your client. Since the salesman has disappeared, your chances of recovery may come to a naught, however, it is advisable to do so; as your auditor may want to see some actions being taken before he could write-off the sum in your accounts.
The question of whether you should continue to provide services to this particular client would depend on the previous course of dealings between you and the client, i.e. whether the salesman concern is authorized to collect payments from clients. You client may argue that the agency rules is applicable here, if there are previous consistent dealings that the salesman had consistently collected payments from him/her and services are continuously provided bearing in mind that authorization can be expressed or implied. In such situation, any refusal to provide services to this client may expose you to the risk of breaching the contract. It is, therefore, necessary to consider the previous course of dealings and the nature of contract between you and your client before conclusive advice can be given.
It is also a little unusual that the salesman is able to abscond with the proceeds of payment unless it is cash payment. As a matter of prudence, it is advisable to state clearly in your invoices that all payments made in cheque shall be made to the company directly.
Ivan Chen
Advocate & Solicitor |
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