DPA30083 TOPIC 3- Corporate Equity.pdf

OUTLINE Shares & dividends: - Definition - Ordinary shares & preference shares - Types of dividends De...

OUTLINE Shares & dividends: - Definition - Ordinary shares & preference shares - Types of dividends Debentures & charges: - Definition DPA30083 COMPANY LAW - Sole debenture & serial debenture TOPIC 3: CORPORATE EQUITY - Trustee & duties of trustees - Fixed charge & floating charge SHARE CAPITAL Is the amount of capital raised through the issuing of shares by a company for the purpose of collecting funds to run the SHARES company. May be classified as follows: 1. Authorised capital 2. Issued capital 3. Paid-up capital 4. Unpaid or uncalled capital  Shares  ‘measured by a sum of money’ = a reference to the nominal value. Borland’s Trustee v. Steel Brothers & Co  ‘liability’= the member has a duty to pay Ltd was defined shares as ‘the interest of for his shares. a shareholder in the company measured  ‘interest’ = shows that the shareholder by a sum of money, for the purpose of has rights, such as to attend & vote at liability in the first place and of interest in meetings. the second, but also consisting of a series  ‘mutual covenants’ = stresses the of mutual covenants entered into by all the contractual nature of a shareholder’s shareholders.’ – Farwell J. rights. S. 69- types of shares: subject to the S. 70 nature of shares- a share/ other constitution of the company, shares in a interest of a member in a company is company may: personal property & transferable in a) Be issued in different classes accordance with S. 105. b) Be redeemable in accordance with S. 72 S. 71(a)-(e) rights & powers attached to c) Confer preferential rights to distributions shares. of capital/ income S. 72 (1)- subject to its constitution, a d) Confer special, limited/ conditional voting company having a share capital may issue rights; or preference shares. e) Not confer voting rights  PREFERENCE SHARES PREFERENCE SHARES  Are designed to appeal the investors who 2. Voting: want a steady return on their capital with - Voting rights for preference shareholders a high level of safety. are restricted at a company general 1. Dividends: meeting. - Have fixed rate of dividend. 3. Rights on liquidation: - Must be paid before ordinary - In most cases of the articles/constitution, shareholders. will give preference shareholders - Divided into Cumulative dividend & non- priority of return of capital. cumulative dividend. PREFERENCE SHARES ORDINARY SHARES Types of preference shares:  Rights of ordinary shareholders remain - cumulative preference share after the rights of the other classes of - non cumulative preference share shareholders have been satisfied.  Control resolutions at general meeting - redeemable preference share (control voting rights). - convertible preference share  Dividends will be paid after preference shareholders have been paid.  SHARES CERTIFICATES SHARES CERTIFICATES S. 97 – A company shall not be required to S. 101(1) registration of members issue a share certificate unless an constitute as evidence of legal title. application by a shareholder has been S. 102(1) the secretary shall cause the received OR otherwise provided by its register of members to be properly kept & constitution. maintained regularly & all the particulars S. 98 –application for issuance of share on issuance & transfer of shares are certificate. entered into the register. S. 99 – delivery of share certificate S. 100 –numbering of shares. S. 131(1) subject to S.132, a company may only make a distribution to the shareholders out of profits of the company available if the company solvent. DIVIDEND S. 131(2) -Every officer & any other = payment made out of profits to the person/ individual who contravene this members of a company. section commits an offence & shall, on conviction, be liable to imprisonment for a term not exceeding 5 years/ to a fine not exceeding 3million ringgit/ to both.  Divided into 4 types of dividend: Need not be paid in cash. Interim dividend Once a dividend has been declared by a company, it is a debt owed by the Final dividend company to the members. Cumulative dividend S. 132 – distribution only if company is Non-cumulative dividend solvent (1) the distribution shall be authorized by the directors of the company. INTERIM DIVIDEND FINAL DIVIDEND The articles of a company may empower Will be considered as company’s debt to its director to pay to the members interim the shareholders once the company dividends from time to time. declared the dividend. The declaration of interim dividend does The declaration of this dividend can only not create a debt & the directors may be made out of profit declared by the revoke at any time before the payment. company.  Method of dividend payment Principles of dividend payment 1. Dividend cannot be paid until the Dividend can be paid by cash, specific company gained on the date of dividend assets, debenture, stock of debenture or declared. other approval or resolution in constitution. 2. The dividend contribution is come with the gain of the company. 3. Dividend can be declared if any gain from disposal of fixed assets. 4. Dividend can be declared even they have a loss in the business capital in past year. Principles of dividend payment 5. Dividend cannot be declared if the company cannot pay the debts. DEBENTURE  A ‘debenture’ under the Act includes SOLE DEBENTURE “debenture stock, bonds, sukuk, notes & any other securities of a corporation Term debenture are a series of debenture whether constituting a charge on the issues that all become due on a single assets of the corporation or not.” specified date. Term debenture can be Means that : a document which either short term or long term, and can also be “creates a debt or acknowledged it & any called back or converted to other document which fulfils either of these investments before the maturity date. conditions is a debenture”. Normally between financial institution and A debenture represents a security for the a company. repayment of a loan. SERIAL DEBENTURE REGISTER OF DEBENTURES Serial debenture on the other hand consist Must keep a register of holders of the of a debenture issue whose component debentures. parts become mature at different dates or Must be kept at the registered office of the series of dates. company or any other places in Malaysia. Debenture issued to the public. If the register is kept at any other place, A company must issue a document that the company must inform the Registrar create a debt within 2 months after within 7days after the 1st kept & also after received money from the public. 7days after any change in the place. Must appoint a trustee.  TRUSTEE FOR DEBENTURE TRUSTEE FOR DEBENTURE HOLDERS HOLDERS A ‘trustee corporation’ means: Every company which offers debentures to the public for subscription/ purchase in 1. A company registered as a trust company Malaysia must appoint a trustee under the Trust Companies Act 1949, or corporation as trustee for the debenture 2. A corporation that is a public company holders. under this Act or under the laws of any other country, which has been declared by the Minister to be a trustee corporation for the purposes of this Act. DUTIES OF TRUSTEES DUTIES OF TRUSTEES S. 177 CA 2016: c) Ensure that the borrowing corporation a) Exercise reasonable diligence to complies with the registration ascertain whether or not the assets of the requirements in respect of the charges in borrowing corporation/ guarantor are likely relation to the debentures. to be/ become sufficient to discharge the d) Exercise reasonable diligence to principal debt as & when it becomes due. ascertain whether the borrowing b) Satisfy that the contents of the prospectus company/ its guarantor have committed offering the debentures are consistent with any breach of covenants, terms & the terms of the debentures. provisions of the debentures.  Fixed and floating charges are used to secure borrowing by a company. Such borrowing is often done under the terms of a debenture issued by the company. CHARGES Charges can be divided into two types which are Fixed Charges and Floating Charges. FIXED CHARGES FLOATING CHARGES A fixed charge is a charge secured on A floating charge is a particular type of particular property, e.g. land and security, available only to companies. It is buildings, a ship, piece of machinery, an equitable charge on (usually) all the shares, intellectual property such as company's assets both present and future, copyrights, patents, trade marks, etc on terms that the company may deal with  It gives the holder of the charge an the assets in the ordinary course of immediate security over the property in business. Very occasionally the charge is priority subsequent claimants. over just a class of the company's assets, such as its stock (trade stock)  FLOATING CHARGES FLOATING CHARGES  Thefloating charge is useful for many  The company can continue to use the companies, allowing them to borrow assets and can buy and sell them in the even though they have no specific assets, ordinary course of business. such as freehold premises, which they  It can thus trade with its stock and sell can use as security. A floating charge and replace plant and machinery without allows all the company's assets, such as needing fresh consent from the stock in trade, plant and machinery, mortgagee. vehicles, etc., to be charged.  Until the charge 'crystallizes', which occurs when the debenture specifies. CHRYSTALLIZATION OF NEGATIVE PLEDGES FLOATING CHARGES It can occur in any one of the following:  Provision in an unsecured loan 1. Any failure to meet the terms of the loan agreement that prevents the borrower 1. from obtaining any secured loan without 2. The company goes into liquidation the consent of the unsecured lender. (ceases to trade )  A bond indenture clause that prohibits the bond issuer from pledging its assets 3. A receiver is appointed of the company’s to a third party (thus reducing the level of assets either by the court or under the security for the bondholders) is an terms of the debenture or other power. example of a negative pledge.  REGISTRATION OF REGISTRATION OF CHARGES CHARGES S. 352 (1)- All charges must be S. 352(3) – When the charge become registered with the Registry of void due to non-registration with the Companies within specific ROC, the obligation for repayment of period(30 day of its creation). the money secured by such charge is S. 352 (2) - Failure to do so, the still valid, and the money secured charges is void. becomes immediately payable. REGISTRATION OF CHARGES PRIORITIES OF CHARGES S. 353(a) – (k) types of charges that  Fixed charges would rank before the required to be registered. floating charge for payment in the event of insolvency of the company. S. 357 (1) the registrar shall keep &  A floating charge impose a prohibition maintain a register of all charges lodged on the company granting any fixed for registration under the Act. charges over the assets that are the subject of the floating charge.  Even if a fixed charge is registered after a floating charge, it would be paid in preference to the fixed charge.  PRIORITIES OF CHARGES QUESTIONS:  Fixed charge would rank before floating 1.What is the significance of charges under charge.  First & second floating charge- would debentures? rank prior to the date of the 2.Explain the relevancy of shares and registration.(if permitted by first floating dividend. charge holder.)  First & second fixed charge – would rank 3.Classify the differences between fixed prior to the date of registration. charge and floating charge. Give an  Registered charge would be rank before unregistered charge. example.