An introduction to company law in malawi

University of Malawi I l il I { I^"^r*; a) "U4-" INTRODUCTION TO COMPANY LAW IN MALAWI - An lntroduction to Company Law in Malawi ^t ,t l' ',,I '-.iF'/.( / CH Chilumpha, LLB, PhD Head of Business Studies Department and Dean ol the Faculty of Commerce Published by: lnterlink Trade cc University of Malawi I \ AN INTFODUCTION TO COMPANY LAW IN MALAWI TO COMPANY LAW IN MALAWI Directors' duties Directors' remuneration Contents ' Remedies against directors Loan to directors The board of directors Termination of aPPointment Preface Table of cases 80 81 82 83 ({1, I Auditor '-' Company officers CHAPTER The Company The Company Secretary The Company Manager The formation of a comPanY 12 17 19 Promoters lncorporation Classification of comPanies The filing of documents 27 F; 38 38 39 40 r+ ta CompanymembershiP Companymeetings Noticeatgeneral meetings / meetings Proceedings at the generai meeting ' ; Directors Persons entitled to attend general ffi:,ilH1l-:::::: rr i! \t2' "" """' """' '''' 49 51 53 ' 56 57 CompanY liabilitY I 'tt'l 70 99 101 102 " r(finance- Share capital ', \ EL-' *i- :tr' ' lssue and allotment of shares Share distinguishing number Slrare certificate Share warrant Share trust Classification of shares Transfer of shares Transmission of shares bY law Offering shares to the Public 110 111 113 113 114 119 120 121 127 Prohibition of the return of capitalwhile the company is a going concern 103 112 112 'Fi 10 Maintenance of share capital 'ti 67 69 9B Considerationforshares "" """ 92 protection The rule in Foss v Harbottle Common law excePtions ' Company ;+l Share '\-)' 43 45 com The management of a company ( 90 Statutory excePtions i'y Corporate personalitY Lifting the corPorate veil 90 Enforcement of controllers' and directors' duties and minority 33 The legal status of a comPanY 87 Liability through directors' acts ' Liability through the company secretary's acts Liability through the company manageds acts 24 The constitution of a company The Memorandum of Association ' ' Alteration of the Memorandum Articles of Association Relation of Articles to the Memorandum Effect of the Articles Alteration of Articles Alternatedirectors Registerof directors /0 7B AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI Prohibition of financial assistance by a company for the purchase of its shares Prohibition of a company's acquisition of its ovrn shares Redemption of redeemable shares Payment of commission or discount on shares Application of share premiums Payment of dividends Reduction of share capital 132 134 135 136 139 140 143 ,t" - 11 Company finance- Loan capital q- ' Powertoborrow ) 149 150 150 Debentures and debenture stock The issue of debentures The debenture trust deed Liability of the trustees Classification of debentures The issue of debentures at a discount Security for debentures Registration of charges Priority of charges Satisfaction of a charge Remedies for debentureholders 162 j.ln '^175 176 178 178 180 180 13 Company taxation Filingof thecompanyconstitution Thecompanypublicofficer Returns Payabletax Shareholders who are absent from Malawi 14 Schemes of arrangement and take-overs A scheme of arrangement or compromise under section 198 15 Externalcompanies 183 .183 .184 185 188 190 Pegistration requirements Obligation to state name Regulations as to localdirectors Accounting records and accounts Registration of charges Public invitation {or debentures and shares Cessation of business Notification of winding uP Windingup 1gti 198 199 200 2C1 I 152 152 165 166 Keeping accounting records Accounts The directors' report The company auditor's report Circulation of accounts and reports The annual return Compulsory winding up by the court Voluntary winding up by members Voluntary winding up by creditors Special provisions for the protection of creditors' and members'interests 151 161 i 15 Winding up and dissolution of a registered compan Liability at members to contribute towards the settlement of debts ' ' Dissolution of a registered company 156 157 12 Company accounting records, accounts and financial reports A scheme involving reconstruciion or amalgamation An arrangement between a company and its members under section 263 An arrangement between a company and its creditors under section 266 Directors Compensation A take-over under section 201 -t! 208 219 ?-23 224 235 235 240 241 242 243 244 244 245 245 246 l lndex 248 I .ur,{ \ - AN INTRODUCTION TO COMPANY LAW IN MALAWI Table of Cases ACompany,Re(1983) AOompany,Re(1983) ACompany,Re(1984) Allen, Craig & Co Ltd AmmoniaSodaCoLtdvChamberlain Andreae v Zinc Mines of Great Britain Anglo-African Shipping Co LtdvDharrap Automatic Bottlemakers Ltd, Re Automatic Self-Cleansing FilterSyndicatev Cunninghame Baille v Oriental Telephone Company Ltd BainbridgevSmith Barronvpotter -.' '.106 -"" 107 .210 - ' ' 179 - 142,215 139 ' 194 ' ' 164 61 ' Bechuanaland Exploration Co Ltd v London Trading Co BedeSteamShippingCoLtd,Re Benjamin Cope & Sons Ltd, Re BisgoodvHendersonTransvaal Estates Ltd Bolton&CoLtdvGraham&SonsLtd BondvBarrowHaematiteSteel Booth v New Afrikander Gold Mining Co Ltd Boston Deep Sea Fishing Co Ltd v Ansell Brazilian Rubber Plantations & Estates Ltd, Re ChoppingtonCollieriesLtdvJohnson CityEquitable Fire lnsuranceCoLtd, CollenvWright CookvDeeks Re 100 130 75 141 112 72 38 1O7 """' EbrahimivWestbourneGalleriesLtd 127 " ' " Re " Eddystone Marine lnsurance Co Ltd, '"' 105 EldervElder ' ' ' ' ' ' ' 39 ' EleyvPositiveGovernmentSecurityLifeAssuranceCoLtd " 197'220 195' Re Bank, ' '' enjtisn, Scottish & Australian Chartered 13' 14 Ertinger v New Sombrero Phosphates 103 """' EstmincoLtdvGreaterLondonCouncil 102,208 ' 69 64,67 156 ' 129 Ltd 163,216 ' ' 199 " 93 .115,215 138 73,211 ' ' 71 146 ' British&AmericanTrusteeCorporationvCouper 103 40, Brown v British Abrasive Wheel Co Ltd ' .2O3 BuglePressltd,Re 225 ButlervBroadhead Carlton Holdings Ltd, Re Carruth v lmperial Chemical lndustries Ltd Centraf Associates Ltd, lnThe Matterof Chatterley-Whitfield Collieries Ltd, Re """' "" ""' ""' ""' ""' """' DeBuschevAlt DerryvPeek DiamondvOreamuno Dimbula Valley Tea Co Ltd v Laurie DixonvKenniwaY&Coltd DoveyvCory DuncanGilmour&Coltd,Re 201 52,197 211 '144 54 70 80 103 101,102,108 Foss v Harbottle ""' GeneralAuctionEstateLtdvSmith GethingvKilner Gilford-MotorCoLtdvHorne GlucksteinvBarnes Goy&Coltd,Re Greymouth-PointElizabethRailway&CoalCoLtd, Grierson, Oldham & Adams Ltd, Re Harmer Ltd, Re Hedley Byrne & Co Ltd v Heller & Partners Ltd Hely-Hutchnison v BraYhead Ltd ' ' Hickman v Kent Hilder v Dexter Holders lnvestment Trust Ltd, Re ' ' Holdsworth & Co Ltd v Caddies Horbury Bridge Coal, lron & Wagon Co Ltd, Re ' ' Howard v Patent lvory Manufacturing Co Ltd lndefund v Manguluti & Manguluti lndustrial Development Consultants Ltd v Cooley lron ShiP Coating Co Ltd v Blunt Re' ' ' 215 " 191 ""' 46 """ 13 "" 154 ' " ''' 75 " " ' 202 105 130 93, 95, 97 39 137 145,207 83 ' 58 97 159,168, 174 73 84 - AN INTFODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI .62 JohnShaw&SonsltdvShaw Kumchenga lndustries Ltd, lnThe Matterof Kushlerltd,Re Labellndustries Ltd v SEDOM Leeds & Hanely Theatres of Variety Ltd, Re Lennards' Carrying Co Ltd v Asiatic Petroleum Co Ltd London Pressed Hinge Co Ltd, Re LongmanvBath ElectricTramways Ltd Ltd MaceBuildersvlunn : Makinsvlbbotson Macaura v Nodhern Assurance Co 174,210 .230 16, 158 14 48,92 168 120 43 228 .169 108,211 Mapanga Estates Ltd, ln The Matter of .71 Marquisof Bute'sOase,The Mdinde Estate Ltd v Commercial Bank of Malawi Farm Services Ltd 171,174 .63 MetalimpexvAGLeventisCoLtd Metropolitan Coal ConsumersAssociationvScrimgeour 139 144 MeuxBreweryCoLtd,Re 210 MiddlesboroughAssembly RoomsCo Ltd, Re 95 MorrisvKansen 157 MosleyvKofyffontein 131,215 MoxhamvGrant 55, 65, 114 Musselwhite v CH Musselwhite & Son Ltd 43 Naidoo v Mazi lmport & Export & Tchongwe Nali Farms Ltd & Kholomana v National Seed Company of Malawi 15 NationalBank, Re NFU Development Trust, Re Nyasaland Civil Servant Co-operative Society Ltd, Re Old Silkstone Collieries Ltd, Re Ooregum Gold Mining Co of lndia v Roper 191 193 220 OxfordBenefitBuildinglnvestmentSociety,Re PacayaRubber&ProduceCoLtd,Re Palmer's Decoration & Furnishing Co Ltd, Re Panorama Development Ltd v Fidelis Furnishing Fabrics Parker&CoopervReading 145 136 141 124 155 Ltd , 98 60 Parker-KnollLtdvKnoll lnternationalLtd PatridgevRhodesiaGoldfields Pendervlushington PercivalvWright Potters Oils, Re - 30 "."." 63 76 154 "' " 231 RafsanjanPistachioProducersCo-operativevRice 46 .39 RhyfieldvHands 73 Regal(Hastings)LtdvGulliver ' 49 RepvJack&Ferret 78,211 Re Ltd, Co Property Richmond Gate Roith(W&M),Re ".'.".72 Rolled Steel Products Holding Ltd v British Steel Corporation 94 Royal British Bank v Turquand ' 77,97 93' 95 RubenvGreatFingallConsolidated ".169 SaltervleasHotelOoltd Savoy Ltd, Re 163, 194, 197,207,220 ScottishCo-operativeWholesaleSocietyvMeyer.' '105 seddonvNESalt SEDOM v Gep Shoe Co Ltd & lndefund ShearervBercain """' .140'214,215 Shuttleworth v Cox Bros & Co Ltd SidebottomvKershawLeesCoLtd Smith & Fawcett Ltd, Re SmithLtdvAmpol PetroleumLtd Smith, Stone & Knight Ltd v Birmingham Corp Societe Generale de ParisvTramways Union Co Ltd Spearhead Enterprises Ltd, lnThe Matterof ' Spencerv Kennedy Steenvlaw Sussex Brick Co Ltd, Re Syston &ThurmastonGas, Light&CokeCoLtd - - Nattrass TiessenvHenderson TrevorvWhitworth Twycross v Grant ' 39' 212 ' : 41 ' 129 ' 73 47 114 196, 199 69' 208 .133 168,203 115 45, 92' 99 Tesco Supermarkets Ltd v Transvaal Lands Co Ltd v New Belgium Co 124 164,217 Ltd 53'54'193 ' ' 74 134 12 1O - AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MAI AWI W^ lt UnangoEstatesLtd&ChigambavMichael Underwood Ltd v Bank of Liverpool& Martin Ltd UnitConstruction Co LtdvBullock .174 44,98 47 WallvExchangelnvestmentCorp WallvLondon&NofthernAssetsCorp WallersteinervMoir(No 1) WallersteinervMoir(No.2) WebbvShropshireColtd WeltonvSaffery WestCanadianCollieriesLtd,Re WheatleyvSilkstone & Haigh MoorCoalCo Ltd WhitelayvChallis Woodroffes (Musical lnstrumenls) Ltd, Re WorcesterCorsetryLtdvWitting Wragg Ltd, Re 57 56 46 .132 156 When this book was first published, the overriding idea was to provide a basic 55 163 .169 159,216 67 Accountancy students in the light of the Companies Act, 1984 Because of that, many matters of detail and style were considered unimportant However it has become clear in the course of the book's usethat itcannotcontinue in its original form- both in terms of content as well as layout And it is for this reason that less than a year on, I have decided to have it reprinted Yorkshire Woolcombers Association, Re 136 F T'.'-,1ulu- t' - E'',,y F:t p L!1.*-,,J'7,,: Preface ' ( iJc G'ld introduction to company law in Malawi to University and Malawi College of 127,214 136, 158, 163 ln this reprint three major changes have been introduced First, is the omission of any reference to the ultra vires doctrine lt is my view that the doctrine is a historical relic which is of impofiance only to students of legal history Consequently I believe that there is no justification to continue devoting space to it in a modern company law text book like this one Second, major parts of chapters 5, 6,7 ,8, 9, 10, 12-14 have been rewritten ln fact whole chunks have been expunged from chapter 12 This is because in the light of my book entitled COMPANY ACCOUNTING LAW lN MALAWI, I feel that they need no longer be part of this book And lastly, footnotes, an index and a preface have been added to the book The result therefore is that the book is now better than when originally presented to the reader Having said that, let me take this opportunity to express my gratitude to RPC for financially supporting production of this edition I am also greatly indebted to Ralph Mhone (Assistant Company Secretary for Brown & Clapperton) for drawing my attention to matters which I had overlooked in the first publication Special mention should also be made of to my third year students over the last three academic years for contributing in no small measure to the evolution of this book O{ course although I share the pleasure of producing the book with all these people, any shortcoming in the exposition of the law is entirely mine CHC, Chichiri, July, 1991 "4 12 _ AN INTRODUCTION TO COMPANY LAW IN MALAWI Chapter One (tt \ The Formation of a Company Just like a co-operative and a partnership, a company is a means through which business is carried on The reason tor choosing it rather than the f irst two, is the desire (inspired by advantages, such as limited liability, which will emerge in later chapters of the book) to carry on the business through an organisation which has an independent personality ln other words, the idea behind the choice will be to have the business run by an organisation which is distinct f rom its own membership and management and which, therefore, trades in its own right Such a business entity has been recognised for many years The law not only allows its creation but also confers on it the capacity of a natural person As shown more fully in Chapter 3, an incorporated company has perpetual succession Besides, subject to limitations inherent in its corporate characier, it has full legalcapacity to employ and dismiss people, buy and sellgoods and services, contract debts and other forms of legai liability, and own property of all kinds Moreover, it can be bought and sold 1.1 Promoters Persons who are forming a company occupy a very crucial position vis-a-vis the nascent company They will hold money or property for it; make statements in respect of rnvitations for its shares and debentures; acquire property for its use after incorporation and enter into transactions for its benef it Undoubtedly these activities create opportunities for the abuse of that position And to prevent that abuse, both the Companies Act and the common law impose duties on any person who can be described as a'promoter'of a company Now although the Act uses the word 'promoters' in Sections 60(4), 173(2) (c) (ii)and299 (1), itdoes notdefinetheword However, atcommon law, apromoter is the person who takes or participates in taking, steps necessary for the formation of a company and to set it on its feet As Cockburn C.J said in Twycross v Grant (1877): AN INTBODUCTION TO COMPANY LAW IN MALAWI - 13 "A promoter is one who undertakes to farnr a company with reference to a given praject and to set ii going, and who takes the necessary steps to acco mpl i sh th at pu rpos e" ttl Similarly, in the case of Erlanger v New Sombrero Phosphates Co (1878) Lord Cairns L.C said: "[Promoters] have their hands in the creation and rnoulding of the company;they have the power cf defining how, and when, and in what shape, and under what supervision, it shall start into existence and begin to act as a trading corporation" r2t ln other words, a promoter wili conceive the company and its business, find directors for it, make invitations {or its shares, pay its preliminary expenses and other things to ensure that it is ready to operate immediately after incorpo- ration He may later become either director or member of the company Of cgurse a legal practitioner who handles legal technicalities of the formation process is not a promoter This is because he is employed and paid to that job On the other hand, the person who engages him will be a promoter 1.1.1 Duty not to make secret prolits A promoter owes a fiduciary duty to the company he is forming As a result of that duty, he is not allowed to make any secret profit from any transaction between him and the company lf he makes such a profit, he must disclose it to an independent board of directors or to the company's existing and future shareholders Should he failto that, the company can compel him to account for the profit to it in the case of Gluckstein v Barnes (1900)t31 a syndicate bought property for t140,000 and resold it at e 80,000 to a company which had been formed by the syndicate to purchase the property A prospectus issued by the company disclosed the sum of f40,000 earned on this sale as the only profit made by the syndicate on the deal lt tailed, however, to disclose that a further profit of t20,000 had been made by the syndicate from the sale of charges on the property which it had earlier bought at a discount and for which it was repaid in full out of the t140,000 paid for the property lt was held that the syndicate was bound to pay to the company the secret profit of !20,000 lf the profit is made from a sale by the promoters to the company, the latter will also be entitled to rescind the contract of sale This will involve refund of the purchase price and return of the property sold ln the case of Erlanger v New 1, 14 - AN INTROOUCTION TO COMPANY LAW IN MALAWI Sombrero Phosphates Co Ltd (1826;trl the appellants formed a syndicate which bought the lease of an island at f55,000 Subsequently, the syndicate created a company to which it resold the lease at t1 10,000 No disclosure was made of the profit made by the syndicate on the deal lt was held that the company was entitled to rescind the contract of sale Lastly, the promoters may also be sued by the company for damages for breach of their fiduciary duty This is illustrated by the case of Re Leeds and Hanley Theatres of Variety Ltd (1902;tst ln this case a company acting through its nominee, bought hallsfort24,000with the intention of re-selling them to another company which it was intending to form When this company was formed, the halls were sold to it at e75,000 A prospectus was later issued by the new company which showed the nominee as the seller oJ the halls but did not disclose the first company's interest in the sale or the profit made out of the transaction lt was held that because of the failure to make the disclosure, the first company was in breach of its fiduciary duty for which it was liable to pay damages to the second company I I It should be noted that the fiduciary duty exists as long as the promotion continues ln other words, it will not cease simply because subsequent to the commencement of the promotion but before its completion, the p.romoter becomes director or member of the company Similarly, if the process includes the setting up of the company as well as procurement of its working capital, the duty may continue even after the company has been incorporated 1.1.2 Liability under pre-incorporation contracts Apart f rom breach of the fiduciary duty, a promoter may also be liable because of what are called 'Pre-incorporation Contracts' These are contracts entered into on behalf of a company not yet formed to procure some of the things such as premises, office equipment and vehicles, which it will need to operate after incorporation Since the company will be non-existent at the time of such a contract, it will obviously not be a party to the contract Therefore, applying the general principles of contract law, it cannot sue or be sued under the contract This is re-enforced by the law of agency which states that where a person purports to enter into a contract on behalf of a principalwho is non-existent, the latter cannot, on coming into being, ratify that contract Consequently, it is that purported agent who will be liable to discharge the liability created by the contract These principles of law have been incorporated into the Companies Act t J 238 - AN INTRODUCTION TO COMPANY LAW IN MALAWI Section 226(2) 40 Section 226(5) 41 Section 233(1)(a) 42 Section 233(1)(b)(c) 43 Section 233(3) 44 Section 233(6) 45 Section 238(1) 46 Section 239(1) 47 Section 240(1) 48 Section 240(3) 49 Section 242(1') 50 Section 235(1) 51 Section 269 52 Section 245(2)(a) 53 Section 245(2Xb) 54 Section 247(1) 55 Section 247(2) 56 Section 250(1) 57 Section 250(2) 39 58 59 60 61 62 63 64 65 66 67 68 69 70 71, 72 73 74 75 76 77 78 [1e23-60]ALR (Mal) e Section 248(3) Section 262(1Xb) Section 262(1)(c) Section 263(1) Section 267(1) Section 251(1) Section 264(1) Section 265(1) Section 254(1) Section 254(2) Section 257(2) Section 257(1) Section 256(1) Section 286(1) Section 68 of the Bankruptcy Act [1974] All ER 401 Section 287(10) Section 287(8)(a) Section 287(8Xb) Section 287(3) AN INTRODUCTION TO COMPANY LAW IN MALAWI 79 Section 287(5) 80 Section 289 81 [1e8s] WLR 465 82 Section 288(2)(a) 83 Section 288(2Xb) 84 [1943] All ER 22 85 [1986] Ail ER 890 86 Section 291(4) 87 Section 291(2) 88 Section 292(1Xb) 89 Section 292(2XaXb) 90 Section 292(2)(c) 91 Section 290(2) 92 Section 290(3) 93 Section 241(1) 94 Section 299(1) 95 Section 205 96 Section 205(a) 97 Section 205(b) - 239 240 - AN INTRODUCTION TO COMPANY LAW IN MALAWI Chapter Sixteen External Companies As pointed out in Chapter 1, the Companies Act recognises what it refers to as the'external company' This is delined by Section 306(2) as'a body corporate formed outside Malawi which establishes or maintains an established place of business' here ln this respect an established place of business means 'a branch, management, share transfer, or registration office or factory, mine or other fixed place of business' However, it does not include an agency unless the agent has a general authority to negotiate and conclude contracts on behalf of the body corporate or maintains a stock of merchandise for the body corporate from which he regularly fills orders on its behalf Similarly, a body corporate will not be deemed to have an established place of business in Malawi simply because it carries on business in the country through a broker or general commission agent who acts as such in the ordinary course of his business Again, the fact that a body corporate has a subsidiary which is incorporated, resident or carries on business in Malawi will not necessarily constitute the latter's place of business in the country an established place of business for the body corporate The Act seeks to treat external companies in almost the same way as internal companies Thus external companies must register their particulars and charges which they create over their propefty in Malawi Similarly, they must have directors, some of whom must be local, and must have particulars of the directors registered External companies must also keep accounting records, prepare annualfinancial statements and exhibit their names at every place of business which they maintain The rules controlling public invitations for debentures and shares also apply to external companies And lastly, the Act also provides rules for the winding up and dissolution of these companies 16.1 Registration requirements Section 307(2) requires the registrar to maintain a register of external companies Under subsection (1) every external company which establishes a place of business in the country must within twenty eight days of establishing that place send to the registrar for registration:- aN TNTRODUCTION TO COMPANY LAW tN HALAWI (a) _ 241 a certified copy of the charter, statutes, regulations, memorandum and articles or other instrument constituting or defining the company's constitution; (b) a statement in the prescribed form giving particulars of the company; and (c) such particulars and copies of any charges on the company's property as require registration in accordance with sections g6 and g7 lf there are no charges, the company must send a statement in the prescribed form to that effect Particulars which must be given in (b) above are: the company's name; the nature of its business(es) or main objects; identification of the chairman of its local directors or local manager; the former and present forename(s) and surname, residential and postal address and business occupation of each local director; the number and nominal value of its authorised and issued shares and the amount paid on them; the address of its registered or principal office in the country where it was incorporated; the address of its principal place of business in Malawi and the number of its post office box; and the full name, residential and postal address in Malawi of its documentary agent, that is, the person authorised by the company to accept service of process and other documents on its behalf The registrar must be notified of any alteration in these particulars under Section 308 16.2 Obligation to state name Just like an internalcompany, an externalcompany is obliged to state its name 242 - AN INTRODUCTION TO COMPANY LAW IN MALAWI Section 316(1) requires that it must conspicuously exhibit its name and the name of the country where it was incorporated on every place where it carries on business and on the head of all business correspondence, in Malawi That exhibition must also show whether or not the liability of the company's members is limited Where the company's name is in a foreign language, this requirement will be fulfilled by exhibiting the name in English or any language acceptable to the registrar, as translation of it tu 16.3 Regulations as to local directors Before delivery to the registrar of the documents referred to above, an external company must appoint between three and nine individuals as its localdirectors, one of whom must be designated as the chairman of the local directors t2I These directors will have powers and authority to conduct and manage all the affairs, business, operations and property of the company Besides, every one of them will be deemed to be an officer of the company with the same duties, liabilities and obligations as the director of a company formed and incorporated in Malawi t3l According to section 310(1) no person can be appointed local director of an external company or be named as such in any document sent to the registrar under section 307 unless he is eligible for appointment in accordance with Section 142 as director for a company formed and incorporated in Malawi Of course the acts of any person registered as a local director ol an external company ostensibly done on its behalf in the course of carrying on its business will bind it unless: that director has no authority to the act; and the person with whom he is dealing actually knows of the absence of authority or ought to know of it because ol his position or relationship with the comPanY trl The majority, not less than three, of the local directors must be resident in Malawi t51 Besides, in all its trade circulars and business correspondence where its name appears, the company must state the present and former forename(s) and surname of each local director t6l After the appointment of directors has been made under Section 314 (1), the company is free to vary the number of individuals appointed m However, the variation must not decrease or increasethe number of local directors beyond the AN INTRODUCTION TO COMPANY LAW IN MALAWI - 243 statutory limit imposed by subsection (1) lndeed, the number of local directors for the time being appointed cannot be reduced if the Minister so directs 16.4 Accounting records and accounts Every external company other than one carrying on banking and insurance business must, in relation to its operations in Malawi, keep proper accounting records in English or any language acceptable to the registrar t8l According to subsection (2) accounting records will be 'proper' in this sense if:- they give a true and fair view of the company's state of affairs in respect of its operations in Malawi; they are adequate for the preparation of proper balance sheets and profit and loss accounts in accordance with the Act; and they explain the company's operations and transactions For these reasons, the records must show: (a) all sums of money received and expended by the company in the course of and for the purpose of its operations in Malawi, and the sources f rom which the money was received and the transaction in respect of which the expenses were incurred; (b) all sales except ordinary retail sales and purchases, by the company in the course of its operations in Malawi; and (c) the assets and liabilities of the company relating to its operations in Malawi and its members' interests in those assets and liabilities Section 312(1) also places every external company except those which carry on banking and insurance business, under a duty to prepare and send to the registrar f or registration at least once every calendar year, a balance sheet and a prof it and loss account lf the company is a holding company, it must prepare group accounts instead These accounts must contain the same particulars as would be required in the company's country of incorporation Besides, the company must also send to the registrar for registration: a profit and loss account giving a true and fairview of its prof it or loss in respect 244 - AN INTRODUCTION TO COMPANY LAW IN MALAWI of its operations in Malawi as if those operations had been conducted by an internalcompany during the period to which the account relates; a balance sheet giving a true and fair view of the company's state of affairs in respect of its assets and liabilities attributable to its operations and properties in Malawi as if those assets and liabilities were of an internal company at the end ol the period to which the balance sheet relates; a statement as at the end of its financial year showing its assets which are situated in Malawiand the nature and amount of any specific charges on them The assets must be classified, distinguished and valued in the prescribed manner a report on the statement and the accounts made by an approved auditor The report must state whether or not in the auditor's opinion, the accounts and records are in accordance with the company's books and records and give the information required by the Act and a true and fair view of the matters stated in them 16.5 Registration of charges External companies must also register charges which they create on their property in Malawi According to Section 317, Sections 86 to 95 apply to such charges as if they were created by an internal company However, charges created before the company had established a place of business in Malawi will be deemed to be registered if their particulars are delivered to the registrar for registration in accordance with Section 307(1)(c) 16.6 Public invitations for debentures and shares Section 322 provides that Sections 164 to 178 relating to prospectuses will also apply to any invitation made in Malawito the public to either: (a) acquire ordispose of any debentures or shares of an externalcompany or (b) to deposit money with that company for a lixed period Any prospectus issued in respect of such an invitation may, in addition to complying with Section 168, have to contain particulars with respect to: the instrument constituting or defining the company's constitution; AN INTRODUCTION TO COMPANY LAW IN MALAWI - 245 the lawor legal provisions by or underwhich the companywas incorporated; the address where these can be inspected; and the date when and the country where the company was incorporated tsl The prospectus or any advertisement or circular published in connection with the invitation must also state the company's principal established place of business in Jvlal2 vi Itol 16.7 Cessation of business Section 320 allows the registrar to strike an external company off the register in two situations First, if the company ceases to have an established place of business in Malawi and within twenty eight days thereafter, it delivers notice to him to that effect Second, if he has reasonable cause to believe that it has ceased to have an established place of business in Malawi and after writing to the company to enquire into the matter, (a) he receives an answerto the effect that the company has ceased to have an established place of business in Malawi; or (b) he does not receive any reply within three months; or (c) he receives a reply that the company is maintaining premises as an established place of business in Malawi but he is not satisfied that the premises qualify as such a place under the Act 16.8 Notification of winding up According to Section 318, local directors and the documentary agent of an external company must notify the registrar of its winding up within twenty eight days of the occurrence of the following events: (a) the making of a winding up order by a court of the country of its incorporation; (b) the passing of a resolution or the taking of proceedings in that country leading to the company's voluntary winding up; or (c) the company's dissolution or cessation of business according to the law of that country TO COMPANY LAW IN MALAWI The local directors must also conspicuously state on every invoice, order or business letter issued in Malawiwhere the company's name appears that it is being wound up in the country of its incorporation tril of course on the company's winding up in Malawi under section 819, the court may direct that its transactions be deemed valid although they were concluded after it was dissolved or ceased to exist according tothe law of the country where it was incorporated tr2l 16.9 Winding up An external company may be wound up whether or not it has been dissolved or has ceased to exist in the country of its incorporation r13r subject to section 319, provisions of the Act governing the winding up of internal companies also apply to the winding up of external companies tlar However, unlike internal companies, external companies can only be wound up by a court order And afterthe order is made, the company will be treated as if it were an internal company so that only its assets and liabilities in Malawi will be affected by the winding up nsr 16.9.1 Grounds for winding up According to section 319(4), an extemalcompany may be wound up bythe court if: (a) it is in the course of being compulsorily or voluntarily wound up in the country where it was incorporated; (b) it is dissolved in that country or ceases to carry on business in Malawi or is carrying on business only to wind up it affairs; (c) it is unable to pay its debts;ttsl (d) the court is of the opinion that its business or objects are unlavyful or that it is being operated in Malawi for purposes which are unlawful or that it is carrying on business which is not authorised by its charter, memorandum or constitution; or (e) for three months immediately prior to the presentation of a winding up petition, the company has failed to deliver any document or notice required by the Act to be sent to the registrar for registration; or (f) the court is of the opinion that it is just and equitable that the company should be wound up AN INTRODUCTION TO COMPANY LAW IN MALAWI - 247 Chapter Sixteen Subsection (2) 10 Subsection (4) Section 318(2) Section 319(6) 12 13 14 15 16 Section 314(1) Subsection (4) Section 310(2) Section 314(3) Subsection (5) Subsection (2) Section 313(1) Section 322(3) Section 319 (1) Subsection (2) Subsection (5) ln determining whether the company is unable to pay its debts, the coufi will apply section 213 i rtF * 248 - AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI Class rights alterationof Index - 249 33- 36, 38, 40, 51, 101, 103, 108, 192 Commission 25,72,79,115,136,137,139 -141,143 - 145,151, 53, 60, 67, 17 1, 210, 2'lg, 222, 224 - 226, 229, 234, 235 rateof .138,139,157,185 treatmentof 138, 146, 1g6 paymentof Accounting records keepingof Accounts preparationof 24,62,175 ' 196, Amalgamation Annual return delivery to the registrat Articles of Association of Auditors appointmentof dutiesof of Balance sheet consolidated 54,57,67,95, 159, 164-'172 119,ft4'232 61 - 64, 82, 96, 1O4,171,218 - 220'222 ' 117 139 31,37,108,151 Business clause Capital redemption reservefund Charges non-registrationof 19, 20,29,32,76,82,88,'110, fixed effectof 117,135,'141 ."' ( 1- )ompulsory winding up groundsfor 208,209,246 equitable 106 - 108, 209, 211, 212,246 personsentitledtoapplyfor 208 powerof thecourtin 209 115, 118, 141,142,153, 52,57,63,74,75,82 commencementof 14, 101, 111, 116, 160,212,214,225 - 234 162 157 - 160, 163 - 165, 170,175,179, 185, 188,218, 223,240,244 ' 17,22,31,37, 151,'158 - 160, 162 - 164, floating 168, 170 - 172, 225, 226, 228' 229 113, 146,'154, 155, 161 ,'162,244 registrationof 1 35,95, 113, 162,176,177 Brokerage "L private 83,89 30 21 - 23, 27 , 33, 37 ,38, 49, 106, 19, 153, 180 procedurefordissolutionof 208 public 21 - 23, 25, 27, 30,31 , 33, 37, 38, 49,74, - 77 , 88, 16, 18, 121 - 126, 139, 151, 153, 190, 191, 193, 194, 233, 240, 244 publicofficerof 183 publicationof nahe 29 subsidiary 23,24,46,47,50,73,81, 102, 106, 117,132- 134, 177,179, 191,200,205,215,240 unable to pay its debts 209,210,219,246,247 unlimited 19, 20, 28,31, 33, 38, 50, 23S passingoff 217 Bonusissue Class meetings quorum of 169, 190, 193,235,242 by guarantee 19 - 2'1, 28,29,31, 32,38, 141, 149, 180, 193, 295 by shares 18, 19,21,27,28,31,33,37,38,50,59, 110, 1'll, 113, 115, 119, 134, 136, 146, 149, 235 not carrying on business 2gs 3O ":'l:1 l3 :?'?:'u;1;;,','.: ??;11;3li3l: i3;l?;?li13: llB: 33 remunerationof terminationof appointment powers 216,217, 219 229 changeolname Company 33-36,38,40,51,101,103,108,192 15,32,33,38,39,63,72,77,78,81, 86, relationtotheMemorandum meaning court undervoluntarywindingup 4, 1 8, 134, 137, 144, 151, 162, 170' 188 42,55, 56, 60, 69, 84,'137, 139, 182,210 97 ,1 Committee of inspection under winding up by 197,227 ' 180 alterationof effect of 62,175,176,179,243 just.and ( )orporate veil liftingof courts bystatute by .45 46,47 45 250 _ AN INTFODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAW] Creditors objection to reduction of share capital 17,22,31,37,60,103,151 secured unsecured ' ' removalfromofficeof remunerationof 131 - 159,163, residentialrequirementsof share qualification 166 - 169, 171,172,224-229 145,1 57, 96, 99, 200, 224, 226 - 228 Debenture Debentureholders challenge of alteration of memorandum by remediesfor Debts i 151 tsg, 160, 167, 171,210,219,222,224,225,226,228,234,235 224 - 226 proof ol " " 221,223 Declaration of solvency Directors ' 13, 47,59,63, 64, 67,76,82, 83, 97, 101 board of 103 - 108, 177 , '178, 194, 22'1, 223 collectiveauthorityof as irrJgularlyappointed loans to paymentsto for loss of office '.' in connection with take-ove remedies against i!4.- , ':Ii:il:i treatmentof 138, 146, 186 ";,1?',11^: .141 , 14i 188 li3: l3?: 131: i33: lig: 210, 219, 222, 224, 225, lil: 226, 229, 234, 235 138, 146, 186 avoidanceof of 228,229 28,31, 32, 51, 54, 94,121, 158, 178, 190,217,224,241 f raudu lent preferences avoidanceof (ieneral meetings annual general noticeof 228,229 meeting extraordinary general meeting 51, 53, 54, 56, 67,81,84, 87 - 89, 179, 180 5'l ,102 .22,25, 35,36,37,52-56,59,60,80 92,93, g7 - gg, 102, 113,114,153 - 156, 62, 67, 204, 205, 21 0, 21 3, 21 5, 21 9, 220, 223, 232, 236 persons entitled to attend 56 81, 132' 133 70,230 79 63 156 140 158 crystallisation nature of ' 170' 215 95 """' "" Floating charges ' 84 230 Fixedcharge "'82 eligibility for appointment 68, 69 officeby of onerous property declaredbygeneralmeeting mode of payment of paidtonon-residents 166 "'225 orderofpaymentof paymentol 25,72,79, 115, 136, 137, 139 - 141, 143' 145, 151' 68 Dividends registered 18, 19,21,24,25,27 -29,31 49 - 52, 56, 58, 67 -70,77,79, 81,84,87,88, 90, 94,97,98, 104, 110,111,113,114, 116, 119 -122,124- 126,132 - 136' 139' 141 - 49,149,153, 155, 156, 158, 160 - 62,164 - 166,172, 175, 177 - 80, 183, 208,212,214,215,219,223,230,235, security for issueof issueof - 33,35 - 40, 43,45- 47, 240 - 242,244 62,81, 149, 157, 160, 161, 63, 67, 168, 174,208,210, 212, 217 83 debenturesata sharesata treatmentof 113, 153,156 bearer 1-57, 159 111,156, convertible ' isz, tsg irredeemable 139, 182,210 137, 42,55, 56, 60, 69, 84, meaning of 35,112,116,131,135,140,145,152,153 redeemable 251 78,217 vacationof Disclaimer Discount - ( proceedingsat accounts ir{)up annual 55-57 177 252 - AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI Profits Liquidator ; receiverand 169, 170 sales ''' " 208 undercompulsorywindingup - ' 170,215 eligibility for appointment as 61-64,82,96,104,171,218-220,222 powersof ' 165 releaseof .217 remunerationof ' 215 validityof actsof - - ' ' ' ' 223 undervoluntarywinding up bycreditors ' ' ' 219 undervoluntarywinding upbymembersl 119,184,232 dutiesof 225 right to recover in certain purchases and Members call for an extraordinary general meeting maximumnumberof minimumnumberof registerof Memorandu m of Association effect of by ' 51 ".49 49 49,50,70,90, 113, 114,153,240 15, 32, 33, 38, 39,63, profits liabilityundersection299(1) liabilityforstatementsin registrationof Proxies Prudenceconcept 135 141, 143, 185 .141,142 14'1,'143 13 .16 25,53,54,94 contentsof 17,123 113, 146,154,155, Quorum appointmentof eligibility for appointment as legalpositionof liquidatorand receiver/managerand 38 161 ,162,244 s7, sB 142 52,57,63,74,75,82 Receiver 33'34 ' 253 Prospectus 114, 118, 134, 137, 144, 151, 162, 170,'188 '' Promoters duty to account for secret 72,77,78,81, 86, 97, procedureforalterationof relationtoArticlesof Association capitalisationof revenue unappropriated unrealisedcapital - 54,57,67,95, 159, 164-172 '170,2'ls 87,122 87, 166, 218,220,222 164 Reconstruction Name Resolutions changeof publicationof Notice of general meeting contents of lengthof personsentitledto .20,30,34,37,184 ' 25,53,54, 94 - "" - - Pre-emptive *1." L :: special 11 iu,i,?u1';fi,,33: ??; 91;3lil3: ?3;l?;31i33: '175, 201 - 203, 205, 220, 229, 236, 240, 243 , 9, 21 , 22, 24,30, 34, 40, 52,54, 55, 57, 59, 60,71, 53 55'56 118 rights 't4-16 Pre-incorporationcontracts promotersliabilitYunder "' 14 60 ." Principleof assent '180,243 179, ' 177, 175 141 ' 143, Prof it and loss account 22,23,135, 35,95, 113, 162'176,177 consolidated Passingoff "::'::1 : 29,76'122,123 :::::::::: llrqhtsissue : : 1l il ll ll''ln';])u!;,')l;l,L;'j2;,'!f; 116 30 i ir:heme ol arrangement company'sconsentto courtsanctionof definitionof directorscompensationfor take-overand .194 191 .192 200 2O1 / l' tF I 254 - AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI Secretary appointmentof roleof 54,57,67,90,95, 159,164-172 '.90 Share capital alterationof 33-36,38,40,51,101,103,108,192 -.136 paymentofcommission .131 paymentof dividendsoutof ' ' 131 prohibitionof the returnof .: ' ' 135' 140 roleof coudin reductionof 117,135, 138, 140 Share premium account .111 Sharestock 113 Sharewarrant l l i Shareholders i absentfromMalawi ,t i:lt I I i I i ,l lrl rl I I i I : :l e 69,82'188 challenge of alteration of the memorandum by ' challengeof thecontraventionof the memorandum Shareholding changeof disclosureof Shares consideration for deferred 34 - 38 by '' ' 32 .'.20,30,34,37,184 74,76,81,125,126 123, 127, 128, 136, 138, 199, 2O'1, 2O4 ' 26,52, 1'10,115,228 26, 35, 38, 51 - 53, 59 - 61, 63, 79, 83, 88, 89, 99, ordinary 1 4, 1 5, 31 , 33, 144 - 146, 58, 59, 63, 69, 175 201 - 203, 205, 220, 228, 236, 240, 243 79, 106, 122,136, 191, 205 offer for 126, 133, 136, 138, 13,14,45,75-77,99,103, sale 200,222,229,232,234 198, 171, 167, 161, 166, 158, - 18, 124, 136, 138 subscription 115, 116, 135, 136, 35, 38, preference 144 - 146,203,228 - 230 ' ' ' 121 public invitation to make an offer for redeemable 35,112,116, 131,135, 140145,152, 153 " " 117 rights and options to subscribe for ' Source and application of funds 31,50,56,177,213,222-224 statementof Take-over conditionsfor directors comPensation li(u 201 200 protectionof minorityon schemeof arrangementand testof fairnessof Transfer of shares certificationof procedureof restrictionsof Turquand's case the rule in Underwritingcommission Voting - 255 2O4 .190 .2O2 119 119 118 96, 98, 101, 102 137 50 - 53, 57,58,74,75,80, 83,84, 101 - 103, 105, 107, 114,'116, 118, 145, 186, 191, 193, 194, 196, 205 Whollyownedsubsidiary .102,178,182 Published bY: lnterlink Publishers P.O Box 49010, Qualbert 4078 South Africa Fax: (031) 465-9688 Printed by: lmpress a (m1) 306-s785 ... Articles Alternatedirectors Registerof directors /0 7B AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MALAWI Prohibition of financial assistance by a company for the purchase... lnterlink Trade cc University of Malawi I AN INTFODUCTION TO COMPANY LAW IN MALAWI TO COMPANY LAW IN MALAWI Directors' duties Directors' remuneration Contents ' Remedies against directors Loan to. .. Ltd v Transvaal Lands Co Ltd v New Belgium Co 124 164,217 Ltd 53'54'193 ' ' 74 134 12 1O - AN INTRODUCTION TO COMPANY LAW IN MALAWI AN INTRODUCTION TO COMPANY LAW IN MAI AWI W^ lt UnangoEstatesLtd&ChigambavMichael