BLAW20001 Corporate Law Study Notes
BLAW20001 Corporate Law Study Notes
BLAW20001 Corporate Law Study Notes
Appointment or removal of directors (check pg217) Pty Ltd Directors can be appointed by members under s201G [RR] or by directors under s201H(1)[RR]. Directors may be removed by members under s203C [RR]. Public Directors of unlisted public may be appointed by members under s201G [RR] while members of listed public always have the right to elect directors [ASX Listing Rules]. Directors may also be appointed by BOD under s201H [RR]. Directors can be removed by ordinary resolution under s203D despite anything in the constitution or contract between director and coy Directors cannot be removed by a resolution of the other directors: s203E. Appointment, role and removal of MD Directors may appoint one or more of themselves as MD (s201J) [RR]. BOD can confer upon the MD any of the powers that the board itself can exercise (s198C) [RR]. Directors may revoke or vary the appointment of a MD under s203F [RR]. Type of director De facto director Deputy Commissioner of Taxation v Austin: Has resigned as director but continued to play an active role in the coysenior responsibilities expected from him Mistmorn Pty Ltd (in liq) v Yasseen & Chameleon Mining NL v Murchison Metals Ltd: A person who undertook tasks typically expected of a director Shadow director Although a company cannot itself be appointed a director of another company under s201B(1), it is possible for a company to be a shadow director of another company: Standard Chartered Bank of Australia Ltd v Antico. Disqualification of director (check pg221) Directors Meeting s248C [RR]: any of the directors can call a board meeting s248F [RR]: quorum for the meeting is two directors s248D: Meeting can be held using any technology s248A [RR]: paper meetings
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Directors Duties [ASIC v Adlers180-182, 184, Ch2E] s180: Duty of Care (check pg250 for other cases of breach of duty of care) Daniels v AWA Ltd sets out the minimum standard of care, skill and diligence expected of all directors. (Hence, especially useful for non-exco directors) check pg242 s180(1) (ASIC v Rich: define rationally/ reasonably belief. pg255-6) Delegation of powers by BOD
s198D: directors may delegate any of their powers to a committee of directors, employees of the coy and any other person unless the coys constitution prevents the delegation. s198C: delegation to CEO or MD Each director is responsible for the exercise of the power by the delegate as if the power had been exercised by the directors themselves (s190(1)) unless s190(2) applies.
s181: Duty to (i) act in good faith in the best interest of the coy Members
Directors must act in the best interest of the coy as a whole: Greenhalgh v Arderne Cinemas Ltd Where a coy has classes of members with diff interests, the directors must act fairly when making decisions that affect the interests of those members: Mills v Mills. It may be fair for directors to not pay dividends when profit even though the decision does not affect all members equally.
Creditors
When the coy is insolvent or nearly insolvent, the interests of the coy become those of its creditors rather than its s/h: Kinsela ; Walker v Wimborne Note: Even though the interests of the coy are those of its creditors now, directors do not owe a duty directly to creditors which is enforceable by creditors: Spies v The Queen. The duty is owed to the coy.
Other stakeholders
They cannot receive priority over interests of members: Parke v Daily News
(ii) Proper purpose (check pg281-2) Two-step analysis: Howard Smith Ltd v Ampol Petroleum Ltd
Legal purpose VS Actual purpose
shares: Whitehouse v Carlton Hotel Pty Ltd; ASIC v Australian Investors Forum Pty Ltd attempting to reduce a member or members who hold a majority of the voting power to a minority position: Howard Smith Ltd v Ampol Petroleum Ltd directors maintaining control of the company: Hogg v Cramphorn Ltd; Western Ventures Pty Ltd v Resource Equities Ltd
s588G: Duty to prevent insolvent trading Defence: s588H Consequences for breach of statutory duty (s180-183 & Ch 2E) Civil penalty provisions Disqualification for a specified period of time Pay penalty of up to $200000 Pay compensation to the coy for any loss/ damage caused Criminal penalty (Note: not applicable for s180) Pay fine of up to $220000 Imprisonment for up to five years Consequences for breach of general law duty Payment of compensation or damages to coy by person who has breached the duty. Duty to avoid conflicts of interest General Law Director or senior exco officer must not place themselves in a position where there is an actual or substantial possibility of conflict between a personal interest and their duty to act in the interests of the coy unless the permission of the coy is obtained: Hospital Products Ltd v United States Surgical Corp; Phipps v Boardman Where the general law conflict rule applies, the director must disclose their interest to the coy or there will be breach of duty to avoid conflict of interest. Transactions with the coy Directors interest in the transaction may be direct; or indirect [Aberdeen Railway Co v Blaikie Bros] It is not necessary that a conflict between interest and duty cause either a loss to the coy or a profit to the director in order for there to be a breach of
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duty: Gemstone Corp of Australia Ltd v Grasso Taking corporate property, info and opportunities Directors must not do so without the permission of the coy Eg of directors breaching their duty: Furs Ltd v Tomkins; Cook v Deeks Eg of director not breaching his duty: Peso Silver Mines Ltd v Cropper What if the coy cannot take the opportunity? Breach of duty if taking the opportunity: Regal (Hastings) Ltd v Gulliver Can a director resign to take up a corporate opportunity? NO if the resignation was influenced by a desire to acquire the opportunity [CMS Dolphins Ltd v Simonet] or it was the directors position with the old company that lead him to the opportunity which the director later acquired [Canadian Aero Service Ltd v OMalley] Conflicting duties e.g. a person is director of two companies: State of South Australia v Marcus Clark Directors (of two coy) cannot divulge confidential info of one coy to another competing coy Nominee directors must act in the interests of the coy of which they are a director: Bennetts v Board of Fire Commissioners of NSW Companys Constitution (check pg299-300) It may include provisions allowing conflict with full disclosure to, and consent of, the board. For Pty Ltd, see RR s194. A nominee directors duty to avoid conflict can be modified by a provision in the coys constitution so that there will be no breach of duty when they act in the best interest of their represented group: Levin v Clark Statutory Regulation s191: Duty to disclose material personal interest unless s191(2) appliesoffence: Fine and/or Imprisonment Voting s194[RR]: Once directors of Pty Ltd have disclosed material personal interest under s191 (or if no disclosure of interest is needed), directors may vote on the interested matter, retain benefits under the transaction and the coy cannot avoid the transaction merely because of the existence of the interest. s195: Directors of public coy who has material personal interest MUST NOT be present and vote on the matter unless his participation is approved by other directors (s195(2)) or ASIC (s195(3))Offence: Fine Not enough directors to form quorum because of s195? s195(4): Call general meeting of membersgeneral meeting may pass a resolution to deal with the matter
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s196: ASIC may make an order that director to whom s195 applies may be present and vote if the matter needs to be dealt with urgently. s182: Improper use of position: Grove v Flavel (check pg307 for other cases) s183: Improper use of info: ASIC v Vizard (Use of confidential info for share trading) Ch 2E: Related party transactions
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What if there is a variation of class rights meeting but you didnt receive the notice and you would have attend the meeting and vote against it? s1322: procedural irregularities- if member or members didnt receive notice to votes s232: Oppression
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Consequences of breach If a company buys back this shares in a way not allowed by Div 2 of Pt 2J.1, the buy-back will be a prohibited selfacquisition and any person involved in the contravention contravenes s259F(2)civil penalty provision Other consequences: s257J
s257D
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Reduction of Capital
(s256B)
Consequences of contravention If member/ creditor believes that a proposed reduction does not meet the
requirements of s256B, the person may approach the court for injunction under s1324 to prevent the transaction from proceeding. If breach s256B, validity of reduction is not affected+company is not guilty (s256D). Person involved in contravention breached s256B(2)civil penalty Other consequences: s256E Case: Gambotto v WCP Ltd if involve modification of constitution Actions that members can take Pt 2F.1: Oppression- [Note: even if the share reduction procedures are followed, members can still seek oppression] s461: Winding up the company s1324: Injunction
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Financial Assistance
Validity of financial assistance+any contract/ transaction connected with it is not affected Company not guilty of an offence Person involved in the contravention is guiltycivil penalty provision
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s50AA
(s210-216)
s224: related party cannot vote on the *Page resolution reference to Commercial Applications to Company Law 14th Edition s219: Requirement on explanatory statement to members
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Breach of directors duties: s181, s182 s588G: Insolvent Trading Defence: s588H Consequences of contravention of s588G Payment of compensation brought by liquidator: s588M brought by individual creditor with liquidators written consent (s588R) or courts permission (s588T). Note: creditor cannot sue if liquidator has already sued the director (s588U) Civil penalty provision [s588G(2)] Disqualification under s206C pecuniary penalty under s1317G compensation to company for any loss/ damage incurred under s588J Criminal provision [s588G(3)]- if dishonest compensation to company under s588K Fine Imprisonment
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Unhappy s/h? s246D or s232 Share buy-back Buy-backs under an employee share scheme, an on-market offer or an equal access scheme that involve the buy-back of more than 10% of the company capital in a 12-month period ordinary resolution: s257B Selective buy-backspecial resolution (person whose shares are being bought back cannot vote in favour): s257B Buy-back from related parties: Chapter 2E Share capital reduction Equal reductionordinary resolution: s256C(1) Selective reductionspecial resolution (no votes being cast in favour by person who is to receive consideration): s256C(2) Reduction of capital that benefited related parties: Chapter 2E Financial Assistance Must be approved by s/h is the financial assistance materially prejudices the interests of the company or s/h or the companys ability to pay its creditors: s260A
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Financial assistance provided to related parties: Chapter 2E Appointment or removal of directors (check pg217) Pty Ltd Directors can be appointed by members under s201G [RR] Directors may be removed by members under s203C [RR].
Public Directors of unlisted public may be appointed by members under s201G [RR] while members of listed public always have the right to elect directors [ASX Listing Rules]. Directors can be removed by ordinary resolution under s203D despite anything in the constitution or contract between director and coy Approve directors remuneration and benefits s202A [RR]: directors remuneration must be approved by ordinary resolution Members approval is needed for certain benefits conferred on related parties under s208 unless s211 applies. Related party transactions Unless the financial benefit is exempted under s210-216, the giving of the financial benefit must be approved by members of the public company under s208. Note: s224: Related party must not vote in the resolution To initiate voluntary winding up: Pt 5.4B (check pg158) To make decisions that usually belong to the board when the board is unable to act the BOD was hopelessly deadlocked and s/h had ordinary powers of appointing new directors: Barron v Potter directors have material personal interestlack of quorumgeneral meeting under s195(4) to ratify directors acts: Miller v Miller
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Members holding at least 5% of the votes that may be cast on the resolution, or numbering at least 100, may propose resolutions to be considered at a meeting under procedure set out in Div 4 of Pt 2G.2. Procedural irregularities: s1322 Note: The substantial injustice must flow from the irregularity itself, not the outcome of the irregularity: Polikwa v Heven Holdings Pty Ltd & MTQ Holdings Pty Ltd RCR Tomlinson Ltds1322(2) applies
(4) General Law Right to notices of meetings (which provide adequate info about the matters to be discussed): Kaye v Croydon Tramways Co Right to vote at meetings unless the constitution of the coy takes away that right: Pender v Lushington Right to have voting rights protected against improper action of directors E.g. share issue which is undertaken for an improper purpose and which dilutes the members shareholding in the coy: Residues Treatment & Trading Co Ltd v Southern Resources Ltd If the coy attempts to take away these personal rights without the consent of the member, the member is able to bring legal action to enforce the contract. s232: Oppressive conduct? s1322: Procedural irregularities? s1324: Injunction? (NOTE: there must be breach of the Act to use this sec) Can members ever enforce directors duties in their own name? It depends on whether the action is against the coy or is the action targeted at member: Brunninghausen v Glavanics. General rule: The duties are owed to the coy. Directors who breached their duty in a way that is oppressive to a member will be faced with oppression action. Hence, while s/h cannot enforce the directors duties, the breach of duty formed a basis for the oppression action. Example: a director has cancelled the shares of someone in the coy that he didnt like. While the director breached s181 (improper purpose) and s182 (misuse of position), the breach of duty is not actionable by member as a breach of directors duty, but it is
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the basis for oppression action. It could be a basis for statutory injunction (because of breach of s181 and s182).
If the minority member has a reasonable expectation of continued participation in the management, then the removal of the minority member will be oppressive: Hogg v Dymock Unfairly restricting dividends Note: Just because a minority member wants higher dividends doesnt constitute oppression if it is the decision of the director to adopt a conservative financial policy (i.e. not pay high dividends): Thomas v HW Thomas Ltd It will only be an oppressive conduct if directors or majority members deliberately pay low/ no dividends while paying high remuneration for themselves (own interest) Oppressive conduct of board meetings: John J Starr (Real Estate) Pty Ltd v Robert R Andrew (Aasia) Pty Ltd Issue share to reduce a members ownership interest in the company: Kokotovich Constructions Pty Ltd v Wallington Failure of director to act in the interest of the company: Re Spargos Mining NL & Jenkins v Enterprise Gold Mines NL Remedies where there is oppression: s233 NOTE: Only a member who is or was a member as defined in s231 has a remedy under Pt 2F.1 for oppressive conduct. UNLESS you are removed from the register because of an oppressive conduct (s234). Winding up the company: s461 (1) It is just and equitable to do so: s461(1)(k) Deadlock Fraud (i.e. the reason the coy was established was to commit a fraud on investors): Re Neath Harbour Smelting & Rolling Works; or Misconduct in its operations: Loch v John Blackwood Ltd Failure of substratum (i.e. a coy undertakes biz which is entirely different from what it was supposed to do when it was first registered): Re Tivoli Freeholds Ltd Breakdown in mutual trust: Ebrahimi v Westbourne Galleries Ltd; Khamo v XL Cleaning Services Pty Ltd; Nassar v Innovative Precasters Group Pty Ltd When it is in public interest for a coy to be wound up and the application to the court us brought by a public authority (check pg351) (2) Directors are acting in their own interestsunfair or unjust to members: s461(1)(e) Eg: directors prefer the interests of another coy which they control: Re National Discounts Ltd
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(3) There is oppressive, unfairly prejudicial or unfairly discriminatory conduct: s461(1)(f) and (g) (check oppressive conduct above) Injunction: s1324 Can be applied for by ASIC or anyone whose interests have been, or would be affected by the conduct which contravenes the Corps Act. s1324(10): The Court may, either in addition to or in substitution for the grant of injunction, order that person to pay damages to any other person. s1324(1A): Contravention of Corps Act is automatically taken to affect the interests of a creditor or member of the coy if: the insolvency of the coy is an element of the contravention the coy contravenes certain of the share capital requirements relating to the share buy-back, financial assistance or share capital reduction provisions contained in the Corps Act.
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Transacting by Companies
The authority for a coy to enter the contract will normally come from a formal resolution of its BOD: (1) Resolution that the coy will enter a particular transactionSubstantive authority (2) Resolution authorizing the execution of the relevant docsFormal authority
The seal is fixed to the doc and witnessed by (s127(2)) or The doc is signed by (s127(1)): Two directors, or A director and a coy secretary
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Company secretary Has implied actual authority to sign contracts relating to admin matters: Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd Acting to give the person authority, including acquiescence E.g. Sean has no express authority in doing something. However, the rest of the directors know what Sean has been doing and do nothing to stop him. Effectively, the board has ratified Seans unauthorized action which thereby granting him implied actual authority to bind the coy in similar transactions in future: Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd; HelyHutchinson v Brayhead Ltd
Apparent Authority
Common Law Requirements for apparent authority: A holding out Representation may consists of words or conduct By someone with actual authority Apparent authority is not enough: Crabtree-Vickers On which the other person relied Statute Law s129(3): Requirements for apparent authority: A holding out By coy or someone with actual authority Reliance
If these three requirements are satisfiesexistence of apparent authoritycoy cannot denies that it is bound by a contract on the ground that its not authorized. Enforcing Defective Contract While coy might want to deny that it is bound by a contract due to some lack of authority or defect in procedures, there is a need to balance the competing interests of outsiders dealing with companies and innocent shareholders+ creditors of companies (1) Enforcing Defective Contract made by Agents Outsider may be able to prove that the Assumptions: s128, s129 purported agent had enough: s129(1): statutory indoor mgmt rule Implied actual authority s129(2): authority about certain officers Apparent authority s129(3): apparent authority s129(4): officers properly perform their Outsider can also rely on indoor mgmt duties rulepersons dealing with a coy in good s129(5): due execution without seal faith may assume that acts within its constitution and powers have been properly s129(6): due execution with seal and duly performed and are not bound to
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Exception: s128(4) Actual knowledge or suspicion that assumptions were incorrect Exception NOTE: suspicion is narrower than put on inquiry i.e less effective on stopping Actual knowledge Purported agent lacked express actual the assumptions being made. Hence, it is easier for outsider to use statutory authority assumptions to enforce defective contract. Contract was defective in some way Outsider deliberately kept their eyes shut so as to not discover an irregularity that they thought existed Put on inquiry When someone in their position would usually make inquiry but they failed to do so When a reasonable person in their position would have been inquired about possible irregularity and would have investigated, but they have either not investigated at all or sufficiently. NOTE: the exception can apply even when there is subjective suspicion, but was negligent (2) What if document is forged? (check pg548) s128(3): the assumptions may be made Narrow sense i.e. Forged even if a doc has been forged unless signatureindoor mgmt rule cannot s128(4) applies apply Wide sense i.e. Unauthorized transaction or sealif apparent authority existed, indoor mgmt rule can apply Northside Developments Pty Ltd v Registrar-General (3) Enforcing Defective Contract made directly by Company (check pg550) N/A Common seal has been used A person may assume that a doc has been properly executed as per required by s129(6) and the seal is witnessed (s127(2)). May use s129(2) and s129(3) to support s129(6) assumption
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Common seal has not been used Under s129(5), a person may assume that a doc has been validly executed where the doc appears to have been signed in accordance with s127(1). May use s129(2) and s129(3) to support s129(5) assumption
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Public
Issue of share to Can issue shares to the public to public raise funds Number of s/h Removal of director Director with material personal interest Unlimited s203D: Always able to do so by resolution s195(1): Must not be present + vote on the matter UNLESS his participation is approved by other directors with no material personal interest (s195(2)) or ASIC (s195(3)) s201A: At least three s254W(1): each share in a class has the same div rights unless it is provided for in the constitution or by special resolution Ch 2E s250N: Required to hold AGM s204A: Must have a secretary s292: Required to lodge financial reports regardless of the size of the companys operations
s201A: At least one s254W(2)[RR]: directors may pay dividends as they see fit N/A s249A: Resolutions may be deemed to have been passed even though no meeting was held, provided all s/h sign a doc stating that they support the resolution
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