Ultra Vires Case Study

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Under common law if a transaction is ultra vires, it cannot be enforced by the company nor ratified by the members. The strict application of this doctrine often created problems because it became an easy excuse for a company to avoid legal obligations. As a result, the third parties cannot exercise their legal rights under a contract. The intention of doctrine ultra vires was to protect the shareholders as well as creditors. Shareholders have a right to know what are the activities of the company in which they are investing, and ensure that the company keep within those activities allowed. The creditors on the other hand would be protected as the company could only use their money for the activities stated in the object clause. The doctrine…show more content…
Under Malaysian Company act, the minority has their own right towards the company as they also members of the company. The rights included to have the memorandum and articles observed, to restrain the ultra vires and illegal acts, to have access to the company’s records and have certain information to be provided to them, to attend and vote at the general meeting as well and to be treated fairly as well. If the company denies a shareholder can bring an action on behalf of himself and all other shareholders denied the right to enforce the right that have been infringed. In case Pender vs Lushington, Pender (transferee) acquired shares from transferor and he was asked to vote or elect in accordance with the transferor’s direction. Unfortunately, the transferee’s vote is rejected at general meeting. Pender brought an action against the director. The court held that Pender as a member of the company has a right to bring an action as his claimed falls within the exemption to the rule in Foss vs Harbottle. This is because Pender as a member of the company deserves to vote and he has a right to sue if the right

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