Wednesday, February 29, 2012

Can NFC rely on M&A to take precedence over Loan Agreement?

Memorandum and Articles of Association of a company set the rules on how a company operates its business and have no effect on other entities which it deals with, other than to let them know that the company's business is included in its Memorandum and that the directors acted according to its Articles.

Basically, a company's Memorandum of association contains an objects clause, which limits its capacity to act. When limited companies were incorporated, the objects clause had to be widely drafted so as not to restrict the board of directors in their day to day trading. The Articles set out the rules relating to issuance of shares, appointment of directors, notices required for meetings and so on. Together with the memorandum of association, they are the constitution of a company.

According to MP for PJ Utara, YB Tony Pua:

"Even to someone not trained in law like myself, the statement from NFCorp must be one of the most preposterous but beautifully written legal gobbledegook I've read in my short political career.

There is absolutely no provision in the loan agreement for the use of the monies to be "guided" by the company's MAA. The fact that NFCorp MAA may allow the company to set up a casino does not in any "legalise" the use of the loan funds for its set up. The Government's stake in the company makes absolutely no difference to the legal effect of the loan agreement."

"Firstly, given the strict purpose of the agreement to promote cattle-farming, surely any acquisition of property must be directly related to the industry such as cattle-grazing land.

Secondly, and most incredibly, surely NFCorp can't be arguing that the luxury condominiums they have purchased can be defined in any possible way as "landed property". Or worse, that they were purchased for cattle-rearing purposes, or would we find new technological wonders on how to farm cattles in high-rise luxury residences?"

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