QUESTION 1

Burgundy Bhd. whose business is selling furnitures, has borrowed RM500,000 from one of its shareholder, Crimson Bhd. Sapphire Bhd., whose board of director was controlled by Burgundy, has passed a resolution to cause Sapphire to pay off Burgundy’s debt to Crimson and in return, 1 million of Crimson’s shares in Burgundy to be transferred to Violet and Magenta, Sapphire’s long serving employees and good employees for the pas 20 years, as fully paid up shares.

On the other hand, Emerald has a very limited funds but is keen on purchasing Burgundy’s shares. Thus, Emerald obtained a loan from Tuscany Bank for the purpose of purchasing 20,000 shares in Burgundy and 50,000 shares from Hibiscus Bhd., whose 64% of shares were held by Sapphire. Upon knowing this, Sapphire quickly provided guarantee for Emerald’s loan since the Chairman of the Board in Sapphire is Maya, one of Emerald’s friends.

You are the general counsel of Sapphire Bhd. You have been approached by one of the officers,  Lavender, to give your opinion on whether Sapphire Bhd. had contravened any provisions under the Companies Act 2016.

Your opinion, though not limited to the following, shall refer to:

1. Relevant common law cases;

2. Relevant statutory provisions from Companies Act 2016;

3. Relevant land mark Malaysian cases.

Note: Articulation of the legal principles relevant to the given facts is more important than merely regurgitating facts of the decided cases.

Note to students:

Your answer shall consist of:

1. Brief introduction on the rules of maintenance of share capital.

2. ILAC method (Issue, Law, Application and Conclusion) in paragraph and essay form (not in point/bullet/numbered form)

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