Tutorial 2

Question 1

Abu and Bakar are the directors of Baguz Sdn Bhd. They each hold 20% of the company’s
issues shares. The constitution of the company stated, inter alia that “Director may in their
absolute and unfettered discretion, refuse to register a transfer of shares.”

Mika, a member, wishes to transfer his shares to his cousin Keno. However the director have,
in exercising their discretion under the constitution, refused to approve the transfer by saying
that Keno is a member of the opposition party.

Advise Mika.

Answer:

The issue is whether Mika can claim that refusal of registration of transfer of shares
against the directors of Baguz Sdn Bhd lack of bona fide?

According to Section 106 of the Companies Act 2016, it is provided that the
constitution may provide that directors may, in their absolute and unfettered discretions,
refuse to register a transfer of shares. Where there is such discretion, it must be exercised
bona fide for the interest of the company as a whole.

Furthermore, if the directors give reasons for the refusal, then the reasons may be
challenged for unreasonableness, but issue always arises when the directors do not provide
reasons for refusal to register a transfer of shares. In the case of Re Smith & Fawcett, the
company had S & F as two shareholders holding equally 4001 shares each. Both are
directors. One of them died and the son of the deceased apply to the company to transfer
4001 shares of his father to him. The director, having discretion said that 2000 shares must be
transferred to somebody else and the balance transferred to the son. The court held that the
son was not able to proof that the director did not exercise the discretion in bona fide for the
benefit of the company. The discretion stands.

The directors can refuse to register a transfer without giving any reason. The
transferee can only compel registration if he can show lack of bona fide. Court will presume
that the directors exercised their powers honestly, unless it appears otherwise on the face of a
document or in the confession of the directors. Pursuant to the case of Kesar Singh v Sepang
Omnibus, when the directors of a company are given by the AOA absolute and uncontrolled
discretion with regard to registering a transfer of shares, the only limitation on the director’s
discretion is that it should be exercised in bona fide for the interest of the company.

In this situation, Abu and Bakar have absolute discretion and unfettered discretion to
refuse to register a transfer of shares as it is already stated in the constitution of the company.
Furthermore, applying the case of Re Smith & Fawcett, Mika has to proof that the director
did not exercise the discretion in bona fide for the benefit or interest of the company. In this
case, the directors refused to approve the transfer by saying that Keno is a member of the
opposition party. Moreover, applying the case of Kesar Singh v Sepang Omnibus, Mika can
compel registration of the transfer of shares as the reason for refusal lack of bona fide.

In conclusion, Mika can compel registration of transfer of shares to Keno on the

ground that the director’s refusal lacks bona fide.

Question 2

Tommy, the registered holder of shares left the share certificate with his broker, Lim.
Tommy’s signature was forged by Lim and the transfer the shares in favour of Suzy. Amy
bought the shares from Suzy and a new share certificate was issued to her. Later the fraud
was subsequently discovered. Tommy claimed that he is the owner of the shares. The
company later restore his name in the register.

Who has the right to shares?