law4171 corporations law

8/18/2019 LAW4171 Corporations Law

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TOPIC 2 Registration

Registration process

• Process:

1. A person may lodge an application with ASIC (s 117(1) Corporations Act 2001 (Cth));

s 117(2) outlines what the application must state (page Error !e"erence source not "ound).

2. ASIC may then register the company# gi$e the company an AC%# and issue a certi&cate o"

registration (s 11'(1)).

• Company names:

o ust e stated on the application# unless the AC% is to e used (s 117(2)());

o !e*uirements "or a $alid company name

%ame must e a$ailale (s 1+'(1)(a)).

A name is not a$ailale where it is identical to a name held or registered on the ,usiness%ames !egister (s 1+7(1)()) or it is unacceptale "or registration under the regulations1 (s

1+7(1)(c)).

%ame must contain -imited/ or -0roprietary imited/# as appropriate (s 1+'(2) or the

are$iation# s 1+).

o A company must set out its name and AC% on all pulic documents (s 134).

o A person may reser$e a company name "or 2 months (with 2 months e5tensions) (s 132).

Efect o registration

• 6he company has a separate legal personality once it is registered (s 11 and Salomon).

• 6he shareholders and directors are distinct "rom the company and can there"ore also e secured

creditors (eg Salomon) or employees (eg Lee’s Air Farming) with respect to the company.

Corporate groups

• A corporate group is not a separate legal entity each company within the group has separate legal

personality# ut not the group as a whole.

• Conse*uences

- uties are owed y directors to the company on whose oard they sit. 6he *uestion is what is in

the est interests o" the indi$idual company and not what is in the est interests o" the corporategroup (Walker v Wimborne);

- 0ro&ts o" each company must e treated separately and a parent company cannot pay a di$idend

ased on the pro&ts o" the group as a whole ( Industrial Euit! );

- A contractual promise made y a susidiary does not ind the holding company to the contract

("ioneer Concrete).

Corporate veil

• 6he veil o incorporation recognises that a company is a separate legal entity distinct "rom its

shareholders. 6he liailities o" the company are not the liailities o" the shareholders. 6here"ore# a

shareholder8s liaility "or the company8s dets is limited to paying the "ull purchase price o" shares ta9en.

1 A name is unacceptable if, in the opinion of ASIC, it is undesirable or likely to be offensive to members of the public OR it contains a restricted word or phrase.

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• :owe$er# the $eil can e lited in certain circumstances

i. here company is eing used as a sham so as to a$oid an e5isting legal oligation .

o E5amples

In #il$ord %otor Co# r :orne attempted to a$oid a restraint o" trade contract that

applied to him as an indi$idual y setting up the company . 6he Court granted an

in


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the land. SSB could get compensation "or dislocation o" the usiness i" it could show

that ,C was the agent o" SSB. 6he Court held that they were.

. here the directors act "or the ene&t o" the group as a whole.

o According to Walker v Wimborne# directors must act in the est interests o" the

indi$idual company.

o :owe$er# in some circumstances# a director will not reach their duty i" they act "or theene&t o" the corporate group as a whole# where it will indirectly ene&t the indi$idual

company on whose oard they sit (Euiticorp Finance).

o or e5ample# in Euiticorp Finance# the ,an9 o" %D lent money to one company in the

E*uiticorp group. 6he director o" two other companies in the group agreed to pro$ide

security "or that loan. 6he ma


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TOPIC 3 Types o Companies

Classication s !!2"

• irst classi&cation

Proprietary company

o A proprietary company is a company that is registered as# or con$erts to# a proprietary company

under this Act (ss and +3A(1));

o !estrictions

It must not ha$e J3K nonGemployee shareholders (s 114(1)). Emplo!ee means an

employee o" the company or o" a susidiary o" the company (s 114(2)());

It must not engage in pulic "und raising (s 114(4)).

o Can e either a small or large proprietary company

Small proprietar! compan! A proprietary company is a S0C "or a &nancial year i" it satis&esas least 2 o" the "ollowing consolidated re$enue LM23 million# consolidated gross assets

$alue LM12.3 million# or L3K employees (s +3A(2)). A small proprietary company has

reduced &nancial reporting re*uirements.

Large proprietar! compan! All other proprietary companies (s +3A(4)).

Public company

o A company other than a proprietary company (s ).

o It may e listed or unlisted.

• Second classi&cation

Public companies

#imited $y s%ares: 6he liaility o" memers "or the dets o" the company is limited to

any amount that is unpaid on the shares that the memer holds in

the company (ss and 31@2). ust ha$e td in name (s 1+'(2)).

#imited $y guarantee: 6he liaility o" memers is limited to the amounts that they ha$e

underta9en to contriute in the e$ent o" it eing wound up (ss and

3174). 6his type o" company does not ha$e shareholders. It does not

raise money "rom its memers# nor does it return pro&ts to its

memers. ust ha$e td in name (s 1+'(2)).

&nlimited 'it% s%are capital: emers ha$e no limit placed on their liaility (s ).

(o lia$ility company: A company registered as# or con$erted to# a no liaility company. It

must ha$e solely mining purposes and ha$e no contractual right to

reco$er unpaid calls (ss and 112(2)). ust ha$e %o iaility or % in

name (s 1+'(+)).

Proprietary companies

#imited $y s%ares ust ha$e 0ty td in name (s 1+'(2)).

&nlimited 'it% s%are capital ust ha$e 0ty in name (s 1+'(4)).

2 s 5!" If the company is a company limited by shares, a member need not contribute more than the amount #if any$ unpaid on the shares in respect of which the member is liable as a present orpast member.3 s 5%" If the company is a company limited by &uarantee, a member need not contribute more than the amount the member has undertaken to contribute to the company's property if the

company is wound up.

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Related companies

• )enitions s *"

o Holding company means a ody corporate o" which the &rst ody corporate is a susidiary;

o

Subsidiary means a ody corporate that is a susidiary o" the &rstGmentioned ody y $irtue o"i$ision @.

• Test

Nnder s +@# a company (A,) is a susidiary o" another company (A) i" one o" "our tests is satis&ed

1. A controls the composition o" A,8s oard (s +@(a)(i));

o Nnder s +7# A is deemed to ha$e this control i" it can appoint or remo$e all or the ma


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TOPIC + Company Constitution and ,em$ers%ip

Constitution

• A company may use

o 6he replaceale rules in the Act (s 143(1));

o Its own constitution (s 14@(1)); or

o A comination o" the two.

• A company can adopt a constitution

o n registration# y lodging a copy with the application (ss 14@(1)(a) and 117(4)); or

o A"ter registration# i" the company passes a special resolution+ (s 14@(1)()).

O$-ects clauses

• 6he constitution may contain an o$-ects clause that restricts the company8s powers (see s 1233).

• I" the company reaches its o>).

• emers may also ha$e contracts with the company that ind them as indi$iduals (special contracts)

(-aile! ).

4 Special resolution means a resolution of which notice has been &iven and that has been passed by at least %5( of the votes cast by members entitled to vote on the resolution #s )$.5 s *5#$" +he constitution may contain an epress restriction on, or a prohibition of, the company's eercise of any of its powers. +he eercise of a power by the company is not invalid merely

because it is contrary to an ob-ects clause.s *5#*$" +he constitution may set out the company's ob-ects. An act of the company is not invalid merely because it is contrary to or beyond any ob-ects in the company's constitution.

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1lteration o constitution

• 6he company may modi"y or repeal its constitution y special resolution (s 14@(2)).

•

Efect o alterationo emers are ound to changes e$en i" they did not $ote "or them;

o Alteration ta9es e=ect on the date on which the resolution is passed (s 147);

o Special contracts

?enerally# an alteration to the constitution will not alter a special contract unless the parties

intended to the contrary (-aile! );

here a special contract re"ers to the constitution# an alteration o" the pro$ision in the

constitution will $ary the special contract prospecti$ely (into the "uture) and not

retrospecti$ely (-aile! );

or e5ample# in -aile! # r ,ailey was a memer o" the %S edical e"ence Nnion. Itspurpose was to pro$ide its memers with insurance against negligence claims. 6he Nnion

changed its constitution# gi$ing the directors the discretion to terminate assistance to any

person who has ceased to e a memer (eg through death). r ,ailey died and a claim was

made against him. as his estate entitled to e indemni&ed "rom the NnionQ 6he ma


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An e5propriation will e "or a proper purpose i" it pre$ents the company "rom su=ering

signi&cant detriment or harm (eg to remo$e shareholders who are competing with the

company# as in Sidebottom).

In #ambotto# the ma


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TOPIC Corporate inancing and )ividends

4%are capital

4%are capital vs loan capital

• le0i$ility or company: share capital is less Te5ile as it cannot e readily paid ac9 ("or nonGlisted

companies).

• Rig%ts o investor to %ave a say in company $usiness: ordinary shareholders ha$e a right to $ote#

whereas lenders do not ha$e any say (in most circumstances).

• Ta0 advantages: loan and interest repayments are ta5 deductile# whereas di$idends paid to

shareholders are not ta5 deductile. Shareholders get no automatic return on their in$estment as there

is no right to a di$idend.

5%at is a s%are/

• 0er s 1K7KA(1)# a share is

(a) personal property;

() trans"erale or transmissile as pro$ided y

(i) the company8s constitution;

(c) capale o" de$olution y will or y operation o" law.

• Shareholders do not own the company8s property# as the company is a separate legal entity.

Raising s%are capital

• Nnder s 12+(1)(a)# a company has the power to issue shares in the company. 6he right to issue shares

elongs to the ,oard.

• 6he power to issue shares includes the power to issue onus shares (shares "or whose issue no

consideration is payale to the company)# pre"erence shares# and partlyGpaid shares (s 23+A(1)).

• A company may determine the terms on which its shares are issued# and the rights and restrictions

attaching to the shares (s 23+,(1)).

• A company must# within 2' days# lodge a notice o" share issue with ASIC ( s 23+(1)).

• Consideration paid "or share issue

o A shareholder must pay the company the issue price o" shares# which is consideration "or share

issue;

o Companies may issue shares "or a nonGcash consideration (eg in Salomon# a sole trader sold his

property to the newly "ormed company in e5change "or shares; 'e Wragg# where partnership

assets were trans"erred to a company in e5change "or shares; and s 23+(1)(e)# which re*uires

particulars o" the nonGcash consideration or the contract to e included in the notice o" share

issue);

o 6he $alue o" the consideration must represent money8s worth "or the allotment o" shares ('e

W)ite Star Line). 6hat is# the consideration must not e merely colourale or illusory.

Classes o s%ares

• 6he company can issue shares with di=erent rights (see s 23+,(1)).

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• Shares can e di$ided into classes. A class of shares is a category o" shares that di=ers suOciently in

respect o" the rights# ene&ts or disailities or other incidents that attach to the shares so as to ma9e

that class distinguishale "rom any other category o" shares in the company (Crumpton). Shares elong

to the same class when there is commonality o" interest etween shareholders o" a particular class.

6here may e only one shareholder o" a particular class o" shares.

• Common classes are ordinary s%ares and preerence s%ares

o "re$erence s)are)olders are li9e &nanciers o" the company (lenders);

o 6he rights that attach to pre"erence shares must e set out in the company constitution or

appro$ed y special resolution (s 23+A(2)).

Common diferences

Ordinary s%ares Preerence s%ares

!ight to $ote on general usiness

%o right to $ote.

(In many constitutions# pre"erence

shareholders get a right to $ote when

they ha$e not een paid a di$idend

that is# the di$idend is in arrears)

!ight to di$idend only i" determined

i5ed di$idend# paid &rst.

6his still depends on whether the

company is pro&tale# ut the oard

will ensure that pre" shareholders are

paid di$idends e"ore ordinary

shareholders.

!ight to return o" in$estment a"ter pre"

shareholders are paid

0riority return o" in$estment.

I" company is wound up# pre"

shareholders get their in$estment (the

purchase price o" shares) paid out &rst.

Share o" surplus assets a"ter company

has paid all dets and in$estments%o share o" surplus assets.

6ariation o rig%ts o class s%are%olders

• 7!: Is t%ere a variation or cancellation o rig%ts attac%ed to class s%ares/

o Section 2+@C sets out actions that are deemed to $ary class rights

Company di$ides e5isting shares into "urther classes with di=erent rights.

I" shares in a class are di$ided into "urther classes and a"ter the di$ision the rights attached

to all o" the shares are not the same# then this is action is ta9en to $ary the rights attached

to e$ery share (s 2+@C(1)). here the rights attached to some o" the shares are $aried# the$ariation is ta9en to $ary the rights attached to e$ery other share in the class (s 2+@C(2)).

Company with one class issues a new class with di=erent rights .

I" a company has only one class o" shares and issues new shares# i" the rights attaching to

the new shares are di3erent to the rights attaching to the original shares then the rights o"

holders o" e5isting shares are $aried (s 2+@C(3)).

Company issues new pre"erence shares that ran9 e*ually with e5isting pre"erence shares .

I" a company issues new pre"erence shares ran9ing euall! with e5isting pre"erence shares#

then the holders o" e5isting pre"erence shares are deemed to ha$e had their rights altered

(unless authorised y the terms o" issue o" the e5isting pre"erence shares or the company8s

constitution) (s 2+@C(@) c". W)ite v -ristol Airplane).

o 6he "ollowing actions are not $ariations at common law (e4cept in the ao$e circumstances)

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ilution o" $oting power (eg the issue o" new shares that dilutes the e5isting shareholders8

$oting power does not $ary a legal right eg they can still $oteF# rather it $aries the

en


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6he ade*uacy o" the consideration paid to shareholders;

hether the reduction would ha$e the practical e=ect o" depri$ing some

shareholders o" their rights (eg y stripping the company o" "unds that would

otherwise e a$ailale "or distriution to pre"erence shareholders); or

hether the reduction was eing used to e=ect a ta9eo$er and a$oid the

ta9eo$er pro$isions.o 6he reduction must e "air and reasonale -as a )ole/ that is# the reduction need

not e "air and reasonale "or e$ery indi$idual shareholder# ut it cannot preuirements are satised

o isclosure to shareholders (the company must include with the notice o" the meeting a

statement setting out all in"ormation 9nown to the company that is material to the

decision on how to $ote on the resolution; s 23@C(+));

o isclosure to ASIC (e"ore the ao$e notice# the company must lodge with ASIC a copy

o" the notice o" the meeting and the in"ormation statement; s 23@C(3)).

• ,reachQ

• 6he company must not ma9e the reduction unless it complies with the ao$e re*uirements (s 23@(1)).

• I" the company does not comply with the re*uirements# the $alidity o" the reduction is not a=ected and

the company is not guilty o" an o=ence (s 23@(2)).

9 Ordinary resolution is a simple ma-ority vote #3OR4 +A6 57($.

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• :owe$er# any person who is in$ol$ed 1K in the contra$ention is liale "or a ci$il penalty (s 23@(4))# or an

o=ence i" their in$ol$ement is dishonest (s 23@(+)).

Financial assistance for purchase of shares

• inancial assistance is not de&ned in the Act# ut it includes lending money; guaranteeing repayment o"

a loan; pro$iding assets as security "or a loan; releasing person "rom a det or other oligation alreadyowed to the company; and ac*uiring assets at an inTated price.

• 6he &nancial assistance must assist a person ac*uire shares in the company pro$iding the assistance# or

its holding company11 (see s 2@KA(1)).

• Nnder s 29?1!"# a company may &nancially assist a person to ac*uire shares in the company (or a

holding company o" the company) only i"

a" giving t%e assistance does not materially pre-udice:

i" t%e interests o t%e company or its s%are%olders< or

o ne assesses material pre


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)ividends

• Dividends are payments to shareholders and represent a return on the shareholder8s in$estment.

• 5%en can a dividend $e paid/

o A company limited y guarantee must not pay a di$idend to its memers (s 23+SA);

o Nnder s 23+6(1)# a company must not pay a di$idend unless

(a) Assets e5ceed liailities immediately e"ore the di$idend is declared and the e5cess is

suOcient "or the payment o" the di$idend;

() 6he payment o" the di$idend is "air and reasonale to the shareholders as a )ole; and

(c) 6he payment o" the di$idend does not materially pre


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6he company can use these assets without the prior consent o" the lender# ut onl! in the

ordinary course o" ordinary usiness;

I" a recei$er is appointed or the loan agreement is reached (eg asset not dealt with in the

ordinary course o" ordinary usiness)# the charge agreement crystallises and the CSI turns

into a %CSI# there"ore the assets cannot e dealt with "reely;

rdinary course o" usinessQ

6he transactions must e made "or the purpose o" carrying on the usiness as a going

concern# e$en i" e5ceptional in nature ('e!nolds -ros).

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TOPIC 9 )irectors

)irectors 5%o are directors/

• )irectors include:

o 0ersons appointed to the position o" director (s (a)(i)); and

o 0ersons not appointed as directors# ut who act in the position o" a director (de facto director ) or

the other directors are accustomed to act in accordance with that person8s instructions or wishes

(shado$ director ) (s ()).

o See page Error !e"erence source not "ound "or the pro$ision.

• Types o directors:

o E%ecutive director managing director#: oOcer and employee o" the company;

o Non-e%ecutive director: oOcer ut not employee;

o Nominee director: represents a mauirements o constitution:

o ther re*uirements can e speci&ed y company constitution;

o or e5ample# RR s 2K1? a company may appoint a person as a director y resolution passed in

general meeting.

unctions

• unctions include:

o 6o manage the usiness o" the company in the interests o" its shareholders;

or e5ample# RR s 1'A the usiness o" a company is to e managed y or under the

direction o" the directors.

6his includes

- 6o set usiness goals;

- 6o o$ersee the implementation o" usiness strategies to achie$e those goals;

- 6o ensure there are systems in place to monitor compliance with usiness

strategies and legal re*uirements; and

12 4& RR s *79" a director may appoint an alternate for a specified period, with the other directors8 approval. Any power eercised by the alternate is -ust as effective as if eercised by the

director. +he appointin& director can terminate the alternate8s appointment at any time, in writin&.

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- 6o monitor the company8s &nancial position# in particular to e aware o" the

company8s sol$ency.

o Appoint a anaging irectorCE;

o Call and run oard and company meetings;

o

etermine di$idends;o Issue new shares (to raise capital); and

o !e"use to register a share trans"er (0ty td company).

• )ivision o po'er $et'een directors and mem$ers

o 6he company elongs to the memers (and directors do not ha$e to e shareholders);

o 6he memers can also appoint the directors (RR s 2K1?);

o :owe$er# where the constitution gi$es the power to manage the company to the directors# then that

power cannot e controlled y the memers. 6hat is# the directors are not agents o" the memers

( Automatic Sel$8Cleansing Filter Co hence# the memers could not resol$e to direct the directors

to sell the company assets);o Each organ o" the company is separate and so$ereign ( &o)n S)a + Sons).

Removal

1= Resignation

• RR s 2K4A A director o" a company may resign as a director o" the company y gi$ing a written notice

o" resignation to the company at its registered oOce.

= Removal $y mem$ers

• or 0ty td company

o RR s 2K4C(a) irectors may e remo$ed y ordinary resolution.

• or pulic (td) company

o s 2K4 (not a RR must e complied with) irector may e remo$ed y ordinary

resolution# despite anything in the constitution or employment contract (s 2K4(1));

o :owe$er

%otice o" intention to mo$e the resolution must e gi$en to the company at least 2

mont)s e"ore the meeting (s 2K4(2)); 6he director must recei$e a copy o" the notice as soon as practicable (s 2K4(4));

6he director can put their case to memers y gi$ing a written statement or

spea9ing at the meeting (s 2K4(+)). 6he written statement must e sent to all

memers# or distriuted to memers attending the meeting and read out at meeting

(s 2K4(3)) unless the statement is J1#KKK words or de"amatory (s 2K4(@)).

C= )is>ualication

• irectors will e dis*uali&ed i"

o Con$icted o" a serious o=ence (s 2K@,(1));

A serious o3ence is one either in contra$ention o" the Act and punishale y imprisonment

"or J12 months; in$ol$es dishonesty and punishale y imprisonment "or V4 months (ss

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2K@,(1)()(i)#(ii)); or contra$enes a law o" a "oreign country and punishale y imprisonment

"or J12 months (s 2K@,(1)(c));

6he dis*uali&cation is "or 3 years starting on the day they are con$icted (i" no

imprisonment) or the day they are released (i" imprisonment) (s 2K@,(2)).

o An undischarged an9rupt# or "ails to pay personal creditors (ss 2K@,(4)#(+));

o Contra$ened a ci$il penalty pro$ision o" the Act (s 2K@C);

Nnder s 2K@C(1)# on application y ASIC the Court may dis*uali"y a person "rom managing

corporations "or an appropriate period i" the person has reached a ci$il penalty pro$ision

(eg directors8 duties) and the Court is satis&ed that the dis*uali&cation is )# and puniti$e# ie to punish the director ('ic) per c:ugh >);

or e5ample# in Adler # r Adler was dis*uali&ed "or 2K years. Santow > thought that the

longest periods should apply where

- arge &nancial losses;

- :igh li9elihood that the de"endant will continue to engage in similar conduct;

- Acti$ities were underta9en in areas where there was potential to cause great harm;

- ac9 o" contrition or remorse;

- isregard "or the law;

- ishonesty and an intention to de"raud; and

- 0re$ious contra$entions.

o ismanaged corporations in the past (ss 2K@# 2K@E);

o Is dis*uali&ed y ASIC (s 2K@).

• anaging14 a company whilst dis*uali&ed is an ofence (s 2K@A(1));

• 6he court may grant permission to dis*uali&ed persons to manage a company (s 2K@?).

Remuneration

• 0roprietary companies

o !emuneration is determined y resolution (RR s 2K2A(1));

o 6he company may also pay the directors8 tra$elling and other e5penses that they properly incur in

attending directors8 meetings# attending general meetings or in connection with company usiness

(RR s 2K2A(2));

o ?enerally# the remuneration o" e5ecuti$e directors is set y contract. :owe$er# a company must

disclose the remuneration paid to each director i" directed to disclose the in"ormation y V3P o"

the $otes o" memers at a general meeting (s 2K2,(1)(a)).

• isted pulic companies

o 6he directors8 report "or a &nancial year must also include a remuneration report# stating the

remuneration policy o" the oard "or 9ey management personnel (s 4KKA);

13 Section *7!A#$

A person who is dis/ualified from mana&in& corporations under this :art commits an offence if"

#a$ they make, or participate in makin&, decisions that affect the business of the corporation0 or#b$ they eercise the capacity to affect si&nificantly the corporation8s financial standin&0 or#c$ they communicate instructions or wishes to the directors of the corporation"

#i$ knowin& that the directors are accustomed to act in accordance with their instructions or wishes0 or#ii$ intendin& that the directors will act in accordance with those instructions or wishes.

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o 6here is a twoGstri9es and reGelection process. 6hat is# shareholders can $ote on a nonGinding

resolution as to whether they adopt the remuneration report. I" the resolution recei$es a -no/ $ote

o" V23P# two years in a row# then a resolution is put to the shareholders to determine whether the

directors should stand "or reGelection. I" passed with V3KP o" the $otes cast# a meeting to elect the

directors must e held within K days see pages 42'G o" oo9F.

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TOPIC A )uties o directors

!: )uty o careB sill and diligence About competent management o$ t)e compan!

Common la' D duty o care

• irectors and senior employees are under a duty to e5ercise a reasonale degree o" care and diligence;

• 6he duty applies to directors (under the common law tort o" negligence and the e*uitale duty o" care)

and to senior employees (as an e5press or implied term o" their contract o" employment).

Corporations 1ct

5%o are su$-ect to t%e duties/

• Directors (see s # page 1@);

• '(cers: de&ned in s to mean

o (a) irectors;

o (a) Company secretary;

o (c) !ecei$ers;

o (d) Administrators;

o (") i*uidators; or

o A person who

()(i) a9es# or participates in ma9ing# decisions that a=ect the whole# or a sustantial

part# o" the usiness o" the corporation; or

(ii) :as the capacity to a=ect signi&cantly the corporation8s &nancial standing; or

(iii) Is a shadow director.

4ection !? D care and diligence

• 6he sustance o" the common law and statutory duties is the same (6ines v ASIC). 6he statutory duty

does not o$erride the common law (s 1'3).

• Test: Section 1'K(1) pro$ides that a director or other oOcer o" a corporation must e5ercise their powers

and discharge their duties with the degree o" care and diligence that a reasonable person would e5ercise

i" they were in t)e position o" that director or oOcer.1+

• 14F: hat would an ordinary person# with the 9nowledge and e5perience o" the e"endant# e e5pected

to ha$e done in the circumstances i" he or she was acting on their own ehal"Q ( Adler )

• )uties o t%e directors

o irectors must ecome "amiliar with the company8s usiness ((aniels v Anderson at 3KK);

o irectors are under a continuing oligation to 9eep in"ormed aout the acti$ities o" the corporation

((aniels at 3K4);

14 +hat is, the reasonable person"

#a$ were a director or officer of a corporation in the corporation8s circumstances0 and#b$ occupied the office held by, and had the same responsibilities as, the director or officer.

2$/56


21/56


o irectors must maintain "amiliarity with the &nancial status o" the corporation y a regular re$iew

o" &nancial statements ((aniels at 3K+).

o irectors must ensure that the oard has a$ailale means to audit the management o" the

company so that it can satis"y itsel" that the company is eing properly run ((aniels at 3KK);

o irectors are e5pected to attend all oard meetings unless e5ceptional circumstances# such as

illness or they are not in the state. 6hey should ring an in"ormed and independent at 12+F). 6hey must also actually read and

consider the company8s &nancial statements (C-A v Friedric) per 6adgell > at 12@). Although the

preparation can e delegated# the oligation to read them cannot ( ASIC v .eale! at 12+F).

• )irectors occupying diferent positions

o A rele$ant "actor in assessing the degree o" care and diligence which a reasonale person would

e5ercise is the oOce held y the director or oOcer (s 1'K(1)());

o oard c%airman

It is arguale that the chairman o" directors has additional responsiilities that are more

than


22/56


6hey are under a continuing oligation to super$ise management and see9 satis"actory

e5planations regarding any de&ciencies ((aniels);

6hey must "ully in"orm the oard o" all rele$ant "acts within their 9nowledge ("-S v

W)eeler in this case# the withdrew "rom ma9ing a decision on a transaction

ecause o" a conTict o" interest# ut he was in reach ecause he did not alert the

oard to all in"ormation he 9new aout the transaction).

C

6hey must e proacti$e and ta9e steps to ensure that the &nancial in"ormation is up to

date and accurate# and any assumptions or de&ciencies are communicated to the

oard (6ines19).

)EE(CE !: usiness -udgment rule

o Section 1'K(2) pro$ides a de"ence to s 1'K(1) and the common law duties;

o A director or other oOcer o" a corporation who ma9es a usiness


23/56


(i) in good "aith; and

(ii) a"ter ma9ing an independent assessment o" the in"ormation or ad$ice# ha$ing regard to the

director8s 9nowledge o" the corporation and the comple5ity o" the structure and operations

o" the corporation.

• 6his applies to 0art 2.117 proceedings and e*ui$alent general law proceedings (s 1'(c));

• 0erson alleging that reliance was unreasonale (eg ASIC) has the urden o" proo".

• :EHE!# despite the statutory pro$ision# the court may still impose a higher standard.

o or e5ample# in .eale! # it was held that while directors are entitled to rely on others "or

preparation o" &nancial statements# they retain the responsiility to read# understand and *uestion

the contents;

o In ASIC v %acdonald# ?Well > "ound that s 1' did not apply ecause the nonGe5ec directors were

not entitled to rely on the e5ec directors ecause this was a 9ey statement in relation to a highly

signi&cant restructure o" the group.

)elegation o $oard po'ers

• Nnder s 1'(1)# unless the company8s constitution pro$ides otherwise# the directors o" a company may

delegate any o" their powers to

(a) a committee o" directors;

() a director;

(c) an employee o" the company; or

(d) any other person.

6he delegation must e recorded in the company8s minute oo9.

• 6he delegate must e5ercise the powers in accordance with any directions o" the director (s 1'(2)).

• 6he e5ercise o" the power y the delegate is as e=ecti$e as i" the director had e5ercised it (s 1'(4)).

• 5%at i t%e delegate uses po'er negligently/

o 6he director is prima $acie responsile (s 1K(1));

o ,N6 s 1K(2) pro$ides that the director is not responsile i" they elie$ed

(a) n reasonale grounds at all times that the delegate would e5ercise the power in con"ormity

with the duties imposed on directors y this Act and the company8s constitution (i" any);

and

() (i) n reasonale grounds and (ii) in good "aith and (iii) a"ter ma9ing proper in*uiry i"

needed# that the delegate was reliale and competent in relation to the power delegated.

o In assessing reasonaleness# the court will consider ( Adler per Santow > at 472F)

- 6he relationship etween the director and delegate (eg good "riends $s $irtually un9nown);

- 6he steps ta9en y the director to ascertain rele$ant in"ormation aout the delegate;

- 6he e5tent to which the director is# or should ha$e een# put on in*uiry;

- 6he delegated "unction is such that -it may properly e le"t to such oOcers/; and

17 Sections %)@)B.

23/56


24/56


- 6he ris9 in$ol$ed in the transaction.

Conse>uences o $reac%

• Section 1'K(1) is a ci$il penalty pro$ision under s 1417E (ut not an o=ence under s 1'+);

• 6he Court may order

o A pecuniary penalty o" up to M2KK#KKK (under s 1417?);

o Compensation to the corporation (under s 1417:); or

o is*uali&cation (under s 2K@C# see page 1').

2/56


25/56


2: 1cting $ona de in t%e company;s interests and or proper purposes About protecting t)e

compan!’s interests

Common la'

)uty !: 1cting $ona de in t%e company;s interests see s !!!"a""

• Test:

o irector must act %onestly or t%e $enet o t%e company and not "or some ulterior purpose;

o 6his is su). 6he court is not *uestioning the commercial


26/56


o A director will not reach their duty i" they act "or the ene&t o" the corporate group# where it

will ene&t the company on whose oard they sit (Euiticorp);

o It is not necessary "or the director to independently consider the interests o" the company on

whose oard he sits# pro$ided the decision ene&ts the company as well as the corporate

group (Euiticorp# c". dissent o" Biry 0).

3= Employees

o irectors cannot "a$our the interests o" employees at the e5pense o" the shareholders;

o or e5ample# gratuitous payments cannot e made to e5Gemployees (in "arke v (ail! :es#

% closed down one ranch o" the company and ga$e the surplus "rom the sale to the

dismissed employees. :eld ,reach# ecause it does not ser$e the interests o" the company);

o A payment to current employees may e in the interests o" the company# ecause industrial

relations may e impro$ed.

+= Creditors

o Creditors8 interests must e ta9en into account when the comp is insol$ent or near insol$ency

(,insela). At this time# the shareholder $alue is almost nil and so the "ocus o" the directors

must shi"t;

o Can s)are)olders cure a breac); % since the duty is owed to the creditors# the shareholders

cannot cure a reach y ma


27/56


Proper purpose

• A director who e5ercises their powers to secure some pri$ate ad$antage is acting "or an improper

purpose ecause such a purpose is outside the purpose o" ene&ting the company ( %ills v %ills);

• :owe$er# directors are not prohiited "rom acting in any way that ene&ts their interests as

s)are)olders.

• In determining proper purpose# as9

1. As a matter o" law# what are the purposes "or which the power may e used (o


28/56


)uty 3: (ot to etter discretions

• irectors must e5ercise an independent


29/56


3: iduciary duties

Common la' D duciary duties

• irectors and senior employees are &duciaries;

•

6his imposes a duty o" asolute loyalty on the &duciary!= ConKicts rule< and

o A director must not enter into engagements in which he has or can ha$e a personal interest

conTicting with the interests o" the company ( Aberdeen 'aila! );

2= Prots rule=

o A director must not ma9e an undisclosed personal pro&t "rom his position# or appropriate

corporate opportunities.

ConKicts rule

• ,ultiple directors%ips

o "rima $acie# holding more than one directorship is not a reach;

o 0ro$ided

i. %o con&dential in"ormation is di$ulged; and

ii. I" a transaction in$ol$es bot) companies# the director

iscloses the conTict (' v -!rnes);

!e"rains "rom negotiating the contract and $oting (Fit


30/56


Nnder s 12(1)# a director o" a company who has an interest in a matter may gi$e the other

directors standing notice o" the nature and e5tent o" the interest in the matter. 6he notice

may e gi$en at an! time and whether or not the matter relates to the a=airs o" the

company at the time the notice is gi$en;

oes not need to e a material personal interest;

6he notice must e gi$en to all directors at a meeting# or to all directors indi$idually (s12(2)). It must e recorded in the minutes o" the meeting (s 12(+));

urther notice must e gi$en i" a new director is appointed (s 12(3)) or the interest

materially changes (s 12(@)).

o Conse*uences o" notice

Can the conTicted director $ote on# and retain ene&ts "rom# the transaction i" the directors

go ahead with itQ

"t! Ltd compan! Y depends on the constitution. ,N6 s 1+ (RR) says that the director may

$ote and retain any personal ene&ts;

"ublic compan! Y the director must not $ote or e present while the matter is eing

considered (s 13(1))# unless the other directors pass a resolution to the contrary (2)21# ASICma9es a declaration or order (4)# or there are not enough directors to "orm a *uorum (+).

o Conse*uences o" reach

Ci$il penalty o=ence;

,reach o" s 11(1) Y 1K penalty units or imprisonment "or 4 months# or oth (Sch 4);

,reach o" s 13(1) Y 3 penalty units (Sch 4);

Contra$ention does not a=ect the $alidity o" any act# transaction# agreement# instrument#

resolution or other thing (ss 11(+)# 12(7)).

Prots rule

• Pro%i$ited activities

o A director may not misappropriate usiness opportunities or con&dential in"ormation elonging to

the company. or e5ample# di$ersion o" a contract "rom the company to the director is a reach

(Cook v (eeks);

o A director may not pro&t personally "rom transacting the company8s usiness. or e5ample#

recei$ing a personal incenti$e payment y the uyer "or selling a part o" the usiness (Furs v

5omkies).

• It is irrele$ant that the directors act in good "aith and in the interests o" the company ('egal =.astings>).

In this case# the directors ought shares in a susidiary so it could "und the lease o" cinemas. 6hese

shares were later sold at a pro&t. 6his was a reach# ecause the directors8 acted on 9nowledge that they

ac*uired as directors o" the company and they made pro&t without the consent o" the company.

• iduciary duties sur$i$e resignation o" the &duciary (Canadian Aero Service). 6hat is# a director or senior

employee cannot resign and then e5ploit a corporate opportunity i" the resignation was "or the purpose

o" ta9ing up that opportunity.

• Permitting t%e director to $enet

o 0ro&t can e permitted or rati&ed y the shareholders y ordinary resolution;

o 0ermission o" the oardQ

21 s )5#*$" +he director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that"

#a$ identifies the director, the nature and etent of the director's interest in the matter and its relation to the affairs of the company0 and#b$ states that those directors are satisfied that the interest should not dis/ualify the director from votin& or bein& present.

3$/56


31/56


?enerally insuOcient (eg 'egal =.astings>);

:owe$er# it may e enough i" oard represents all S: interests (in ?ueensland %ines# all

shareholders were represented on the oard and there"ore oard8s consent was suOcient).

o RAppro$al must not e a "raud on the minority;

or e5ample# in Cook v (eeks# the reaching directors were also ma


32/56


- Anyone who satis&ed ao$e within the pre$ious @ months (s 22'(3)) or will satis"y ao$e in

the "uture (i" the person ao$e elie$es or has reasonale grounds to elie$e this is li9ely# s

22'(@)); and

- An entity who acts in concert with a related party o" the pulic company on the

understanding that the related party will recei$e a &nancial ene&t i" the pulic company

gi$es the entity a &nancial ene&t (ie 0CE!0; s 22'(7)).

• E0ceptions

o Shareholder appro$al is not re*uired i"

- 6he &nancial ene&t is on terms that would e reasonale i" the parties were dealing at

arm8s length# or the terms are less "a$ourale to the related party than arm8s length terms (s

21K);

- !easonale remuneration# or reimursement o" e5penses# to an oOcer or employee (s 211);

- Amounts o" money gi$en to a director or spouse o" less than M3#KKK (s 214);

- inancial ene&ts to or y a closely held susidiary (s 21+);

- inancial ene&ts gi$en to memers o" the company# without un"airly discriminating etween

memers (s 213).

o I" an e5ception applies# the directors control whether or not to gi$e the &nancial ene&t

otherwise# a mauences or $reac%

o A contra$ention o" s 2K' does not a=ect the $alidity o" any contract or transaction (s 2K(1));

o :owe$er# a person who is involved in a contra$ention o" s 2K' is liale "or a ci$il penalty (s

2K(2) see "ootnote Error !e"erence source not "ound "or de&nition o" involved in). See page

2+ "or remedies. A person commits an o=ence i" the in$ol$ement is dishonest ( s 2K(4)).

Corporations 1ct

,isuse o position D conKicts and prots rule

• Nnder s 1'2(1)# a director# secretary# other oOcer or employee must not improperly use their position to

(a) ?ain an ad$antage "or themsel$es or someone else; !

() Cause detriment to the corporation.

A person who is in$ol$ed in a contra$ention is liale "or a ci$il penalty (s 1'2(2)). Also# might e an

o=ence under s 1'+ i" dishonest.•


33/56


A person who is in$ol$ed in a contra$ention is liale "or a ci$il penalty (s 1'4(2)). Also# might e an

o=ence under s 1'+ i" dishonest.

• 6he in"ormation does not need to e con&dential;

• E5ample in ASIC v 6i


34/56


Insolvent trading $y directors

T%e duty

• Nnder ss 3''?(1) and (2)# a reach occurs i"

s 8!"

a" 1 person is a director at t%e time '%en t%e company incurs a de$t<o etQ

A debt is an oligation y one person to pay a sum o" money to another ("oell v Fr!er );

Includes a contingent det (.akins v -ank o$ C)ina# eg a guarantee);

Includes nonG$oluntary dets ("oell v Fr!er # eg statutory payments).

o IncurredQ

A det is incurred when a company so acts to e5pose itsel" contractually to an

oligation to ma9e a "uture payment o" a sum o" money as a det ( .akins v -ank o$

C)ina);

Section 3''?(1A) deems when a company incurs a det

5%en de$ts are incurred

1ction o company 5%en de$t is incurred

1 paying a di$idend when the di$idend is paid

!# i" the company has a constitution

that pro$ides "or the declaration o"

di$idends# when the di$idend is

declared

2 ma9ing a reduction o" share

capital to which i$ision 1 o"

0art 2>.1 applies (other than a

reduction that consists only o"

the cancellation o" a share or

shares "or no consideration)

when the reduction ta9es e=ect

4 uying ac9 shares (e$en i" the

consideration is not a sum

certain in money)

when the uyGac9 agreement is

entered into

+ redeeming redeemale

pre"erence shares that are

redeemale at its option

when the company e5ercises the option

3 issuing redeemale pre"erence

shares that are redeemale

otherwise than at its option

when the shares are issued

@ &nancially assisting a person to

ac*uire shares (or units o"

shares) in itsel" or a holding

company

when the agreement to pro$ide the

assistance is entered into

!# i" there is no agreement# when the

assistance is pro$ided

3/56

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35/56


$" T%e company is insolvent at t%at timeB or $ecomes insolvent $y incurring t%at de$t< and

o A company is insolvent i" it is unale to pay all its dets# as and when they ecome due and

payale (s 3A);

o 6he conclusion o" insol$ency must e deri$ed "rom a proper consideration o" the company8s

&nancial position# in its entirety# ased on commercial reality. A company is not insol$ent

simply ecause it is su=ering a temporary lac9 o" li*uidity. Insol$ency is the inaility o" the

company to meet dets# utilising the resources a$ailale to the company ("oell v Fr!er per

lsson >);

o Common indicators o" insol$ency include ( ASIC v "l!min per andie >)

- Continuing losses;

- ore liailities than assets;

- $erdue ta5es;

- Inaility to orrow "urther "unds "rom present an9;

- %o access to alternati$e &nance;

- Inaility to raise "urther e*uity capital;

- Suppliers re*uiring C# or otherwise demanding special payments e"ore supply;

- Creditors unpaid outside trading terms;

- Issuing o" postGdated che*ues;

- ishonoured che*ues;

- Special arrangements with selected creditors;

- Impending court action "or dets; and

- Inaility to produce timely and accurate &nancial in"ormation.

c" 1t t%at timeB t%ere are reasona$le grounds or suspecting t%at t%e company is insolventB

or 'ould so $ecome insolvent=

o Suspect means more than mere speculation# ut less than actual elie" or e5pectation it is

a positi$e "eeling o" apprehension or mistrust (?ueensland -acon);

o

Satis&ed where a reasonaly competent and diligent director would ha$e grounds to suspectinsol$ency# in all the circumstances o" that company ( ASIC v "l!min per andie >).

1() t%e director ailed to prevent t%e company rom incurring t%e de$t s 82""=

o Co$ers inacti$ity ( ASIC v "l!min).

)eences

• 8eneral points:

o irector has urden o" proo" on ,0;

o irector can rely on more than one de"ence;

o 6he de"ences are designed to assist directors who ha$e otherwise acted diligently.

• T%ere are our deences:

!= s .2": E0pectation o solvency<

o It is a de"ence i" it is pro$ed that# at t)e time )en t)e debt as incurred# the person had

reasonale grounds to e5pect# and did e5pect# that the company was sol$ent at that time and

would remain sol$ent e$en i" it incurred that det and any other dets that it incurred at that

time;

o E%pect means a higher degree o" certainty than mere hope# possiility or optimism. It implies a

measure o" con&dence that the company is sol$ent (%FS v %iller ). It must e certain or proale

(.all v "oolman);

o 6he e5pectation must e that the company can pay its dets at t)e present time (it is not

suOcient i" the e5pectation is that the company can trade out o" its diOculty; .all v "oolman);

35/56


36/56


o 6he director can consider assets that could e sold and# per 0almer > in .all v "oolman# -a

director would e uences o $reac%

• A director who reaches s 3''?(2) is liale "or a ci$il penalty;

• A director commits an o=ence i" the "ailure to pre$ent the company incurring the det was dishonest (s

3''?(4));

• 6he court may also ma9e a compensation order against t%e director

36/56


37/56


o ASIC can see9 reco$ery "rom the director under ss 3''> or 3''B (B "or criminal proceedings) "or the

amount o" loss or damage su=ered y all unsecured creditors (-loss or damage/ is generally the

amount o" the unpaid det; "oell v Fr!er );

o 6he li*uidator may reco$er "rom the director under s 3''(2) "or the loss or damage o" all

unsecured creditors; and

o Indi$idual creditors may reco$er "rom the director under s 3''(4) an amount e*ual to their loss

or damage.

3!/56


38/56


TOPIC corporate contracting

lo'c%art

!= 5as t%e document properly e0ecuted/ s !2A

a= I noB see s !23"B s !2*"M9" and I,R s !2*!""

2= )id t%e person acting or t%e company %ave aut%ority/ s !29

a= E0press aut%ority

$= Implied aut%ority

i= Implied rom position D see s !2*2"

ii= Implied rom past $e%aviour

c= Ostensi$le aut%ority D see s !2*3"

3= 5ere t%ey acting 'it%in t%eir aut%ority/ s !2*+"

7!: Entering into a contract

• A company enters a $inding contract in two ways

1. 6he document is signed y an agent "or and on ehal" o" the company; or

2. 6he directors8 e5ecute the document so that the document is recognised in law as ha$ing the

company8s signature on it.

72: 18E(CN

ormalities

• 6he contract may e signed y the 4rd party and the agent signs as "ollows

-Signed "or and on ehal" o" ClayCo 0ty td

Angela Ashworth

Angela Ashworth# anaging irector# ClayCo 0ty td/

1= 1ctual aut%ority

• An agent with the company8s actual authority (e5press or implied) may ma9e# $ary# rati"y or discharge a

contract on ehal" o" the company (s 12@(1));

• -Actual authority/ is where the company is communicating to the indi$idual that they ha$e authority.

& "0 E%press actual authority

• E5press authority can arise in a numer o" ways

i. A oard resolution authorising the indi$idual to contract on the company8s ehal" eg "or a

particular contract (arising "rom s 1'A);

ii. Constitutional pro$ision stating the scope o" an oOcer8s authority to contract "or the company;

iii. Company8s operational policies; or

i$. 6he indi$idual8s employment contract.

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& ""0 "mplied actual authority

• T'o types:

!= Implied rom t%e position in t%e company %eld $y t%e agent< or

o Agent is presumed to ha$e the usual authority that attaches to that position in that type o"

co;

o or e5ample# the "ollowing usually ha$e the authority to enter contracts anaging director#

CE# C# purchasing oOcer# and human resources manager;

o ,N6# the "ollowing do not usually ha$e the authority Indi$idual nonGe5ecuti$e directors# nonG

e5ecuti$e chairmen# or the company secretary (:ort)side (evelopments).

2= Implied $y ac>uiescence need past $e%aviour"=

o Authority is implied "rom the conduct o" the parties and the circumstances;

o %eed communication y words or conduct silence is not enough (Freeman + Lock!er );

o or e5ample# the agent has pre$iously entered into contracts on ehal" o" the company and

the company has treated those contracts as inding upon it# without sanctions (in -ra!)ead#

the chairman had no power to enter contracts# ut he was held to ha$e actual authority#ecause o$er many months the ,oard had gi$en the impression that he could act as a de

"acto CE and ind the company to transactions. C". Freeman# where the court said that

there was no ac*uiescence# ecause the ,oard ne$er communicated to the director their

acceptance o" his contracting);

o Similarly# in -rick and "ipe Industries# a director was held to ha$e implied actual authority

ecause he assumed the role o" with the ac*uiescence o" other directors and he had

entered into transactions without the prior appro$al o" the ,oard.

= 1pparent or ostensi$le aut%ority

•

6he company is )olding out the agent has ha$ing authority to contract it creates an agency yestoppel.

• T'o re>uirements:

!= Representation< and

o 6he company must ma9e a representation to the 4rd party that the agent has authority;

o W)o must make t)e representation;

6he representation must e made y someone with the company8s actual authority to

ma9e the representation (eg the ,oard# or Za person who has actual authority to

manage that part o" the usiness to which the contract relates8);

or e5ample# in Crabtree86ickers# ,ruce cilliam >unior could not hold out 0etercilliam (the agent) as ha$ing authority to enter into the transaction# ecause he

himsel" did not ha$e actual authority to enter into the transaction (he was # ut

needed his "ather8s appro$al to enter contracts). ,ut see "aribas.

o .o is t)e representation made;

here the company permits the agent to occupy a particular position# then the

company represents that the agent has the customary authority o" a person in such

position (eg in Freeman + Lock!er # although there was no e5press communication y

the ,oard to amount to implied actual authority# the ,oard 9new that r Bapoor was

acting as and they did nothing to pre$ent him);

here the company arms an oOcer with a document and permits them to enter into

the contract without ta9ing proper sa"eguards against misrepresentation (in "aribas#

the an9 ga$e a


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2= Reliance=

o 6he 4rd party must rely on the representation when entering into the contract .

• See also ss 12'# 12(4) assumptions.

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73: EEC&TE) )OC&,E(T

ormalities

• 6he document must %ave

1 A. Signatures o" 2 directors (s 127(1)R(a)) or 1 director# i" sole director and company secretaryo" the 0ty company; s 127(1)(c)F; !

,. Signatures o" one director and company secretary (s 127(1)()); A%

2 I" the company has a seal# the imprint o" the company seal (note use s 127(1) where no seal# and

(2) where there is a seal). :a$ing a seal is optional (s 124(1)). I" the company does ha$e a seal# it

must set out the company8s name and AC% (s 124(1)). It is a strict liaility o=ence i" it does not

comply (ss 124(4)# (+)).

• (6he company constitution can pro$ide additional reuirements s 127(+)).

Indoor ,anagement Rule I,R"

• 6he Indoor ,anagement Rule allows a 4rd party to assume that internal matters ha$e een satis&ed#

e$en i" this is not true (5uruand’s case). or e5ample# i" a shareholder meeting is re*uired to authorise a

transaction# the 4rd party is not re*uired to in$estigate whether this meeting occurred and there"ore the

contract is inding e$en i" the meeting was not held. 2+

• ECEPTIO(

o 6he 4rd party cannot rely on this assumption i" a reasonale person would e Zput on in*uiry8 that

the assumption was wrong (:ort)side);

o %ote a 4rd party is not re*uired to read the Constn or other ASIC documents (s 14K);

o E5ample

:ort)side 6he an9 was put on in*uiry y the nature o" the transaction that is# it was amortgage o$er a $aluale asset# and none o" the "unds lent y the an9 went to the

company itsel" .

4tatutory assumptions

• 8eneral principles:

o Nnder s 12'(1)# a person is entitled to mae t%e assumptions in s 12 in relation to dealings

it) a compan! 2@. 6he company is estopped "rom asserting that the assumptions are incorrect;

o 6he assumptions apply even i$ an oOcer or agent acts "raudulently or "orges a document (s

12'(4)). 6he "orged document is not a nullity and can still ind the company ( Stor! );

o ECEPTIO(:

A person is not entitled to ma9e an assumption i" at the time o" the dealings they ne' or

suspected that the assumption was incorrect (s 12'(+));

See meaning o" suspect on page 43;

6his is a su


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• s !2* T%e assumptions are:

o !" 4rd party can assume the company;s constitution is complied with;

6he I!;

or e5ample# in -ank o$ : v Fiberi# the husand arranged a mortgage and guarantee o$erthe company (similar to :ort)side son signed as secF and Stor! "orged oth sigsF). :is son

signed as secretary# ut he had not een appointed. 6he Constn re*uired sa"e 9eeping o" the

seal# it needed to e authorised y the directors# and attestation had to e signed y director

and secretary. :E ,an9 could rely on s 12(1) the ,an9 could assume that the rele$ant

pro$isions o" the Constn had een complied with# and the an9 had not een put on notice .

o 2" 4rd party can assume that oOcers whose details appear in 14IC records are duly appointed

and ha$e the usual authority;

6here is no oligation to chec9 ASIC documents (s 14K);

-Bsual aut)orit! / rememer# nonGe5ecuti$e directors and secretaries ha$e narrow

authority.

o 3" 4rd party can assume that a person %eld out as an ocer or agent has een duly appointed

and has the usual authority o" someone in that position;

0rinciple o" apparent or ostensile authority;

%ote the sale o" the whole usiness is something that only the whole ,oard can do# and so

is not within the usual authority o" a # CE or director;

or e5ample# in -rick and "ipe Industries# r urst signed a guarantee as secretary# ut he

was ne$er appointed as secretary and the 4rd party had searched the company records and

9new that he had not een appointed. :owe$er# the company had held r urst out assecretary it was stated in the presence o" r ?olderg# who was e=ecti$ely the # that r

urst was secretary and r ?olderg remained silent. 6here"ore# company is ound y the

guarantee.

o +" 4rd parties can assume compliance 'it% duciary or statutory duties;

6hat is# company cannot argue that the oOcer reached their duties to a$oid the contract

("ico .oldings).

o "M9" 4rd parties can assume company documents are properly e0ecuted;

Nse (3) "or documents e5ecuted it)out seal# and (@) "or documents e5ecuted it) seal;

A person may assume that a document has een duly e5ecuted y the company i" the

document appears to ha$e een signed in accordance with s 127;

W)at i$ t)e description o$ t)e signee is rong;

In Stor! # the e5ecuted document descried r Story8s wi"e as secretary# when she was

actually a director. r Story "orged her signature. 6he Court held that a misdescription o" a

signatory does not pre$ent the assumption "rom eing relied upon. See also -rick and "ipe

Industries# ecause r urst was a director ut signed as secretary.

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TOPIC * 4%are%olders; meetings

Types o meetings

• 1nnual 8eneral ,eeting 18,"

o s 23K%(1) A public compan! must hold an A? within 1' months a"ter its registration. And it

must hold an A? annually# within 3 months a"ter the end o" its &nancial year (s 23K%(2)). ailure

to do so is a strict liaility o=ence (s 23K%(2A)). A pulic company with 1 memer does not ha$e to

hold an A? (s 23K%(+)).

o s 23K!(1) 6he usiness o" an A? may include any o" the "ollowing# e$en i" not re"erred to in the

notice o" meeting

(a) 6he consideration o" the annual &nancial report# directors[ report and auditor[s report;

() 6he election o" directors;

(c) 6he appointment o" the auditor; and

(d) 6he &5ing o" the auditor8s remuneration.

• E0traordinary general meetings

o Anything other than an A?.

• ,eetings o classes o mem$ers

o See s 2+@, and page 11.

Convening meetings

• ,eetings may $e convened $y:

!= )irectors< or

o A director may call a meeting o" the company8s memers (s 2+C RR);

o or a listed compan! # directors ha$e the power to call meetings regardless o" Constn (s 2+CA);

o ,N6 directors ear the cost o" the meeting.

2= ,em$ers=

o emers may re*uisition a meeting;

Nnder s 2+(1)# the directors must hold a meeting on t)e reuest o" memers with at least

3P o" the $otes or at least 1KK $oting memers. 6he re*uest must e in writing# state anyresolution to e proposed# e signed y the memers# and e gi$en to company (s 2+(2)).

A%

emers with J3KP o" the $otes may call a meeting i" the directors do not do so within 21

days a"ter the re*uest is gi$en (s 2+E(1)). 6he company must pay the e5penses o" the

memers (s 2+E(+)).

o ! memers may arrange a meeting themsel$es.

Nnder s 2+(1)# memers with at least 3P o" the $otes may call and arrange to hold a

general meeting. 6he memers calling the meeting must pay the e5penses.

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• A meeting must e "or a proper purpose (s 2+\). Eg the meeting is not "or a proper purpose i" it is to

decide a matter that is not within the powers o" memers to decide such as directing the directors how

to e5ercise their e5clusi$e powers (:'%A v "arker ).

,eeting re>uirements

asic re>uirements

• (otice: At least 21 days notice must e gi$en (s 2+:(1)). Shorter notice may e allowed in some

circumstances (see e5tract). or listed companies# at least 2' days notice must e gi$en (s 2+:A(1)).

• 7uorum: A *uorum is the minimum numer o" shareholders whose presence is necessary "or a meeting

to e ale to $alidly transact usiness. 6he *uorum "or a meeting is 2 memers and the *uorum must e

present at all times during the meeting (s 2+6(1) RR).

• Electing a c%air: 6he directors must elect a chair to e present at e$ery meeting (s 2+N(1)G(4) RR).

6he chair must aduestions at 18,: 6he chair o" an A? must allow a

reasonale opportunity "or the memers as a )ole at the meeting to as9 *uestions aout or ma9e

comments on the management o" the company (s 23KS(1)). ailure to do so is a strict liaility o=ence

(s 23KS(2)).

)uty to inorm

• 8eneral principles (Fraser v :'%A .oldings):

o 6he directors ha$e a duciary duty to ensure that memers are "ully in"ormed aout matters

that appear on the agenda;

o 6he in"ormation must e suOcient "or memers to decide whether they will attend the meeting

and $ote "or or against the resolution;

o 6he directors only need to pro$ide in"ormation that is realistically use"ul (eg directors are not

re*uired to e5plain the detailed legal re*uirements underlying the resolution# such as the

process o" demutualisation);

o 6he document must e intelligile to reasonale memers (li9ely to assist rather than con"use);

o 6he in"ormation that must e disclosed goes eyond what the ,oard 9nows# and in some

circumstances it must ma9e "urther in$estigations; and

o irectors must not ignore in"ormation that does not support their position on the resolution (

see the "acts o" the case).

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45/56


• or e5ample# in Fraser # the memers were to $ote on whether or not the company should undergo

demutualisation (co limited y guarantee co limited y shares). 6he company sent out a prospectus

that stated that the memers ould receive $ree s)ares in the new company. :owe$er# the prospectus

did not detail the benets t)at t)e members ere $oregoing. 6here"ore# reach o" the duty to in"orm#

ecause the prospectus "ailed to identi"y the disad$antages o" demutualisation to memers this le"t

memers with the dominant impression that they were etter o=# when this was not necessarily true.

• )uty not to mislead or deceive:

o 6he in"ormation must# on an o


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)ecisions 'it%out a meeting

• T'o 'ays:

!= Circulating resolution Pty companies"

o A 0ty company may pass a resolution it)out a general meeting i" all the memers entitled

to $ote on the resolution sign a document containing a statement that they are in "a$our o"

the resolution set out in the document (s 2+A(2));

o 6he resolution is passed when the last memer signs (s 2+A(+)).

2= T%e )uomatic principle

o here there is complete assent y all memers on a particular matter# then no meeting e

held (where e$ery shareholder agrees to a particular resolution);

o &T this principle does not apply eg to deny a nonG$oting S: the right to attend meeting

and participate in deate. or e5ample# in 'e Compaction S!stems# there was no meeting o"

memers ecause all $oting shareholders assented to the resolution. :owe$er# one memerwith a nonG$oting share ouence o procedural irregularities/

• ,ay $e invalidatedB i su$stantial in-ustice caused

Nnder s 1422(2)# a proceeding under this Act is not in$alidated ecause o" any procedural irregularity

unless the Court is o" the opinion that the irregularity has caused or may cause sustantial in


47/56


Nnder s 1422(+)(a)# an interested person may apply to the court "or an order declaring that any act or

proceeding is not in$alid ecause it contra$ened the Act and an order relie$ing a person "rom ci$il

liaility as a result o" this contra$ention# (c)F. 6he Court must not ma9e this order unless it is satis&ed

that the act or proceeding is essentially o" a procedural nature# that the persons concerned in the

contra$ention acted honestly# that it is


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TOPIC !? ,em$ers; remedies

Ot%er remedies or mem$ers

• 6o ha$e constitution oser$ed s 1+K (page @);

• 6o pre$ent unlaw"ul $ariations o" class rights s 2+@, (page 11);

• here duties are owed to indi$idual shareholders case law (page 23);

• 6o pre$ent misleading and decepti$e conduct s 1K+1: (page +3); and

• 6o pre$ent procedural irregularities occasioning sustantial in


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,alance the disad$antage or urden to the memer# against the o


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purchased at the price that the shares would ha$e een had the conduct not ta9en

place; Scottis) Co8operative W)olesale);

(e) 0urchase shares with a reduction o" company8s share capital;

(") Company to institute# prosecute# de"end or discontinue proceedings;

(g) emer to institute# prosecute# de"end or discontinue proceedings on ehal" o" co;

(h) Appoint a recei$er;

(i) In


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See s 247(4);

Consider the company8s separate and independent wel"are ( &eans);

It must e in the company8s est interests (not ma! be* or likel! to be;

Sansson per 0almer >);

Consider 6he character o" the company (pri$ate or pulic; i" "amily#

loo9 at the purpose "or which it was estalished)# the usiness o" the

company# whether the applicant can sue in their own name# and it

must e worth suing the de"endant (they must ha$e enough money

and there must ha$e een a loss to co) (Sansson);

here the company in *uestion is a


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i. here a person has engaged# is engaging or is proposing to engage in conduct that

constitutes a contravention o" the Act (ci$il penalty or o=ence); attempting to contra$ene;

aiding# aetting# counselling or procuring a contra$ention; inducing or attempting to induce

another to contra$ene; eing 9nowingly concerned in or party to the contra$ention y

another; or conspiring with others to contra$ene (s !32+!"). 0enalty pro$isions include

irectors8 duties (s 1'KG1'4);

!elated party transactions (s 2K');

Insol$ent trading (s 3''?); and

!eductions in share capital (s 23@) or &nancial assistance (s 2@K).

or contra$entions o" s 3''? (insol$ent trading# where insol$ency was caused y ss 23@, or

2@KA) or ss 23@, or 2@KA (share capital reduction and &nancial assistance "or share

ac*uisition)# the onus is on the company or person to pro$e that no contra$ention occurred

(s 142+(1,)).

ii. here a person has reused or ailed# is re"using or "ailing# or is proposing to re"use or "ail#

to do an act or thing that the person is re*uired y this Act to do (s !32+2").

• 72: 5%o %as standing/

o An application can e made y ASIC# or a person whose interests ha$e een# are or would e

a=ected y the conduct (ss 142+(1)# (2));

o 6he person8s interests must go eyond the mere interests o" memers o" the pulic (ut no need

to show that personal rights were a=ected# or that they su=ered any in


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(e) irectors ha$e acted in their own interests rather than in the interests o" the memers as a

whole# or in any other manner whatsoe$er that appears to e un"air or un


54/56


TOPIC !! Corporate insolvency

!= Receivers%ip

• 5%at is a receiver/

o

A recei$er is appointed y a secured creditor o" a company# to ta9e possession o" the propertysecured y the creditor8s loan# sell it and repay the secured det owed y the company out o" the

sale proceeds;

o here the security is o$er the whole underta9ing# the recei$er may also ha$e the power to

manage.

• 5%en can a receiver $e appointed/

o As speci&ed in the loan agreement etween the creditor and company. A recei$er can generally

only e appointed i" the loan agreement has een reached (eg de"ault in payment# creditor8s

petition# "ailure to maintain secured property);

o !ecei$ers can e appointed y the Court (eg a remedy under s 244(1)(h) "or oppressi$e conduct).

• Receiver;s po'ers

o Contained in the loan agreement;

o A% s +2K(1) a recei$er has the power to do all things necessary or con$enient to e done to

achie$e the o


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• 5%at is t%e role o t%e administrator/

o 6he role o" the administrator is to in$estigate the a=airs o" the company and to report to creditors;

o Administration should run "or 21G2' days;

o uring administration

6he administrator controls the company (s +47A(1));

6he administrator is the only person who can deal with the company8s property (s +47(1));

6he administrator has the power to remo$e a director "rom oOce# appoint a director# e5ecute

a document or ring proceedings# or whate$er else is necessary ( s ++2A).

• 1dministrator;s duties

o An administrator is an 7o(cer8 (s (d)) hence su


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,y the memers (special resolution; s +1);

,y the company8s creditors (s +7); or

,y order o" the Court (s +3A winding up commences when order made; s 314A). 6he

"ollowing can apply under s +30 "or an order company# creditor e$en i" secured# memer#

director# li*uidator# or ASIC.

o 6he company must e insolvent;

o Insol$ency will e presumed in certain circumstances "or e5ample# there was a statutory demand

"or payment y a creditor o" at least M2#KKK and the company "ails to pay it (s +3C(2)(a)). 6he

statutory demand must re*uire the company to pay the amount within 21 days a"ter ser$ice ( s

+3E) and i" the company "ails to comply# it is presumed to e insol$ent.

• 1ppointment o a li>uidator

o 6he li*uidator ta9es complete control o" the company (ss +77# 3K@). irectors lose their power to

manage the company8s a=airs (s +71A);

o

A li*uidator is an 7o(cer8 (s (")) hence su

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