Law 309 Chapter 9 Public Incorporations PDF

LAW 309 Chapter 9 PUBLIC INCORPORATIONS PREPARED BY: IZYAN FARHANA ZULKARNAIN IZYAN FARHANA ZULKARNAIN 1  (1) INTRODUCTION In a modern state – Trade, business or commerce are left to be carried out solely to the private enterprises Modern gove...

LAW 309 Chapter 9 PUBLIC INCORPORATIONS PREPARED BY: IZYAN FARHANA ZULKARNAIN IZYAN FARHANA ZULKARNAIN 1  (1) INTRODUCTION In a modern state – Trade, business or commerce are left to be carried out solely to the private enterprises Modern government – Participate in these activities as well How does the It is through companies government incorporated by the participate? government IZYAN FARHANA ZULKARNAIN 2  (2) REASONS FOR GROWTH Essential to promote economic regeneration of the country, to improve socio-economic well being of the people, to maintain public control over the basis resources of the country and to reduce concentration of wealth and means of 1. production in a few hands It becomes an acceptable instrument of economic development. A number of public incorporations were set up as a statutory corporation to promote economic development of the country and its people especially of the 2. rural people IZYAN FARHANA ZULKARNAIN 3  Reasons for Growth Lack of financial or managerial capacity in private entrepreneurs to undertake gigantic enterprises or project involving long process of developing 3. To plan and develop select regions. A number of regions in the country have been selected for integrated development, these regions have been subjected to comprehensive master planning. On top of that, for the purpose of accelerated, comprehensive and integrated all 4. around development of such regions, statutory bodies have been set up 4 IZYAN FARHANA ZULKARNAIN  Reasons for Growth To gain control over economic resources 5. To ensure a fair share to the Bumiputras in the national economy. The aim of the Government’s New Economic Policy envisages that the indigenous people should have a 30% financial 6. involvement and employment at all levels in industrial and commercial sectors 5 IZYAN FARHANA ZULKARNAIN  Reasons for Growth o Amongst the first public incorporations established by government are Malayan Railway, Rural Industrial Development Authority (RIDA), Federal Land Development Authority (FELDA), Malaysian Industrial Development Authority (MIDA) o These public incorporations involved in various sectors such as economy, industry, trade, agriculture, banking, transportation, public utilities etc. IZYAN FARHANA ZULKARNAIN 6  (3) LEGAL CHARACTERISTICS OF A CORPORATION Basic characteristics of an incorporated body whether statutory or non-statutory is that it has legal personality of its own which is separate and distinct from shareholders Although the government has a good deal of control over corporation’s working, and even an entire capital of the corporation may be subscribed by the government, the two are deemed in law to have distinct personalities IZYAN FARHANA ZULKARNAIN 7  Legal Characteristics Its property is not a government property; it does not enjoy any immunities or privileges available to the government Its servant are not civil servants and it is bound by law as much as any other person IZYAN FARHANA ZULKARNAIN 8  Legal Characteristics Tamlin v Hannaford 2 All ER 327 It was held that the property owned by a statutory corporation not being a government property is subject to ordinary law of the land as the property of any other person and exemption available to the government from the law relating to rent cannot be availed of by a corporation N.T.S. Arumugam Pillai v Government of Malaysia 2 MLJ 62 Court pointed out that the said corporation was established as a legal entity under an Act of the State Legislature and therefore, it cannot by any stretch of imagination be equated with the Government of Malaysia IZYAN FARHANA ZULKARNAIN 9  (4) CLASSIFICATION OF PUBLIC INCORPORATIONS Classified based on the functions or disciplines of each public incorporations Classification of public incorporations are: i. FINANCIAL INSTITUTIONS Financial institutions deal with financial matters Bank Negara Malaysia (BNM) is the body which falls under this category BNM is established in 1959 and is wholly owned by the Federal Government Amongst the functions of BNM is pertaining to currency issue, management of national reserves, acting as the government’s banker and financial adviser It is required to help build a sound financial structure for a growing economy and further, to assists, formulate and implement the country’s monetary policy IZYAN FARHANA ZULKARNAIN 10  Classification ii. PROMOTIONAL AND DEVELOPMENTAL UNDERTAKINGS Purpose: To sponsor and promote specified developmental activities which in the formative stages require financial assistance from the government These bodies deal only with promotional and developmental activities Further, these bodies can be sub-divided into agricultural and non-agricultural Example: MARA, FELDA and UDA IZYAN FARHANA ZULKARNAIN 11  Classification iii. COMMERCIAL AND INDUSTRIAL UNDERTAKINGS These bodies are production-oriented, or they undertake trading or commercial transactions and earn profits Each of these undertakings either offer services to the people or undertakes production, sale and purchase of goods. For instance: FAMA, MAS and PERNAS IZYAN FARHANA ZULKARNAIN 12  (5) ORGANISATION OF PUBLIC ENTERPRISES Enterprises in the public sector may be organized as departmental undertakings, statutory corporations or government companies registered under the Companies Act i. DEPARTMENTAL UNDERTAKING Malayan Railway Administration falls within the portfolio of the Transport Minister All properties of the Malayan Railway is regarded as government property is vested in the Federal Land Commissioners IZYAN FARHANA ZULKARNAIN 13  Organisation Entire capital of the Malayan Railway is subscribed by the government But it is financially autonomous and self-accounting Employees are regarded as members of the public service of the Federation Departmental enterprises suffer from certain inherent weaknesses, example rigidity of bureaucratic procedures, red tape, delay and lack of flexibility in taking and implementing decisions This may not be conducive to an efficient management of a commercial enterprise IZYAN FARHANA ZULKARNAIN 14  Organisation ii. GOVERNMENT COMPANY A government company is created by registration under the Companies Act It is like any other company registered under the Act and having shareholder except that the government company may not have any other shareholder apart from the government and the government may exercise some measure of control over affairs of such a company IZYAN FARHANA ZULKARNAIN 15  Organisation iii. STATUTORY CORPORATION A statutory corporation is created by a specific legislation Example: FAMA is created by the Federal Agricultural Marketing Authority Act 1965. FAMA Act 1965 has been passed with a view to incorporate FAMA to supervise, co-ordinate and improve the marketing of agricultural produce in Malaysia, to provide credit facilities for such marketing and for matter connected therewith Statutory corporation is usually authorized by its Parent Act to set up further corporations IZYAN FARHANA ZULKARNAIN 16  Organisation Differences between statutory corporation and government company: As for statutory corporations, the necessary legislation to constitute the body is to be passed by Parliament which can closely scrutinize its objective and constitution. On the other hand, for a government company, the Articles of Association are settled administratively and the matter may not come at all before the Parliament Any changes or amendment to be made concerning statutory bodies, the matter must be presented before the Parliament which alone can amend its own statute. On the other hand, for a government company, its Article of Association can be amended administratively IZYAN FARHANA ZULKARNAIN 17  (6) CONTROL OVER PUBLIC ENTERPRISES Public corporations are set up outside of the government department as an autonomous bodies with the specific objective that they enjoy some autonomy in their operations and not to be bound by the government routine in their day-to day working It is necessary to have some public control over them, and not to leave them completely free, so as to make them act in public interest and within the parameters of the government policy A financial burden of these undertakings, if they do not make good, falls on the government fund and thus the taxpayer IZYAN FARHANA ZULKARNAIN 18  (6) Control Over Public Enterprises i. AUDIT CONTROL Statutory Bodies (Accounts and Annual Reports) Act, 1980 requires each statutory bodies to keep proper accounts for each financial year and the statement of account must be submitted to the Auditor General within 6 months from the end of each financial year Accounts will be audited. Once audited, submit to the Minister together with the Auditor General’s report Note: Statutory Bodies (Accounts and Annual Reports) Act, 1980 applies only to all body corporate incorporated under the federal law but not to corporation incorporated under the Companies Act 1965 19 IZYAN FARHANA ZULKARNAIN  Audit Control Power of the Auditor General to request the accounts to be audited falls under the Audit Act 1957 (Re-print 1983) whereby the Auditor General has been authorised to examine and carry out audit on the accounts of statutory public enterprise if it is so provided by law in any case Auditor General is also responsible to ensure that the funds are used for the approved objectives and those efforts towards achieving the objectives are carried out efficiently without wastage IZYAN FARHANA ZULKARNAIN 20  ii. PARLIAMENTARY CONTROL In the case of statutory corporations, usually the parent statute would provide that their audited accounts be laid on the table of the House of Parliament Usually no discussion takes place in Parliament on these account Parliament is too large and a busy body and cannot adequately probe into working of the public enterprises as such Opportunity to debate the operations of an undertakings may arise if any money is needed to be appropriated by Parliament IZYAN FARHANAto the undertaking ZULKARNAIN 21  Parliamentary Control Annual report is submitted to Parliament by every statutory enterprise Non-statutory corporations are not required to submit any such report to Parliament Annual accounts of the government companies do not come before Parliament In this way, statutory corporations are more accountable to Parliament than the government companies are IZYAN FARHANA ZULKARNAIN 22  iii. MINISTERIAL CONTROL Minister have to exercise a good deal of control over the public enterprises both formally as well as informally Each corporation is normally responsible to a Minister who is in charge of the sector of functions in which the corporation operates The minister concerned has power to appoint the members of the corporation This power is conferred on the Minister concerned through the parent statute creating the corporation IZYAN FARHANA ZULKARNAIN 23  Ministerial Control In the case of government companies, the government being in chief shareholder has certain powers over them under the Companies Act As a majority shareholder, the government can make such appointments and dismissals to the Board of Directors as it sees fit at the company’s general meeting In accordance with parliamentary procedure, the Minister concerned has to answer questions in Parliament concerning the corporation and has to defend its policies and operations Every company having a share capital has to file an annual return with the CCM giving particulars pertaining to the shares capital and membership of the company IZYAN FARHANA ZULKARNAIN 24  iv. JUDICIAL CONTROL Court exercises some control over public undertakings through the doctrine of ultra vires A statutory corporation or a government company is set up for defined objectives and had defined powers Courts apply the doctrine of ultra vires to a company as well as to a statutory corporation It means that it must not act outside its objects clause in the memorandum, or the parent statute as the case may be. Judicial control can be effective only when corporate powers are precisely defined in the parent law or in the memorandum, but this is not usually done IZYAN FARHANA ZULKARNAIN 25  Judicial Control Petroliam Nasional Bhd. (PETRONAS) v Chaeh Kam Chiew 1 MLJ 25 Petronas took over Bank Bumiputra. A member of the public filed a suit as a matter of public interest litigation challenging the take over on the ground that acquisition of a bank or engagement in banking activity was not an activity within the objective and purpose of the Petroleum Development Act 1974 Plaintiff contended that his interest as a Malaysian citizen, a tax payer and a member of the electorate of the Government of Malaysia had been affected by the take over IZYAN FARHANA ZULKARNAIN 26  Judicial Control A suit raised significant legal points not only as regards to the interpretation of the scope of the object clause, but also whether an action by way of public interest litigation could lie against public corporations However, before the Court could hear the matter, the suit was aborted by Parliament amending the Petroleum Development Act 1974. As a consequence, the High Court awarded costs to the Plaintiff. Supreme Court later on refused to interfere with the High Court’s discretion saying that the costs are within the discretion of the Court IZYAN FARHANA ZULKARNAIN 27 THANK YOU IZYAN FARHANA ZULKARNAIN 28