Corporate Practice – Debt Cliffnotes
A. Companyʼs Power
One needs to know whether a company can borrow debts for its specified purpose.
S.5A: a company has the capacity, rights, powers and privileges of a natural person.
S.5B: a company shall not carry on any business that its memorandum states that it
shall not do and shall not exercise any power that is expressly excluded by its MA or
So under s.5B(2), a member can bring proceedings to restrain a company
from doing any infringing acts; however
a member cannot stop a company from fulfilling any legal obligations arising
under contracts being performed; and
an act is not invalidated or void merely because of such a contravention.
According to common law, it would require actual notice of the breach
of the MA or AA to invalidate the transaction (mere presence in the
MA or AA is inadequate – s.5C) – Rolled Steel Products 1986 CA.
If the act requires the passing of any resolutions under the MA or AA,
the law will assume that such resolutions have been passed (internal
management rule) – Turquand 1856.
Art.81, Table A: the company may borrow up to the nominal amount of the share
capital of the company for the time being issued.
However, the lender shall not be concerned to see or inquire whether this
limit is observed. No debt incurred or security given in excess of such limit
shall be invalid or ineffectual except in the case of express notice to the
lender at the time when the debt was incurred (Turquand applied).
Schedule 7 powers are all included unless expressly countered.
Exercises and Questions
(a) Read: objects clause; articles; allotted share capital; any diversification of business;
any notification to the bank of restrictive documents.
Execution of Debenture
Directors to pass necessary resolutions to approve execution of debenture and
execution under seal (see art.114).
(b) After execution, register debenture at Companies Registry.
Corporate Practice – Borrowing an