Thelawofbusinessorganizations澳大利亚纽卡斯尔大学DanielMatas

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1、LOBO Week 11THE LAW OF BUSINESS ORGANISATIONSLOBO Week 12Law of Business OrganizationsnCourse Coordinator & Lecturer: nDaniel MatasnTutors:nPat HealionnSusan JonesLOBO Week 13COURSE AIMSTo understand, as non-lawyers:n1. Identify the main legal forms of business organisations and explain their streng

2、ths and weaknessesn2. Understand the legal structure of a companyn3. Explain the legal rights and duties of parties to the corporation (governance)LOBO Week 14Course aimscontinued n4. Identify potential legal pitfalls for parties dealing with and acting for corporationsn5. Identify and resolve basic

3、 legal issues encountered in dealing with corporations in a professional mannern6. Understand the basics of corporate finance and failureLOBO Week 15CLASS EXPECTATIONSBased on mutual respectnNo talkingwhisper or write a note if you need tonNo mobile phones, pagers etc.nDrinks ok, no foodnPlease be o

4、n time to lecturesLOBO Week 16ASSESSMENTnFOUR ASSESSMENTS1.In class quiz 5%Feb 272.Mid-term examination 35%April 23.Memo 10%Due April 94.Final examination 50%In final exam periodLOBO Week 17TEXTBOOKnYou will not survive withoutHanrahan, Ramsay & Stapledon:Commercial Applications of Company Law (9th

5、ed. Preferred)LOBO Week 18BLACKBOARD WEB SITEqCourse Website is at:http:/blackboard.newcastle.edu.au/ LOBO Week 19LECTURESnWednesdays 5:00 pm - 7:00 pmnSlide summaries will be posted to the WebnLectures and slides are NOT the total course: you must attend tutorials and read the textbookLOBO Week 110

6、TUTORIALS: ENROLMENTnEnroll on WebnRemember your tute time, place and tutornStart in Week 2nCase study & problem questions begin on page 539 of the prescribed textnTutorial timetable on blackboardLOBO Week 111COURSE OUTLINELOBO Week 112Topic OneTYPES OF BUSINESS STRUCTURESLOBO Week 113INTRODUCTIONGe

7、neral Classifications:nSole tradersnPartnerships nCo-venturing through:nunincorporated associationsnincorporated associationsnCommercial/business v non-commercialLOBO Week 114CHOICE FACTORSnRisks of business to proprietorsnCosts: set-up, maintenancenRegulationnLikelihood of growth: need for flexibil

8、ity in proprietors or for financenControl and privacynTax: on creation, ongoing, & on saleLOBO Week 115SOLE TRADERnNo formal registration or reporting - little costnStatutory obligations with respect to Workers Compensation, Government licencing, workplace safety & employment protection.nUnlimited l

9、iability for debts and tortsnTrader remains personally liable for the debts & other liabilities without limitationnFor example, trader remains responsible for the act & omissions of employees acting within the scope of their authorityLOBO Week 116SOLE TRADERnEntrepreneur has complete controlnLimited

10、 funding for expansionnComplete confidentialitynEverything earned is income of proprietorLOBO Week 117COVENTURINGUnincorporated Organisations:nPartnershipsnAssociationsnJoint venturesMain features:nNot “entities” separate from their ownersnExist by agreement - no need for external registration or ap

11、provalLOBO Week 118FEATURES OF PARTNERSHIPSnCheap to set up and maintainnEverything earned is income of proprietorsnPartners have unlimited liability for debts and tortsnPartners jointly and severally liablenPartners have direct controlnChanges are cumbersome, limited funding for expansionLOBO Week

12、119JOINT VENTURES nCommon interest activities set up by contract for individual profitnA once-off venture nPrecise legal status not clear nApt to describe any sort of co-venturing: UDC v Brian nContractually basedLOBO Week 120JOINT VENTURES“A partnership with the element of commonality missing”nIt i

13、s very easy to establish a partnership at law, even though you just wanted a “JV”nPartnership where instead of doing something for mutual profit, you are doing something mutually for individual profit.LOBO Week 121DIFFERENCES BETWEEN JOINT VENTURES & P/SHIPSnPartnershipnContinuing businessnJoint & S

14、everal liabilitynShare profits of the PartnershipnCant easily assign Partnership interestnFiduciary obligations nJoint VenturenOne off enterprisenSeveral liabilitynReceive share of profits separatelynCan dispose of interest in the Joint VenturenNo fiduciary obligationsLOBO Week 122UNINCORPORATED ASS

15、OCIATIONSnGenerally limited to non-profit organisationsnClubs, charitiesnUsually have a “Constitution”nRelationship is one where they are not carrying on a business nMembership: free to come and gonImprecise legal statusnLiability of Committee for most debts / obligationsLOBO Week 123UNINCORPORATED

16、ASSOCIATIONSnNot recognised as a separate legal entitynTherefore, association cannot:1.Own property;2.Enter contracts; or3.Sue or be sued in its own nameLOBO Week 124INCORPORATED ASSOCIATIONSnGeneral term is “corporation”Includes:nCompany - Corporations ActnStatutory corporations (e.g. Uni of Newcas

17、tle)nStrata title corporationsnIncorporated clubs/bodies - Associations Incorporation ActnFinance companies, co-operatives, building societies etc - separate ActsLOBO Week 125INCORPORATED (non profit)ASSOCIATIONSnIncorporation under the Associations Incorporation Act (1984) NSWnLimited liability for

18、 membersnAct permits 5 or more persons to incorporate provided it is not carried on for for the object of trading or securing pecuniary gain for its members.nMust appoint a public officer who works with the Dept Fair TradingnMust notify Dept if rules or object changeLOBO Week 126INCORPORATED (non pr

19、ofit)ASSOCIATIONSnGeneral meetings convened annually with income and expenditure for last financial year & assets & liabilities tablednYearly accounting statement lodged with Dept within 1 month of GMnAssociation must maintain public liability insurance with insurer for $2millionnMembers not liable

20、to contribute to discharge of the associations liabilities unless:LOBO Week 127INCORPORATED (non profit)ASSOCIATIONS(a)The liability insurance is not maintained or(b)The associations incurs liability fraudulentlynOn winding up, surplus property not distributed amongst members but rather vested in ot

21、her non profit associations which have substantially similar goals.nCan make a profit as a consequence of its activity but profit must be used for the purposes of the association & may not be paid to members LOBO Week 128INCORPORATED ASSOCIATIONS The most common type is the Company Main features:nAr

22、tificial entities nLegally separate from their ownersnCreated by registration LOBO Week 129STATISTICSnThere are more than 1.5 million Australian CompaniesnOf which approximately 2000 are listed on the ASX (0.15%)nBut in financial year ending 30 June 2007, these large listed Companies had a market ca

23、pitalisation of $1.63 trillionnLarge Companies account for approximately 60% 65% of total Company income nApprox 90% of all business undertaken in Australia is through the Company format LOBO Week 130THE COMPANYnHigher establishment and maintenance costsnLimited liability of owners for company debts

24、 and if the business goes bad n“members” = “shareholders” in a company limited by sharesnOwners do not necessarily get profits - the entity owns themLOBO Week 131THE COMPANY (contd)A two-edged sword for managing the future:nowner control potentially limitednseparation of management from ownershipnmu

25、st make some information publicnpublic and large private companies particularlyngreater opportunities for raising capitalnflexible and adaptableLOBO Week 132SHAREHOLDERS (S/H)(Income generating ASSETS)DIRECTORSElectDividendsCapitalCOMPANYTHE COMPANYContracts:SuppliersCustomersLOBO Week 133 PRELIMINA

26、RY ASSESSMENTnCompanies - greater financial security and flexibility, but less control and more expensenPartnerships - cheaper to set up and offer greater control but less financial security and flexibilityLOBO Week 134FACTORS AFFECTING THE DECISION TO INCORPORATE1.Limited Liability Incorporation in

27、sulates members from claims against the Company2.Perpetual Succession Company is vested with legal capacity & powers of an individual but remains unaffected by a participants death or bankruptcy.3.Financing Power to create charges over assets or make a public issue of its sharesLOBO Week 135FACTORS

28、AFFECTING THE DECISION TO INCORPORATE4.Cost, formality & continuing obligations must disclose information for benefit of members, creditors & the communityIncludes financial position, membership, directors etcPenalties apply for cases of non-disclosureMuch legal complexity Burden of formality is a m

29、ajor cost of incorporationLOBO Week 136FACTORS AFFECTING THE DECISION TO INCORPORATE5.Taxation 6.Control separation of ownership from control in many companies7.Growth far greater capacity to grow with a company as opposed to a partnership.LOBO Week 137Topic TwoESSENTIAL FEATURES OF COMPANIES AND PA

30、RTNERSHIPSLOBO Week 138ESSENTIAL FEATURESnCompanies: separate entity distinct from membersn“separate legal personality”nPartnerships: multiple personality indistinct from membersLOBO Week 139CONSEQUENCES OF SEPARATE LEGAL PERSONALITYnCompany owns its own debts and assetsnMembers have no liability fo

31、r companys debts or wrongs = “limited liability” (s 516)nMembers have no beneficial interest in the companys assetsnPerpetual successionLOBO Week 140OTHER FEATURES OF COMPANIESnMembers are not fiduciariesnSeparation of ownership from controlnTransferability of members interestsLOBO Week 141PARTNERSH

32、IP - DEFINITIONnSec 1: an arrangement between a number of people (ie 2 +) is a partnership if:they are carrying on a businessin commonwith a view to profitnAlso the case law definition - Smith v AndersonLOBO Week 142“CARRYING ON A BUSINESS”nBallantyne v Raphael (1889) case where court held a syndica

33、te formed for the purposes of purchasing a block of land for subdivision was not a partnershipnThe term carrying on contains an element of continuity or repetition & the syndicate was deemed to be formed for the purposes of an isolated transaction nMore modern cases suggest one off ventures or activ

34、ities can be partnerships where sufficiently complex.LOBO Week 143“IN COMMON”nMutuality of interests, goals, rights and obligations.nS:2 of the Partnership Act (1892) NSW lists matters to which regard must be had.1.The legal status which the partners have themselves sought to assign2.The sharing of

35、net profits is prima facie, EV of partnership3.The sharing of losses is also said to be a characteristic of partnershipLOBO Week 144“IN COMMON”nThe role in management or decision making taken by the putative partnernThe existence of mutual trust & respectnContribution of capitalnGuidelines onlynNo g

36、uideline is necessarily determinativeLOBO Week 145“WITH A VIEW TO PROFIT”nCases give examples and some rulesnA “business” is distinguishable from:nmere investmentnhobbies, past-timesnactivities as an employeenThe intention of profit is an essential element of a partnershipLOBO Week 146WHY IDENTIFY W

37、HETHER A PARTNERSHIP IS PRESENTnBecause it will affect:1.How it contracts2.How it is managed3.Liability4.Debts5.Rights6.Obligations (fiduciary) LOBO Week 147Other Principle Characteristics of A PartnershipnNot endowed with a distinct entity statusnTherefore, no capacity to acquire rights or obligati

38、ons independent of the individual partnersnA partnership cannot own propertynAll partners bear unlimited liability for debts & obligations incurred by partnership unless partners register a limited partnershipnEvery partner is an agent of the partnershipLOBO Week 148OTHER DISTINCTIONSCompaniesnCreat

39、ed by registrationnArtificial person acting through human agentsnCommercial and non-commercial usesnSue in own namenContract with membersPartnershipsnCreated by agreementnPartners are legal agents of the partnershipnMust conduct a “business”nSue in name of partnersnCannot contract with partnersLOBO

40、Week 149PURPOSE & ROLE OF COMPANIES AND CORPORATIONS LAWLecture 2LOBO Week 150The historical development of companiesnCorporations aggregate as separate legal personsnJoint stock as a means of financial participationnIncorporation as of right from mid 19th centurynLimited liability from mid 19th cen

41、turyLOBO Week 151CompaniesnThe dominant form of business organisationnOver 1.5 million companies in AustralianCreated through a process of registration under statute - an “artificial legal person”nHave the special legal attribute of separate personalityLOBO Week 152What is the purpose of companies?n

42、Traditionally, a means by which a large group of people with capital and management resources could come together to conduct an enterprise on an ongoing basisnNow also widely used for small business and by individualsLOBO Week 153Purpose contnMarket needs nDeficiencies of other options - p/shipnAllo

43、w larger capital raisingsnAllow risk to be shared, minimised and spread to promote economic expansion (limited liability)nAllow membership to vary easilynPerpetual successionnAllow passive investment nPut control in the hands of most skilledLOBO Week 154Small and large companiesnMost companies are s

44、mall businessesnAbout 2000 companies are listed. (Listed companies are companies in which you can buy or sell shares through the ASX.)LOBO Week 155The architecture of companiesnCapital structurenequity capital (shares)ndebt capitalnManagement structurenboard of directors and other officersnmembers (

45、shareholders)LOBO Week 156Capital structurenCompanies have one or more shareholders (also called members) who have invested money by subscribing for shares (or acquiring shares from an existing shareholder)nCompanies often also have creditorsdebt holders LOBO Week 157Management structurenBoard of di

46、rectors manage the business (in large companies, delegate to CEO and other executives)nDirectors are not necessarily membersnMembers have a right to vote on some issues, but usually not on general management decisionsLOBO Week 158SHAREHOLDERS (S/H)(Income generating ASSETS)DIRECTORSElectDividendsCap

47、italCOMPANYTHE COMPANYContracts:SuppliersCustomersEmployees Officers (eg. CEO, MD etc)LOBO Week 159Important developments for small businessnDistinction between public and proprietary companiesnSalomons casenSole director/shareholder companiesLOBO Week 160Company lawnScope and operation of company l

48、awnSources of company lawnRegulation of companiesLOBO Week 161ROLE OF THE LAWProvides:nA way for companies to be creatednA structure within which companies can operatenA set of rules which regulate how that structure is used to prevent abuse Enabler, facilitator, regulator, protector LOBO Week 162Wh

49、at is company law?nGeneral term used to describe the legal rules governing:nformation and termination of companiesncharacteristics of companiesnrelationships between participants in companies (such as members and officers)naspects of companies dealings with outsidersLOBO Week 163Purpose of company l

50、aw nHas both facilitative and regulatory functionsnFacilitative in that it provides the legal framework for people to deal with each othernRegulatory in that it controls behaviour to achieve social endsLOBO Week 164Purpose (cont)nAims/purposes include:ninvestor protectionncommercial stability and co

51、nsumer confidencenbalancing competing interestsncertainty - standard form rulesnAsk yourself throughout the subject - does the law achieve these aims?LOBO Week 165Operation of company lawnOperates as a source of private rights between individual parties (e.g. between members of a company)nBreach of

52、provisions of the Corporations Act can also be a criminal offence or subject to other State sanctionLOBO Week 166Sources of company lawnWhere do I look for any rules that may govern a proposed corporate action?nExamples:nelecting new directorsnborrowing money from a banknbringing in new investorsLOB

53、O Week 167Sources of rules (cont)nCorporations ActnCase lawnOther sourcesnCorporations Regulations, ASIC Act, ASIC exemptions, modifications and guidelines, accounting standards, ASX Listing Rules (for listed companies)LOBO Week 168Corporations ActnAustralias company law statutenCame into effect on

54、15 July 2001nUntil 2001, Australias corporations law was made up of separate State and Territory ActsnAlso covers financial services regulation see Chapter 21 if you are interestedLOBO Week 169Types of companiesnCorporations formed under the Corporations Act are “companies”nCompanies are classified:

55、nby reference to basis and extent of the members liabilitynas public or proprietarynSome provisions of the Corporations Act apply only to certain types of companiesLOBO Week 170Types of companiesLOBO Week 171Classification by reference to members liabilitynCompany limited by sharesLiability limited

56、to amount unpaid on sharesnCompany limited by guarantee (non profit)Liability limited to $ members agree to contribnUnlimited companyNo limits on member liabilitynNo liability companySole object must be mining purposes. Must have share capitalLOBO Week 172Classification as public or proprietarynProp

57、rietary companiesnsection 113:nno more than 50 membersnno fundraising activity requiring a disclosure document under Chapter 6Dnmay be a company limited by shares or an unlimited company with share capital - sec 112LOBO Week 173Classification (cont)nPublic companies:neverything other than proprietar

58、y companiesnsection 112:ncompanies limited by guarantee and no liabilityncompanies limited by shares and unlimitedLOBO Week 174Hallmarks of CorporationsSEPARATE LEGAL PERSONALITYLOBO Week 175SEPARATE LEGAL PERSONALITYnCreated by registration nArtificial person - so needs human agentsnSeparate legal

59、existence from owners and controllersnThe “corporate veil” - eg Salamon v Salamon, Lees Case and MacAuras CaseLOBO Week 176SALOMON v SALOMON & CO LTD 1897 AC 22Facts:Facts:S owned shoe making businessS owned shoe making businessWished to relinquish risk of ownershipWished to relinquish risk of owner

60、shipnTransfer of business from S to S & Co39,000 poundsnFor shares and debts20,001 shares to S, 1 each to 4 sons, 1 to wife, 1 to daughter & debenture to S over Co assetsLOBO Week 177SALOMON v SALOMON & CO LTD 1897 AC 22nOther shareholders were Ss family - as nomineesnS & Co went undernCreditors sue

61、 SCreditors argued Co was agent for SArgued Co was a shamCreditors felt confident by mere fact S was sole trader operating small businessLOBO Week 178The transaction: SALOMON v SALOMON & COSALOMON & CO SALOMON & CO LTDLTDLEATHER BUSINESS ASSETS SHARES AND DEBENTURESSALOMON & SALOMON & FAMILYFAMILYLO

62、BO Week 179Mr. Salomon (S/H)& FamilySole Trader (Leather business)Mr. Salomon(Director)ElectCapitalSalomon & Co.Salomon v. Salomon & Co. Ltd. Creditors:Mr. SalomonOthersCustomersSuppliersEmployeesAssetsLOBO Week 180SALOMON v SALOMON & COIssueIssuenWas S bound to indemnify S & Co, as his “alter ego”

63、or “agent”?nCould S collect on his debentures before the unsecured creditors?LOBO Week 181SALOMON v SALOMONHeld:Held:nS&Co owned and ran business in its own right - not the alter ego or agent of SnNot a sham or alias - even though other shareholders nominee onlynSeparate legal entity acting on its o

64、wnnNo indemnitynS could collect as a secured creditorLOBO Week 182The Events: LEE v LEES AIR FARMING LTD 1961 AC 12FactsnL was controlling shareholder and managing director of ConAlso the pilotnCrashed and killedIssuenWas he an employee/worker and so wife entitled workers comp?LOBO Week 183Mr. Lee (

65、S/H)Airplane, spray & Spraying contractsMr. LeeElectLees Air FarmingLee v Lees Air FarmingContracts:Mr. Lee, pilotLOBO Week 184LEE v LEES AIR FARMING LTDHeldnCo separate legal person from controlling shareholder/directornTherefore Co could contract with him and employ himnTherefore covered by worker

66、s compLOBO Week 185CONSEQUENCES OF SEPARATE LEGAL PERSONALITYnCompany owns its own debts and assetsnMembers have no liability for companys debts or wrongs = “limited liability” (s 516)nMembers have no beneficial interest in the companys assetsnPerpetual successionnMembers are not fiduciariesnSeparat

67、ion of ownership from controlnTransferability of members interests LOBO Week 186Sue & Be SuednOnce registered it is its own person at lawnS. 119 sue & be sued in own nameLOBO Week 187Own PropertynThe property of the shareholders is not the property of the companynThe property of the company is not t

68、he property of the shareholdersnMacaura v. Northern Assurance Co. Ltd., 1925 AC 619LOBO Week 188Free contractingnCompany can contract with:nExternal partiesnInternal parties (subject to some restrictions)LOBO Week 189Hallmarks of CorporationsLimited LiabilityLOBO Week 190LIMITED LIABILITYLiability o

69、f its owners is:nlimited to what owners owe the company on shares they hold (“unpaid calls”)nenforceable only when the company is being wound upns 516LOBO Week 191LIMITED LIABILITYnEncourages capital raising and thus economic activitynEncourages entrepreneurial risk takingnReduce costs: shareholders

70、 dont need to monitor management as closelynEfficient securities markets and capital raising: nshare prices and transferability unrelated to shareholder wealthnShareholders diversify holdingsnBut, privilege may be abusedLOBO Week 192CIRCUMVENTING LIMITED LIABILITYnGuarantees: banks and other major c

71、reditors usually require directors/major shareholders of private Companies to guarantee liabilitiesnGuarantees in corporate groupsLOBO Week 193Hallmarks of CorporationsPerpetual ExistenceLOBO Week 194“Perpetual” existencenCorporations continue to exist regardless of:nDeath of founders, directors or

72、shareholdersnChange of businessnLoss of assetsnCorporations die by:nWinding upnGovernment revocation of charterLOBO Week 195Constituting CorporationsHow to create a corporationLOBO Week 196Constituting companiesnRegistering companiesnPre-registration activitiesnInternal governance rulesnreplaceable

73、rules and constitutionsnSingle/director shareholder companiesLOBO Week 197Registering companiesnCompanies created through registration by ASICnASIC Form 201 must include details of type of company, members, directors, secretary, registered office, internal governance rules, and nameShelf Companies e

74、stablished for on saleReduces the administrative burden for business people & saves timeGood where Co is required URGENTLYLOBO Week 198Pre-registration activitiesnWhat happens when someone wants to enter into a contract on behalf of a company that is not yet registered? See s 131Occurs where Co is y

75、et to be registered but opportunity arises to secure some benefit for Co (usually under K)In past, promoters were personally liableS:131 says Co become bound if it later ratifies K. (express or implied) LOBO Week 199Pre-registration activitiesnPromoters are in a fiduciary relationship with the yet-t

76、o-be-formed company, that prevent them abusing their powerEg, causing Co to purchase goods at an inflated priceEnter Ks unfavourable to the CoFiduciary duty similar to that owed by directors to CoLOBO Week 1100What are the internal governance rules?nA set of arrangements (by-laws) agreed between the

77、 members to govern the internal workings of the companyNot dis-similar to the Australian Constitution (division of powers, rights & responsibilities)nTypically deal with appointment, powers and removal of officers, meetings, classes of shares, dividends, transfer of shares, inspection of booksNo one

78、 Constitution will suit all Cos Eg R-Rules do not apply to single Dir / S/H CosLOBO Week 1101Where are these rules?nFound in:nthe companys constitution, ornthe replaceable rules, or na combination of the two.See p 611 of text for legislation extracts & 81 for list of R-RulesnSection 134 of the Corpo

79、rations Act: A companys internal management may be governed by provisions of this Act that apply to the company as replaceable rules, by a constitution, or by a combination of both.LOBO Week 1102Replaceable rulesnIntroduced in 199841 R-rulesnCompanies may elect to rely on some or all of the replacea

80、ble rules contained in the Corporations ActnR-Rules apply unless they are displaced or modified by a constitution s 135Adopt R-Rules in constitution as parliament may amend R-Rules at any timeLOBO Week 1103The replaceable rulesnListed in s 141 and scattered through Chapters 2D, 2F, 2G, 2H and 7 of t

81、he ActS:141Table of R-Rules (page 81 of text)nThere are rules covering:nofficers and employeesninspection of booksnmeetingsnsharesnshare transfersLOBO Week 1104The replaceable rulesnMost R-Rules are default rules in that they can be displaced by the company in its constitutionnException is s 249X (p

82、roxies) which is mandatory for public companiesnSection 203C is a R-Rule for proprietary companies only (removal of directors by members)LOBO Week 1105Relying on the replaceable rulesnNot all of the replaceable rules are suitable for all types of companiesnSome companies may wish to do things not pr

83、ovided for in the replaceable rules e.g. issue partly paid sharesnThe particular rules may not suit, e.g. the pre-emption provision in s 254DSection provides that before issuing shares, a Pty Co must 1st offer them to the existing S/HsLOBO Week 1106Decision-making under the replaceable rulesnThink a

84、bout whether the rules for decision making are appropriatenThe replaceable rules assume “majority rule”nFor example, provide for decisions of the board to be carried by the majority, with the chairperson given a casting voteTherefore, not suitable where Co has 2 equal S/Hs who are also only director

85、sLOBO Week 1107ConstitutionnAs an alternative to relying on the replaceable rules, a company can adopt a constitutionnContains customised internal governance rules for that particular companynWill override some or all of the replaceable rules see s 135See example of Co Constitution on P 587LOBO Week

86、 1108Pre- 1998 companiesnCompanies formed prior to 1 July 1998 may still have their old memorandum and articles of association (which were required under the old law)nMany companies used “Table A”nIf so, this will be their constitutionLOBO Week 1109Adopting a constitutionnCan be done when the compan

87、y is registered, or laternAdopting, amending or repealing a constitution after registration requires a special resolution of membersnListed companies must have a constitution that is consistent with the Listing RulesLOBO Week 1110Legal effect of the internal governance rulesnSection 140 A companys c

88、onstitution (if any) and the replaceable rules that apply to it have effect as a contract between:nthe company and each membernthe company and each director and secretaryna member and each other memberNote no contractual (or fiduciary) relationship between Dir & Dir, Dir & members or Co & outsidersL

89、OBO Week 1111Effect as a statutory contractnInterpretation nPrinciples of contract lawnEnforcementnFour constraints see CACL 4-640 (p86)(1) cant be enforced by outsiders Articles provided solicitor was Cos solicitor solicitor sacked solicitor sought to rely on Co article Eley v Positive Govermnent S

90、ociety Life Assurance Co LtdOther 3 relate to restrictions on members right of enforcement & restrictions that applyLOBO Week 1112Effect as a statutory contractnConsequences of non-compliancenConsider contractual enforcement, procedural irregularity (s 1322), powers (s 125)RR represent private not p

91、ublic law obligationsRecourse is via common law as opposed to Statutory remedies listed under s:1324Procedural irregularities will attract s:1322 (eg holding meeting without required No for quorum) Exceeding powers vested will attract s: 125 allowing Ct to invalidate if injustice results LOBO Week 1

92、113Single director/shareholder companiesnSpecial type of company in which the only member is also the only directornOnly allowed for proprietary companies (as public companies must have at least 3 directors)nRemember that the law recognises the company as a separate legal entity, despite no function

93、al separation from the individual who is its manager and ownerLOBO Week 1114Single director/shareholder companies (cont)nReplaceable rules do not apply s 135(1)nSome special rules apply s 198E (powers of director), 201F (appointment of director) and 202C (directors remuneration)LOBO Week 1115MANAGIN

94、G COMPANIESDivision of responsibility in decision making between members & directorsDecisions can be:1.Enterprise decisions; (business decisions)2.Capital Decisions; & (funding decisions)3.Constitutional Decisions (internal arrangements)LOBO Week 1116WHO MAKES THE DECISIONS?Directors manage the busi

95、ness (ie number of employees, sale & purchase of assets, where to source raw materialsMembers generally entitled to vote only on limited matters. Precise scope of member & director powers is defined by internal governance rules & company law generallyWhere power is exercised in proper manner by the

96、appropriate body, it is deemed a decision of the Company.LOBO Week 1117DIRECTORS POWER OF MANAGEMENTIf R-Rule 198A applies, then the power conferred is to manage and direct the business of the CompanyCompanys Constitution may place restrictions on Board of Directors powers to manage the business.A d

97、ecision whether to sell a companys assets is a management decision which in the absence of an express limitation, remains at the sole discretion of the Board Automatic Self Cleaning Filter SyndicateLOBO Week 1118DIRECTORS POWER OF MANAGEMENTWhere R-Rule 198A applies, power covers all things not expr

98、essly reserved to members by Corp Act or internal governance rulesVery broad powerLOBO Week 1119MEMBER DECISION MAKING POWERIncludes power to:1.Adopt, modify or repeal a Constitution2.Veto certain reductions of capital3.Remove directors from office & replace4.Veto certain related party transactions

99、&5.Approve an auditorReserve powers - where Board unable to act, bring legal proceedings & ratify directors acts.LOBO Week 1120Law of Business OrganisationsLecture 4MembersLOBO Week 1121Member decision makingnWho controls companies?nOn what issues do members have a vote? nStructural or constitutiona

100、l mattersnDirector appointment and remuneration; appointment of auditorsnSome significant or related party transactionsnWinding up, residual powersLOBO Week 1122IntroductionnExamine three issues of membershipnMembers decision makingnMembers meetingsnRestriction on members decision making powerLOBO W

101、eek 1123Member votingnRight to make certain decisions about the company is reserved to the members in general meeting by the internal management rules or the Corporations ActnOften, the internal management rules operate on a principle of majority rule - that is, members vote and the view of the majo

102、rity prevailsLOBO Week 1124Control and the exercise of voting rightsnVoting rights are a means by which members control what happens to their companynControl depends not only on the presence of voting rights, but also the capacity and information to exercise themLOBO Week 1125Members specific powers

103、nPrecise scope depends on the internal management rulesnDifferent for public and proprietary companiesMembers of public Cos generally have more voting rightsnListing Rules confer additional powers on membersLOBO Week 1126Changes to structurenMember approval is required to:nadopt, modify or repeal th

104、e constitution: s 136nchange the companys name: s 157nchange type (e.g. from proprietary to public): s 162nSpecial resolution is required in each caseLOBO Week 1127Variation of class rightsnSection 246B: variation or cancellation permitted only:nin accordance with the constitution, ornwhere the cons

105、titution is silent, by special resolution of the company and a separate special resolution of the classLOBO Week 1128Variation of class rights (cont)nVariation obviously includes the situation where the resolution is to remove voting rights of members belonging to a particular class.nBut what about

106、the issue of additional voting shares? nWhat is a variation of class rights? See Greenhalgh v Arderne CinemasLOBO Week 1129Variation of class rights (cont)Co issued 31,000 pref shares & 21,000 ordinary shares each carrying 1 voteThen issued shares to Mr Greenhalgh which were sufficient to block spec

107、ial resolutionOther members voted by ordinary resolution to subdivide shares which greatly increased the Number of shares held & diminished Mr Greenhalghs proportion of votesHeld :not to vary rights of Mr Greenhalgh as his shares were still worth 1 vote eachLOBO Week 1130Variation of class rights (c

108、ont)nGeneral law test is narrow effect on enjoyment is not enoughnSection 246C: certain actions will amount to variation of class rightsLOBO Week 1131Variation of class rights (cont)nSection 246D: rights of dissenting members where the variation, cancellation or modification does not have unanimous

109、consent.nEffect of resolution delayed for 1 month nMembers holding at least 10% of the class can apply to the Court for change to be set aside for unfair prejudiceLOBO Week 1132Composition of the boardnPty Co Appointment - member election or approval may be required under the internal management rul

110、es, e.g.nRR s 201GnRR s 201H (Casual Vacancy Power)LOBO Week 1133Composition of the board (cont)nUnlisted (Public) CompaniesnListed (Public) companies always have director electionnMembers right to remove a director:npublic company: s 203D (ordinary resolution)nproprietary company: only if provided

111、for in the internal management rules e.g. RR s 203CLOBO Week 1134Directors remuneration and benefitsnThe CLERP 9 remuneration report and non-binding shareholder votenIf RR 202A applies, Dir remuneration must be approved by ordinary resolution of membersnIf silent, directors free to determine subject

112、 to:nPublic Listed Companies whos Directors may need member approval (governed by listing rules)LOBO Week 1135Directors remuneration and benefitsnRetirement benefitsnNote Chapter 2E requirements may apply if it is not reasonable remunerationnChapter 2E deals with member approval for financial benefi

113、ts conferred by public Companies on related partiesLOBO Week 1136Share capital transactionsnConsolidation and division of shares: s 254HnReduction of capital: s 256C see Chapter 19nBuy-back: s 257B see Chapter 19LOBO Week 1137Share capital (cont)nNon-exempt financial assistance that materially preju

114、dices the interests of the company or its shareholders, or the companys ability to pay its creditors: s 260ALOBO Week 1138Related party transactionsnChapter 2E: If a public company or entity controlled by a public company gives a financial benefit to a related party of the public company, the public

115、 companys shareholders must approve the transaction (unless it is an exempt transaction)nControlled? nRelated party? (apply test in S:228)nFinancial benefit? (see examples in S:229)LOBO Week 1139Related party transactions (cont)nExempt transactions include:nbenefits within wholly-owned groupsnreason

116、able remuneration for directorsntransactions on arms length terms(ie, benefits conferred on acceptable commercial terms)( Market value)nbenefits to members that are not discriminatory(Eg, dividends, bonus shares)LOBO Week 1140Other decisionsnMembers voluntary winding upnBy special resolution provide

117、d for under s: 461(1)(a)nMembers residual decision making power.Utilised in circumstances where1. the board is unable to act; or2. A decision is made to prosecute the companies controllers; or3.Members move to ratify Directors breach of dutyLOBO Week 1141Law of Business OrganisationsMembers meetings

118、LOBO Week 1142Members meetingsnMeetingsntypes of meetingsnconvening meetingsnconducting meetingsnmember votingnDecision making without a meetingnFixing procedural irregularitiesLOBO Week 1143Types of meetingsnAll public companies must hold an annual general meeting: s 250NnOther meetings are called

119、“extraordinary general meetings”nRules governing meetings are set out in Part 2G.2 of the Corporations Act and the internal management rulesLOBO Week 1144Calling a meetingnUsually, meetings are called by the board.n Can also be called: nRR s 249C by single director nListed company by single director

120、: s 249CAnCourt, on application by a director or member if it is otherwise impracticable: s 249GLOBO Week 1145Calling a meeting (cont)nRequisition by 5%+ or 100+ members: s 249DnDirectors need not convene if the purpose is improper: NRMA v ParkernDirect convening by 5% + members: s 249FS:249 G court

121、 may convene meetingLOBO Week 1146AgendanWho decides what the meeting can consider?nOnly matters that have been included in the notice of meeting can be considered at the meeting - other than matters stated in s 250R in case of AGMsnS:250RThese matters only able to be excluded from notice for AGMs n

122、ot other meetingsLOBO Week 1147Agenda (cont)nUsually, where the directors are calling a meeting, they will determine the agendanMembers can request the inclusion of resolutions for consideration by the meeting: s 249NLOBO Week 1148Notice of meetingnGeneral rule - 21 days. Consent to short notice is

123、possible: s 249HnListed companies - 28 days: s 249HAnNotice must be given to members, directors and auditornContents of notice: s 249LIncl. Date, place, time, general nature of the business to be conducted, copies of any motions to be put requiring special resolution & details of proxy entitlementsL

124、OBO Week 1149Notice of meeting (cont)nNotice must contain sufficient information to enable the member to decide whether or not to attend the meeting and how to votenMust not be misleading or deceptive (even if this is unintentional)Notice must be presented in a clear, concise & effective uncomplicat

125、ed yet sufficiently detailedLOBO Week 1150Notice (cont)nMust “fully and fairly inform and instruct the shareholder about the matter on which he or she will have to vote”: Devereaux HoldingsnNeed to balance the information presented, to make it accessible: Fraser v NRMADefects in notices do not autom

126、atically invalidate the meeting or decisions madeS:1322 says only invalidated if court is of view irregularity caused substantial injusticeLOBO Week 1151Conduct of meetingsnQuorumnRefers to min no of people that must be present for valid meetingnRR 249T says 2 but Companies own Constitution may adju

127、st this numbernUse of technology allows meeting to be held in more than one placenS:1322 (Failure of Technology)LOBO Week 1152Conduct of meetingsnProxies and corporate representativesProxies allows absentees to cast voteIn listed Cos anyone can be anothers proxyRR 249X provides for appointment of pr

128、oxiesProxy form on P 607S:250D LOBO Week 1153Conduct of meetingsnConduct (role of the chair)If RR 249U applies, chosen by board or left to membersChairperson decides order of agenda, who speaks & for how longAt AGM of Listed Co, members allowed to Q auditor, Q remuneration reportMust provide members

129、 as a whole reasonable opportunity to be heardLOBO Week 1154VotingnMembers entitlement to votenTwo ways to vote (show of hands or poll)nreplaceable rule in s 250Enpreference shareholdersNot entitled to vote unless dividends are in arrears or subject matter includes class rights, winding up & reducti

130、on of capital etcLOBO Week 1155VotingnVoting by proxiesInvolves entitlement of person to cast vote on behalf of another nVoting (show of hands and poll)At common law, no right to vote on show of hands but R-Rule 250J reverses this positionProxy may speak, vote & join demand for pollnOrdinary and spe

131、cial resolutions50% members present (ordinary resolution)75% members present (special resolution)LOBO Week 1156VotingA Special Resolution is required for:Changing the Company name (s:157)Amendments to internal Gov. rules (s:136)Variation of class rights (s:246B)Selective capital reductions (s:256C)R

132、esolution to wind up the Company (ss:461, 491)An Ordinary Resolution is required for:Removal of public Company directors (203D) LOBO Week 1157Disqualification from votingnCorporations Act and Listing Rules prevent interested parties from voting their shares in certain circumstances, including:nrelat

133、ed party transactionsnselective buy-backsnselective reductions of capitalnASX Listing Rules - sale of main undertaking, share issues to related parties etcLOBO Week 1158Decision-making without a meetingnIn single member companies, resolution is passed by the member recording and signing it: s 249BnP

134、roprietary companies may use “flying minutes”, in which all members entitled to vote must sign a document agreeing to the resolution: s 249ALOBO Week 1159IrregularitiesnSection 1322 outcome of meeting may be valid despite some irregularity (i.e. failure to follow required procedure)S: 1322 is an aut

135、omatic validation provisionnApplies to “proceeding under the Act” includes directors and members meetingsnAutomatic validation (valid unless a court says no) or curing declarationLOBO Week 1160Procedural irregularitynSection 1322(1) - includes absence of quorum, defect of notice or timeEg, omission

136、of location/20 days notice not 21nNot invalid unless court is of the opinion that a substantial injustice has resulted or may result, and declares it invalidnOnus on the person arguing invalidityLOBO Week 1161Other automatic validation provisionsnExamples are - non receipt of notice, technology fail

137、ure, voting in contravention of s:259DnPerson seeking to overturn proceeding must establish substantial injusticeSubstantial injustice more likely to be present where matter goes to thing to be done as opposed to manner in which thing is to be done.LOBO Week 1162MTQ Holdings Pty Ltd v RCR Tomlinson

138、Ltd 2006 WASC 96Member argued no opportunity provided by chairperson for Plaintiff to object to the validity of proxy votes cast in favour of a resolution.Thing to be done is admission of valid votes onlyArgument was not that the votes were actually invalid but rather, no opportunity was provided to

139、 argue the votes were invalid.Court held matter of procedure only LOBO Week 1163Curing declarationsWhere member objects to an irregularitynSection 1322(4) court can declare that an act, matter, or thing, or a proceeding, is not invalid so long as:nit is procedural in naturenthe person acted honestly

140、nit is equitable to make the ordernOnus on the person asserting validityProcedural irregularity itself must cause sub injustice (MTQ Holdings Case)LOBO Week 1164Law of Business OrganisationsLimits on member decision makingLOBO Week 1165Restrictions on member decision makingnOverviewnRestrictions des

141、igned to protect minority membersnEquitable limitation on majority voting powernGambotto v WCP Ltd (1995) 182 CLR 432nOther restrictions on voting powerLOBO Week 1166Overview of restrictionsnMembers may exercise voting rights in their own self-interest (even if they are also directors)nWhy are restr

142、ictions needed?nto stop unfair exploitation of minority shareholders by majoritynnot always possible for minority to sellLOBO Week 1167How does the law protect the minority?nEquitable limitation on majority voting power (including Gambotto) nProcedural requirementsnVoting restrictions (Corp Act & Li

143、sting Rules)nProtection of members personal rightsnStatutory protectionsnLimits on ratification (of breaches of directors duty)LOBO Week 1168The equitable limitationnNot a positive dutynRule: if majority passes a resolution which no group of reasonable people would think is within majoritys power, a

144、 court can declare the resolution void (invalid)nSometimes overlaps with oppression remedy (Lecture 15)nOverwhelming majority involve proposed changes to Co ConstitutionLOBO Week 1169Applying the equitable limitationnDo the facts involve a decision by the majority of members that harms the minority?

145、 nThe rule applies slightly differently for:ncases involving constitutional amendmentncases not involving constitutional amendmentLOBO Week 1170Cases other than amendment of constitutionnTaking the companys property:nBreach of equitable limitation to use voting power so as to give themselves propert

146、y, advantages or rights belonging to the company: NgurlinMajority unwilling to sue where they are the alleged wrongdoers: BialaLOBO Week 1171Amendments to constitutionnEven where s 136 is complied with, amendment may be invalid due to equitable limitationnIn other cases, the amendment will disadvant

147、age the minority however, will not necessarily be found to breach the equitable limitation.nThe important case of Gambotto deals with:namendments that expropriate sharesnother amendments that give rise to conflictLOBO Week 1172GambottonMajority passed a resolution for compulsory acquisition by IEL o

148、f other sharesnWanted to make WCP wholly owned subsidiarynMeeting heldnIEL did not votenMr Gambotto did not attend or voteMr G0.09%Others0.21%IEL 99.7%WCPLOBO Week 1173Gambotto establishes different tests for different amendmentsnCategory 1 amendments: Amendments to allow expropriation ofnminoritys

149、shares; ornvaluable proprietary rights attached to their shares (e.g. voting or dividend rights)nCategory 2 amendments: Other amendments involving a conflict of interest (not involving expropriation)LOBO Week 1174Category 1 amendmentsnAre only valid if:nproper purpose, andnno oppression of minority

150、shareholdersnProper purpose test is very restrictive LOBO Week 1175Category 1 (cont)nThe only proper purpose recognised by the court is to prevent harm being done to company, e.g.:nminority s/h is competing with companynremoval of member is necessary to allow company to continue in present businessL

151、OBO Week 1176Category 1 (cont)nAlso must show that there was no oppression. This requires:nprocedural fairness full disclosure and justification for rejection of alternative optionsnsubstantive fairness Company must demonstrate the price being offered for the shares is fair (may not always be market

152、 value) LOBO Week 1177Category 2 amendmentsnAre only valid if :ndone for a company purpose, andnno oppression of minority shareholdersnMore purposes are valid here compared with Category 1Category 2 amendments can be undertaken for much broader purposes than the category 1 requirement that require t

153、here be the need to prevent significant determent to the Co LOBO Week 1178Gambotto (cont)nGambotto has no application where expropriation is conducted in accordance with the Corporations Act (eg, selective capital reductions)nPolicy aspectsnIs it appropriate to disregard commercial advantages to the

154、 company ?nShould price be the only concern ?nDoes Gambotto facilitate greenmail ?LOBO Week 1179Other protections for the minoritynMust comply with procedural requirements(e.g., requirements for holding meetings proper notice, quorum, conduct at meetings)nVoting restrictions on interested shareholde

155、r(Eg, provisions of Corporations Act or ASX listing rules for members of listed Companies that restrict interested members voting on share buy backs & related party transactions)LOBO Week 1180Other protections (cont)nStatutory protections for minority shareholders oppression, class rights, winding u

156、pnPersonal rights cannot be taken away(Eg,right to inspect register for members)nLimits on power of majority to ratify breaches of directors dutiesLOBO Week 1181Law of Business OrganizationsCompany Directors: IntroductionLOBO Week 1182Company directorsnDirectorsnBoard composition in listed companies

157、nAppointment, resignation, removal and disqualification of directorsnHow directors make decisions proceedings of the boardLOBO Week 1183DirectorsnMinimum number of directors 1 for proprietary and 3 for publicnUsually a mix of executive directors (e.g. CEO/managing director, finance director) and non

158、-executive directors (who in turn may or may not be independent)LOBO Week 1184Types of directorsnChairperson of directorsnGoverning directornNominee directornAlternate directornDe facto directorsnShadow directorsnExecutive directorsnNon Executive directorsLOBO Week 1185Shadow directornMeans by which

159、 duties and accountability of directors can be imposed on someone (human or body corporate) who is not appointed as a directornDefinition in s 9nStandard Chartered Bank v Antico where are decisions actually being made?LOBO Week 1186Board composition listed LOBO Week 1187Appointment of directorsnWho

160、can be appointed ?nsomeone who consentsnhuman not companynminimum 18 years oldnnot disqualified cannot be bankrupt, convicted of certain offences, or subject to banning order (see below)LOBO Week 1188Appointment of directors (cont)nNew companiesndirectors named in applicationnExisting companiesnchec

161、k companys internal governance rules (see chapter 6)nTerm of appointment limited to 3 years in listed companies before re-election (ASX Listing Rule 14.4)LOBO Week 1189Ceasing as a directornResignationnsee e.g. RR s 203Andirector needs to notify the companynRemoval by other directorsnmay be permitte

162、d by proprietary companys constitutionnProhibited for public companies s 203ELOBO Week 1190Removal by membersnPublic company can remove by ordinary resolution s 203DnProprietary company only if the internal management rules provide for it eg RR s 203C ordinary resolutionLOBO Week 1191Disqualificatio

163、n of directorsnA person can be disqualified:nautomaticallynby court ordernby ASIC ordernCourt can allow person to continue despite disqualificationLOBO Week 1192DisqualificationnAutomatic on:ncertain offencesnbankruptcynCourt ordered after:nbreach of civil penalty provision (chapter 14)ninvolvement

164、in 2 or more failed companiesnrepeated breaches of Corporations ActLOBO Week 1193Disqualification (cont)nASIC can order disqualification due to involvement in 2 or more companies with adverse liquidators report (S:206F)nASIC or court (depending on who disqualified) can grant leave to manage companie

165、sLOBO Week 1194Proceedings of the boardnHow boards operatendelegationninformationnmeetingsLOBO Week 1195Delegation by the boardnMay delegate certain functions to committees of the board e.g. audit, remuneration, nomination (s 198D)nGenerally delegate day-to-day management to the CEO / managing direc

166、tor nSee RR s 198C and s 198DLOBO Week 1196Directors access to information :nStatutory and common law rights to receive informationnRight to access financial records (s 290(1)nCommon law right to information is broadernRight to inspect companys books, in relation to legal proceedings (s 198F)nWhat a

167、bout access after the person ceases as a director?LOBO Week 1197Board meetingsnAll directors must receive reasonable noticenMay have a quorum requirement e.g. RR s 248F (2 directors)nUsually matters decided by a majority casting vote of chairman?nVoting disqualifications can applyLOBO Week 1198Board

168、 meetings (cont)nUse of technology (e.g. video conference, telephone) permitted under s 248D (all directors must agree)nPaper meetings are possible see e.g. RR s 248ALOBO Week 1199Law of Business OrganizationsDirectors Duties Overview & Duty of CareLOBO Week 1200Directors duties 1nOverviewnSummary o

169、f the dutiesnWho owes the duties?nTo whom are the duties owed?nWho enforces the duties?nWhat are the consequences of breaching a duty?nIntroduction to the duty of careLOBO Week 1201Directors duties 1nDuties exist at both common law & statutenMajor difference is who enforces the law & the remedies av

170、ailablenDuties can be divided into two broad categories:1.Care skill & diligence &2.Loyalty & good faithnThe general law duty of care skill & diligence is reflected in s:180LOBO Week 1202Summary of the dutiesLOBO Week 1203Who owes the general law duties?nDuties are owed by:ndirectorsnsenior executiv

171、e officersnThey are in a fiduciary relationship with the company (that is, bound to exercise rights and powers in good faith for the benefit of the company)LOBO Week 1204Who owes the statutory duties?nStatutory duties apply to directors as defined in the Corporations Actnthis includes de facto and s

172、hadow directorsnMost statutory duties also apply to officers (defined in s 9), but not s 191 or 588GnTwo statutory duties imposed on employees s 182 and s 183LOBO Week 1205To whom are the duties owed?nAnswer = the companynIn exceptional circumstances, a duty may be owed to an individual shareholder

173、Brunninghausen v GlavanicsLOBO Week 1206Who enforces the duties?nStatutory duties usually enforced by ASICnNote that the company can initiate proceedings for compensation under civil penalty provisionsnGeneral law duties are enforced by the company (or liquidator if company is being wound up)LOBO We

174、ek 1207Consequence of breachnDiscussed in chapter 14nSeparate avenues of recovery for breach of general law and breach of statutenStatutory action often preferablenBreach of general law rules may entitle company to compensationLOBO Week 1208Breach of the statutory dutiesnStatutory duties are civil p

175、enalty provisions under Part 9.4B of the ActnFollowing a declaration of contravention, a court may impose:npecuniary penalty up to $200,000ndisqualification from managing a Company (banning order) and/ornOrder to pay compensation to companyLOBO Week 1209Breach of statutory duties (cont)nNote the sep

176、arate statutory prohibition on breaching the good faith, use of position and use of information rules with intentional dishonesty or recklessness: s 184nContravention is an offence on conviction, a person may face criminal penalty (5 years prison and/or a fine of up to $220,000)LOBO Week 1210Duty of

177、 care, skill and diligencenSources of the duty :ns 180(1)ngeneral lawncontract of employment - for executive directors and other executive officersnA director or other officer breaches this duty if he or she is negligentLOBO Week 1211Statutory duty of care s 180(1)A director or other officer must ex

178、ercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:(a) were a director or officer of a corporation in the corporations circumstances; and(b) occupied the office held by, and had the same responsibilities within the cor

179、poration as, the director or officer.LOBO Week 1212What is the standard of care?nOriginally, under the common law, the courts used a largely subjective test :nTook into account the background, skills and experience of the director concernednA director with little knowledge of his/her companys busine

180、ss, and little skill, was judged against the standard of someone with the same (poor) knowledge and skillLOBO Week 1213Modern standard of carenDaniels v AWA Ltd (1995) - general lawnNote the wording of s 180(1)nThere is no “uniform” standard for all directorsnBut it is no longer a largely subjective

181、 testnThe standard of care required of director X is the care that a reasonable person doing Xs job in Xs company would exercise (a largely “objective” test)LOBO Week 1214Minimum requirements under the modern standardnSee Daniels v AWA LtdnEvery director must :1.Obtain a basic understanding of their

182、 companys business & be familiar with fundamentals of the Companys business2.Keep informed about and monitor the companys activities, business affairs and regularly attend board meetings3.Monitor & maintain familiarity with the companys financial positionLOBO Week 1215Minimum skill requirements unde

183、r the modern standardnIf a person cant meet the minimum standard then they would be best advised to decline to accept the office.nDirectors now judged by what they ought to know, not by what they do knowLOBO Week 1216Daniels v AWA LtdnCourt also held common law duty is founded in the law of negligen

184、ce and so duty will vary according to:1.Size of business2.Experience or skills the director held him/her self out as havingnSpecial skill = higher dutynObjective standard with subjective elementsLOBO Week 1217Higher requirements for some directorsnDirectors with special skills are held to the standa

185、rd of a person professing to have those skills (eg director & financial officer)nTherefore the question of breach in these cases will be determined by reference to the knowledge and expertise possessed by others with the same skill & expertise.nExecutive directors greater involvement in the business

186、 of the company leads to an expectation of greater knowledge, focus and awareness (diligence)LOBO Week 1218DelegationnDirectors may delegate any of their powers to any person, unless constitution restricts delegation: s 198DnBut Directors cannot abdicate responsibilitynDuty remains that of the Direc

187、tor not the delegate (s:190)nIf delegate is negligent, director will be liable unless requirements of s 190 satisfied (e.g., director believed on reasonable grounds in good faith and after making appropriate inquiries, that the delegate was reliable and competent)LOBO Week 1219Building Society (In L

188、iq) v Wheeler (1994) WAR 187nCourt considered just what constitutes appropriate or reasonable inquiriesnCourt held that at the very minimum, directors have to check the credentials and validity of the person providing the information, particularly in circumstances where the risk is highLOBO Week 122

189、0ReliancenA directors reliance on information provided by employees, professional advisers, other directors or officers, and board committees, will be deemed reasonable where the reliance was made:1.In good faith; and2.After making an independent assessment of the information or advice having regard

190、 to the Directors knowledge of the Company and the complexity of the structure & operations of the CompanyLOBO Week 1221ASIC v AdlernRecent example of breach of duty of carenPayment by HIHC to PEEnPosition of Adler, Fedora and WilliamsnOverlapping duties same conduct leads to multiple breachesnFailu

191、re to put in place proper safeguards and follow proceduresLOBO Week 1222The business judgment rulenNot all decisions in business will turn out to be good decisionsnConducting business often involves some element of risk.nCompany can lose money because of a bad business decision but that fact does no

192、t automatically mean a breach of duty has resultedn General principle that courts do not substitute their business judgment for that of directorsnStatutory business judgment rule: s 180(2)nSays when a director is taken to have met the requirements of s 180(1)LOBO Week 1223Business judgment rulenDire

193、ctor is taken to meet the statutory and general law duties of care in connection with a business judgment if:nExercised in good faith and for a proper purposenno material personal interest in subject matter of judgmentninform themselves about the subject matter and nrationally believe the judgment i

194、s in the best interests of the companyLOBO Week 1224Law of Business OrganizationsDirectors Duties1)Prevent Insolvent Trading2)Retain DiscretionsLOBO Week 1225Directors duties 2nDuty to prevent insolvent tradingnDuty to retain discretionsLOBO Week 1226Duty to prevent insolvent tradingnOverview nFour

195、steps: nDoes the section apply?nDid the person breach s 588G(2)?nAre any defences available? nIf not, what are the consequences? LOBO Week 1227Overview s 588GnInsolvent trading provisions really support the care, skill & diligence obligationsnBut it is its own statutory regime nDirectors have a duty

196、 to prevent their company incurring debts when the company is insolvent or would become insolventnDutys objective is to protect creditorsnDuty is owed by directors only as defined by s:9 (includes de facto and shadow directors)LOBO Week 1228How s 588G worksnStep 1 does it apply? See s 588G(1)nStep 2

197、 did the person contravene s 588G(2)?nStep 3 are there any defences to liability available?nStep 4 if not, what are the consequences?LOBO Week 1229Step 1 - When s 588G appliesnElements1.Person was a director when a company incurred a debt; &2.Company was insolvent at that time or became insolvent by

198、 incurring that debt;3.At the time the debt was incurred, there were reasonable grounds for suspecting the Company was insolvent or would become insolvent.LOBO Week 1230Incur a debtnFor certain actions, see the operative table in s 588G(1A)nFor other debts case law is not always consistent but some

199、principles are that the debt:nmust be for a specific amountncan be contingent nmust be incurred voluntarily by companyLOBO Week 1231What is insolvency?nSection 95A : insolvency worked out using cash flow test (not just balance sheet test)nQuestion is: Is company able to pay all its debts, as and whe

200、n they become due and payable?nSo: What cash does company have? What access to finance does company have?LOBO Week 1232InsolvencynTwo presumptions of insolvency:ns 588E(3) - if company insolvent at any time during 12 months before winding up, then company presumed insolvent for whole 12 monthsns 588

201、E(4) - failure to keep financial records in accordance with S:286 leads to presumption of insolvencyLOBO Week 1233Grounds for suspecting insolvencynSection only applies if, at the time the debt is incurred, there are reasonable grounds for suspecting insolvencynObjective test : judged according to d

202、irector of ordinary competenceLOBO Week 1234Step 2 contravention of s 588G(2)4. Director failed to prevent company incurring the debt where:(i) the director was aware that there were reasonable grounds for suspecting insolvency (subjective test), or(ii) a reasonable person doing that directors job i

203、n that company would have been aware that there were reasonable grounds for suspecting insolvency (objective test)LOBO Week 1235Step 3 defences1.Director had reasonable grounds to expect, and did expect, that company was solvent and would remain solvent.(s:588H(2)nharder to “expect” than to “suspect

204、” - Metropolitan Fire Systems v MillernTo expect something implies a measure of confidence. To suspect something requires a much lower threshold of awareness. nignorance of companys finances no excuseLOBO Week 1236Defences (cont)2.Delegation and reliance on competent and reliable personnHad reasonab

205、le grounds to to believe and did believe:(a) competent & reliable person was responsible for providing D information on insolvency; and(b) person was fulfilling that duty; and(c) Company was solvent. (s:588H(3)LOBO Week 1237Defences (cont)nRemember, no requirement to demonstrate delegate was actuall

206、y competent & reliable. Only necessary to show Director held a belief that was reasonable. LOBO Week 1238Defences (cont)3. Absence from management, due to illness or other good reason (s:588H(4)nThe reason must preclude participation4. Director took all reasonable steps to prevent the company incurr

207、ing the debt (s:588H(5)nappointment of an administrator under VA provisions must be taken into account (s:588H(6)(see chapter 25)LOBO Week 1239Step 4 consequencesnCivil penalty order (chapter 14)nCompensationnCan be ordered by court in civil penalty proceedingsnAlso, liquidator can seek compensation

208、nAlso, if liquidator agrees, an unsecured creditor can seek compensationnFor benefit of unsecured creditors, not secured onesLOBO Week 1240Duty to retain discretionsnDirectors cannot agree that they will not exercise powers given to themnDirectors can delegate powers under s 198D but this is differe

209、nt to directors agreeing not to exercise powersLOBO Week 1241Law of Business OrganizationsDirectors Duties: Act in Good Faith,Proper Purpose and Avoid Conflict of InterestLOBO Week 1242Directors duties: Good Faith and Proper PurposeIntroduction nDuty to act in good faith in the best interests of the

210、 company (objective)nDuty to act for a proper purpose (subjective)nAnytime you have a benefit go to:(a)oneself(b)specific shareholders(c)3rd Partythere may be a breach of good faith by a director LOBO Week 1243Best interests dutynDirector must act in good faith in the best interests of the company n

211、Statutory duty contained in s 181 nAlso a general law dutynTwo issues:nWhat is good faith?nWhat are the companys interests?LOBO Week 1244What does the duty require? nDirector must act in good faith ie honestlynMust do what they believe is best for the company, not themselves or a particular stakehol

212、der group (eg majority of members)nDirectors need to understand what is meant by the interests of the companyLOBO Week 1245Interest of the companynCompanies have many stakeholders. From whose interests are those of the company discerned? Is it the: nmembersncompany as a commercial entity separate fr

213、om its membersncreditorsnother companies within a corporate groupnemployees, customers, suppliers and the community?LOBO Week 1246Generally, look to the interests of the members overallnGenerally, the interests of a solvent company are those of its membersnDirectors must look to the company as a who

214、le, and balance competing interestsnMust act fairly as between members of different classesLOBO Week 1247Separate commercial entity nAre directors entitled (or required) to look to the long term viability of the company as a commercial entity, not just at the short term benefit to current shareholde

215、rs?nIssue not resolved, although sometimes creeps into takeovers casesLOBO Week 1248Creditors interestsnWhen a company is insolvent or nearing insolvency, the creditors interests become those of the company rather than its shareholders: Kinsella; WalkernNote this is not a duty to creditors it is a d

216、uty to the companynE.g. no removing assets Kinsela v Russell Pty Ltd (in liq) (1986)LOBO Week 1249Corporate groupsnDo directors have to consider the interests of each subsidiary separately, or can they do what is best for the group overall?nFor some wholly-owned subsidiaries, directors allowed to ac

217、t in interests of holding company if the requirements of s 187 are metLOBO Week 1250Effect of s 187nDirectors are taken to meet the requirements if:nConstitution expressly authorises that the Director may act in interests of parent Company;nThe Directors act in good faith in best interests of holdin

218、g company; andnThe subsidiary is and remains solvent at the time of the Directors act.LOBO Week 1251Other group companiesnWhere s 187 does not apply, each companys separate interests prevailnTest: whether a person in the position of the director could have reasonably believed the decision would bene

219、fit the company: CharterbridgenEquiticorp: can be an indirect benefitLOBO Week 1252Interests of other stakeholdersnCan directors take into account the interests of employees, customers, suppliers and the community?nCannot consider interests of employees over interests of Company: Parke v Daily Newsn

220、Australian Metropolitan Life Insurance Co Ltd v Ure (Refusal to register a transfer of shares)nRe Smith v Fawcett LtdLOBO Week 1253Duty to act for a proper purposenSection 181 - also a general law dutynEven if directors actions are in companys best interests, may still be a breach of duty if a power

221、 is not exercised for a proper purposeLOBO Week 1254Two step testnSee Howard Smith case:nQuestion of law for what purpose was the power conferred?nQuestion of fact for what purpose was the power exercised? LOBO Week 1255Mixed PurposesnDecision to issue shares can be for both a proper and improper pu

222、rpose.nIn these circumstances,to be found in breach, it must be shown that the substantial purpose was improper & but for the improper purpose, the director would not have exercised the power - Kokotovich, WhitehousenCausation - Whitehouse v Carlton Hotel Pty Ltd)LOBO Week 1256Example share issue po

223、wernNormally a power of the board of directorsnProper purposes include :nto raise capital (Howard Smith Ltd v Ampol Petroleum Pty Ltd)nFinancial stability (Harlowes Nominees Pty Ltd v Woodside Oil Co NL)nfor an employee share schemenas consideration for purchase of an assetLOBO Week 1257Example shar

224、e issue powernImproper purposes include :nto entrench the existing board of directors to preserve control (Ngurli Ltd v McCann) & (Hogg v Cramphorn Ltd)nto entrench control of the company in certain shareholders by issuing more shares(Whitehouse v Carlton Hotel Pty Ltd)nTo dilute the shareholding of

225、 a member (Kokotovich Construction Pty Ltd v Wallington)nto make a majority member a minority member(Howard Smith Ltd v Ampol Petroleum Pty Ltd) & (Whitehouse v Carlton Hotel Pty Ltd)LOBO Week 1258Other examplesnAdvance Bank used company money to fund re-election campaignnPermanent improperly used p

226、ower to enter into contract to acquire land from Tower. Purpose was to put Tower in funds to purchase business from JCLD (which benefited directors)nHarlowes Nominees Pty Ltd v Woodside (Lakes Enterance) Oil Co NL (Issue of shares to prevent mystery buyer gaining control)LOBO Week 1259Consequences o

227、f breachnSection 181 is a civil penalty provisionnDeclaration of contravention and ordersnNote the criminal (offence) provision in s 184 reckless or intentionally dishonestnGeneral law duties companys right to equitable compensation for breach of dutyLOBO Week 1260Law of Business Organizations Direc

228、tors Duty to Avoid Conflict of InterestLOBO Week 1261Directors duty: Avoid Conflict of InterestIntroductionnGeneral law rule against conflict of interest or dutynModifying the rule in the companys constitutionnStatutory regulation of situations of conflictnConsequences of breachLOBO Week 1262General

229、 law conflict rulenDirector must not place themselves in a position where there is an actual or substantial possibility of conflict between a personal interest and the directors duty to act in the interests of the companynUnless: the permission of the company is obtained or the constitution allows i

230、tLOBO Week 1263General law conflict rulenA very strict duty - designed to protect shareholders. Can arise e.g. where director: ncontracts with the companynmakes personal profit as a result of her or his position as a directornmisuses confidential company informationnworks for a competitorLOBO Week 1

231、264No DefencesnIt is no defence to argue:(a)The company did not suffered a loss;(b)The company benefited; or(c)The director did not actually (personally) receive a benefitLOBO Week 1265Transactions with the company nVery common situation triggering the general law conflict rulenDirectors interest in

232、 the transaction may be:ndirectnindirect, e.g. through another company or a partnership (Aberdeen Railway)LOBO Week 1266Aberdeen Railway Co v Blaikie BrosnHeld: A fiduciary cannot enter into an engagement in which he or she has (or could have) personal interests conflicting with their duty as the Di

233、rector of a Company.nImmaterial the Company may have benefitednImmaterial no alternative method to acquire goods.nFull disclosure is the only way to prevent breachLOBO Week 1267Transactions with the company (cont)nTransvaal LandsnCase where director disclosed but not to the full extent.n Director he

234、ld shares in another Company as a trusteenAlso offered directorship & later acceptednHeld: immaterial whether the conflicting interest belongs to a director beneficially or as a trustee.LOBO Week 1268Transactions with the company (cont)nChan v Zacharia Court held that duty is not so much ensuring co

235、nflict does not exist but ensuring director does not take advantage of it.nGray v New Augarita Porcupine Mines Ltd Even if a contract entered into with a conflict is not avoided, (ie affirmation or impossibility of recssion) the director remains accountable for any profits made.LOBO Week 1269Transac

236、tions with the company (cont)nNorthern Rivers Finance Company Where contracts between a director and his/her company are permitted and there has been full disclosure, the company is not entitled to seek an account of profitsnNorth West Transportation Co v Beatty At general meetings, a director share

237、holder is not restrained by conflicts of interest & they may exercise their vote to promote matters of self interest if they wish.LOBO Week 1270Taking corporate property, information or opportunity (cont)nRegal Hastings Ltd v Gulliver Duty not to use position to make a personal profit. nProblem in R

238、egal Hastings was that the offer of shares was not made to everybody.nDirectors used their positions to procure a profit.nCase demonstrates the the strict application of the duty.nCould have saved themselves by disclosure & subsequent resolution of Regal S/H at GM.LOBO Week 1271Regal Hastings Ltd v

239、GullivernDirector will be in breach even if the company cannot itself take up the opportunity, unless the company agreesnDirectors found in breach even though:(a)Acted honestly(b)Directors represented majority of S/H(c)Profit would not otherwise have been made(d)Benefit to the Company(e)No detriment

240、 to the companyLOBO Week 1272Taking corporate property, information or opportunity (cont)nFurs Ltd v Tomkies No director shall obtain for him/herself a profit by means of a transaction in which s/he is concerned on behalf of the company unless all material facts are disclosed.nCanadian Aero Service

241、Fiduciary duties of directors (& senior management) are ongoing. nOpportunity said to have arisen as a result of position rather than fresh initiativeLOBO Week 1273Taking corporate property, information or opportunity (cont)nIndustrial Development Consultants Pty Ltd v Cooley Where a director resign

242、s and takes up another opportunity and that opportunity arose as a result of their position, it is immaterial that the company itself could not have taken up the opportunity.nContrast above with Queensland Mines Ltd v Hudson - Hudson held not in breach despite opportunity coming to him because he wa

243、s a director of QM (full disclosure & Co rejected)LOBO Week 1274Taking corporate property, information or opportunity (cont)nPeso Silver Mines v CroppernCase where director not held to be in breach of duty despite acquiring mining claims without disclosure.nCourt held subsequent offer to Cropper was

244、 made as a member of the public & he only used publicly available information. LOBO Week 1275Taking corporate property, information or opportunity (cont)nCook v DeeksnHeld: New company held contract on trust to Toronto Construction Co and must account for profits made.LOBO Week 1276Conflict of dutie

245、snDirector may not place him/herself in a position where there is an actual or substantial possibility of a conflict between the directors duty to the company and the directors duty to someone else (e.g. another company)nSee South Australia v Marcus ClarknHeld: Clarks duty to Bank required him to di

246、sclose to directors that EH stood to gain from any payment to APA for shares in OCCnClark held personally liable for $82m LOBO Week 1277Other conflicting interestsnCompeting companies:nDistinction between conflicting duties & a person being a director of two competing companies nNon-executive direct

247、or can be on boards of competing companies if no breach of duty (i.e. no actual conflict of duties) and no disclosure of confidential informationLOBO Week 1278Competing CompaniesnTherefore, a director may be a director of a rival company so long as :1.They do not place themselves in a position of co

248、nflict; or2. Divulge to, or use for the benefit of, the rival company, confidential information.LOBO Week 1279Nominee DirectorsnDefinition : Person appointed to represent the interests of a particular group (usually) within the company (ie employees, particular group of shareholders etc) nNominee di

249、rectors: duty to the company prevails over duty to nominator Bennetts v Board of Fire Commissioners of NSWLOBO Week 1280But will not be a contravention ifnCompany consents:nfull disclosure made to members in general meeting and members ratify by passing an ordinary resolution approving, ornconstitut

250、ion permits it with full disclosure to board, and full disclosure is made (e.g. RR s 194) ORnThe constitution modifies the dutyLOBO Week 1281Effect of the constitutionnConstitution may include provisions allowing conflict with full disclosure to, and consent of, the boardnFor proprietary companies,

251、see RR s 194; public companies must expressly includenModification of nominee directors duty eg Levin v ClarkLOBO Week 1282Statutory regulation (four parts)nDisclosure of interests by directorsnRestrictions on voting by directors of public companiesnProhibition on improper use of position or informa

252、tionnFinancial benefits given by public companies to related parties, including directorsnNote: statutory provisions add to general law in 2 ways:1.Can apply to different people (eg employees)2.Content provides additional rules (Ch 2E) LOBO Week 1283Disclosure of interestnSee s 191-194nDirector must

253、 disclose material personal interest to the board, unless exemptnA material interest is one which relates to the affairs of the company (broad interpretation), and is one that would influence the vote of a Director upon the decision to be made.nThe potential for conflict must be real and substantial

254、nDoes not apply to single director proprietary companyLOBO Week 1284Voting restrictions public company directorsnSection 195: director with a material personal interest in a matter being considered by the board must not:1.be present; or 2.vote at the meeting unless the other directors (or ASIC in li

255、mited circumstances) allows itnRemember, other directors decision to allow must be in best interests of companyLOBO Week 1285Improper use of position or information (ss:182 & 183)nA Director, other officer or employee must not use their position (s 182), or information obtained in that position (s 1

256、83) to:1. gain advantage for themselves or someone else; or 2.cause detriment to company.Conduct in breach of the duty to act for a proper purpose and in the interests of the company (s:181) may also constitute a breach of s:182. LOBO Week 1286Related party transactionsnRemember that Chapter 2E rest

257、ricts ability of public company, or entity controlled by public company, to confer a financial benefit upon (among others) the public companys directors, their family or entities controlled by themnUnless exempt or approved by ordinary resolution of general meetingLOBO Week 1287Consequences of breac

258、hnGeneral law duty company may have civil remedy e.g. compensation, account of profits, void contracts (Chapter 14)nStatutory provisions:ns 191: fine $1,100 and/or 3 months prison,ns 195: fine $550ns 182 & 183: civil penalty provisions (disqualification, $200,000 penalty and/or compensation order)nA

259、lso note offence provision in s 184 regarding dishonest intention or recklessness ($220,000 penalty and/or 5 years prison)nChapter 2E: civil penalty provisionLaw of Business OrganizationsReporting and DisclosureINTRODUCTIONReporting obligations vary according to sizePublic Companies / Proprietary Co

260、mpanies (large & small)Serves important commercial & regulatory purposesASIC Provides & maintains a record of a Companys affairs / financial positionWhy monitor a companies finances, affairs & dealings?Shareholder informationInvestor protection functionControllers less likely to act contrary to shar

261、eholder interestsInformed decision rights such as right to vote out directorsTwo further broader purposes:1.Maximises efficiency of capital raising2.Promotes commercial stability (investor confidence)Reporting and disclosurenPurpose of disclosure, and recent reformsnCompany record keepingnASIC filin

262、gsnPeriodic financial reporting nAuditnContinuous disclosureDisclosurenThe aims of corporate regulation include investor protection, efficiency in capital raising, and systemic stabilitynMandatory disclosure has a role to play in achieving each of these aimsnRecent corporate failures prompted CLERP

263、9 here, and Sarbanes-Oxley in the USACLERP 9Changes addressed:1.Regulation & independence of auditors2.Role & responsibilities3.Shareholders say in remuneration of Dir & officers4.Expanded powers of ASIC regarding continuous disclosureRecord keepingnRegistered officenStatutory record keeping obligat

264、ions:nFinancial records:ns 286 - all companies must keep sufficient records to enable the preparation of financial statements if requirednSufficient records will explain the companys transactions, financial position & performance nFinancial records includes, inv, receipts, payment orders working pap

265、ers etc (see s:9) Record keepingnMinute booksnUnder Part 2G.3 - to include minutes of meetings & resolutions passed by directors & members at meetingsnMembers entitled to inspect, s:251BnRegistersnregister of members & shareholding (s:169)nInspecting register of members (ss:173 & 177 & 1303)nregiste

266、r of option holders (s:170)nregister of charges (s:271)(2) nTo include the date charge was created, description of property charged & identity of the chargee)ASIC filingsnCompanies are required to file certain returns and notifications with ASICnThis information goes on the public record and can be

267、searched through a company searchnPrior to 1 July 2003, Cos had to lodge annual return with ASIC. nPractice now abolished replaced with annual reviewASIC filings (cont)nAnnual review Chapter 2NAllows for the updating of ASIC recordsAlso, obliged to disclose certain events as they occurnReview date a

268、nd extract of particulars (may include request for particulars). Company must correct, and respond to request.nSolvency resolution (for companies not reporting under Chapter 2M)nReturn of particulars (for dormant companies) Event based notificationsnNote that the Corporations Act requires a company

269、to notify ASIC when certain events occurnSee Table 16.1 includes change of director, creation of registrable charge, change of name or typenTable also specifies the timeframe within which a company must notify ASIC.nRanges from 14 days to 45 days depending on the event occurring.Periodic reportingnU

270、nder Chapter 2M of the Act, some companies are required to lodge a directors report and financial report and have the financial report independently audited.nChapter 2M is primarily designed to protect investors (such as members) and facilitate informed decision making in exercise of voting rights n

271、Annually and (for some) half-yearly nApplies to all public and large proprietary companiesn small proprietary company shareholders can requestPeriodic reportingnAnnually for public & large proprietary companies & half yearly for listed companies that are disclosing entities nReports are lodged with

272、ASIC and sent to shareholdersnSmall proprietary companies not required to prepare financial or directors reports unless requested by ASIC or 5% of shareholdersnLarge & Small companies defined in s:45A Large proprietary companynS:45A says a company is a small proprietary company if in any financial y

273、ear it meets two of the following three tests on a consolidated basis:1.gross operating revenue less than $25 million2.gross assets less than $12.5 million3.50 or more employeesnRemember, classification may change from year to year Financial reportsnSection 295 of the Corporations Act.nMust be provi

274、ded by disclosing entities, public companies & large proprietary companies.nComprises financial statements (balance sheet, profit and loss statement and cash flow statement), disclosures and notes, and directors declaration.nMust comply with accounting standards (s:296)nMust have the financial repor

275、t audited (s:301)nMust be sent to the members of the company (s:314)nMust be lodged with ASIC within 4 months of the end of the companys financial year (s:319) Directors reportnSection 298 of the Corporations ActnMust be provided by disclosing entities, other public companies & large proprietary com

276、paniesnHas a general component, a specific component, and a special component for listed companies (including many new CLERP 9 requirements)nAll reports must deal with matters listed in ss: 299 & 300nGeneral matters under S: 299 incl. results for financial year, significant changes in state of affai

277、rs of company, principle activities, compliance with environmental regulation etcDirectors reportnSpecific under S:300 incl. List of persons who have been a director during or since the end of the financial year, dividends paid or recommended, options over unissued shares granted to directors or sen

278、ior officers, unissued shares under option & any shares issued following exercise of optionsnSpecial Listed companies under S:300A incl. Directors qualifications, experience, remuneration, shareholding, other interests held. Auditors reportnSection 301: financial reports must be audited in accordanc

279、e with Division 3 of Part 2M.3nPurpose of the audit: to provide assurance about the integrity of the financial reportingnGives members independent assurance that information is reliablen2nd purpose is to have auditor report an breaches of the Act to ASIC (watch dog)nNote auditors obligation to repor

280、t to ASICAuditorsnAn auditor must be registered under the Corporations ActnMust also have certain training, expertise & experiencenSpecial rules apply to appoint or remove auditors, which are designed to protect their independence from managementnAuditors owe duties to the company, and may owe a dut

281、y of care to othersnExtensive amendment in CLERP 9nThese amendments relate to assuring the auditor is sufficiently independent (conflict of interest)nRotation every 5 years Half yearly reportingnDisclosing entities must prepare half-year financial report and limited directors reportnThese obligation

282、s are in addition to the annual obligationsnHalf-year reports are audited or reviewed by an auditornIn accordance with s:309nNo obligation to send half yearly reports to membersContinuous disclosurenAll listed companies are “disclosing entities”nASX Listing Rule 3.1 requires listed companies to disc

283、lose certain price-sensitive information to the market as it occurs (subject to exceptions)nThis keeps potential buyers & sellers of company securities fully informednCorporations Act Ch 6CA underpins the Listing Rule requirementsContinuous disclosure (cont)nWhat must be disclosed?ninformation conce

284、rning the companynof which it is or becomes awarenthat a reasonable person would expect to have a material effect on the price of its shares.nSome exceptions - e.g. confidential information, incomplete proposals, internal management informationContinuous disclosure (cont)nThese exceptions are listed

285、 under listing rule 3.1A and are intended to protect the legitimate commercial interests of listed companies (info is available to competitors)nAll elements must be satisfied to rely on the exceptionnTherefore, to rely on the exception to disclosure you must demonstrate:1.reasonable person would not

286、 expect disclosure;2.Information is confidential &3.The presence of at least one of the matters listed under 3.1A.3Continuous disclosure (cont)nUnlisted companies can also be disclosing entities if they have over 100 shareholders and meet certain other testsnSimilar disclosure obligations, requiring

287、 them to make disclosure to ASICnUnder s:1317E, court may make declaration that continuous disclosure obligations were breached & impose a penalty of $200,000Law of Business OrganizationsConsequences of Directors Breach & Members RemediesIntroductionnConsequences of directors breach of dutiesnMember

288、s remediesnEnforcement of officers statutory duties by ASICnCompanys remedies for breaches of officers general law and statutory dutiesnRelief from liability for breach of dutyEnforcing the dutiesnStatutory duties - ASIC enforcementnGeneral law duties - company enforcesn“company” normally means “boa

289、rd”nbut if several directors are alleged to have breached their duties, sometimes a member can bring an action (chapter 15)nWhere Company is in liquidation, liquidator will, if appropriate, bring proceedings on behalf of the CompanynMembers may have separate statutory remedies on the facts (chapter

290、15)Statutory duties - ASICnASIC has a range of powers to enforce the Corporations Act:nPenalty notices for prescribed offencesnStanding to commence proceedings seeking orders from the court (including under s 1323)Freezing assets, preventing foreign travel, appoint receiver, prohibit from management

291、nBanning ordersnEnforceable undertakingsPenalty noticesnPrescribed offencesnPrescribed offence is a contravention of a requirement in the Corp Act that has no specific penaltynPenalty is imposed by ASIC directlynEg, s:169 requirement to keep names & addresses of each member in the register nSection

292、1313: penalty of $550 n5 penalty unitsCivil penalty provisions nEnforced by ASIC who seek from the court a “declaration of contravention” & a pecuniary penalty order, a disqualification order or a compensation order.nInclude directors duties in s 180183, duty to avoid insolvent trading in s 588G, an

293、d breach of Chapter 2EnPenalties are separated into “Corporation/managed investment Scheme Civil Penalty Provisions” & “Financial Services Civil penalties”nConsequences of a contravention are set out in Part 9.4B of the ActCivil penalty provisions (cont)nOnly ASIC may apply for a declaration of cont

294、raventionnStandard is BOPnFollowing declaration of contravention, court can make these orders on ASICs application:nPecuniary penalty of up to $200,000 (paid to Commonwealth Government)nIf breach is found to have materially prejudiced the interests of the Company, its members or Companys ability to

295、pay creditors or is otherwise serious (s:1317G)nDisqualification order (s 206C)nPeriod of disqualification is at discretion of courtnCompensation OrderCriminal penaltiesnSection 184 makes it a criminal offence to breach:1.Section 181;2.Section 182; or 3.Section 183 if the person is found to have act

296、ed recklessly or intentionally dishonest in committing the breach.nS:184 basically says any breach of 181,182 or 183 with recklessness or dishonesty present will attract criminal sanctionsnA reckless or intentionally dishonest breach of s: 180 will not sound in criminal penaltiesnDishonest insolvent

297、 trading is also an offence s 588G(3)nCriminal burden and rules - 2,000 penalty units or 5 years jail, or bothCompany remedies breach of general law dutiesnInjunction (e.g. to restrain proposed improper issue of shares)(or prevent director from directing business opportunities to his/her newly creat

298、ed Company)nCompensation or damagesnAccount of profits (e.g. Regal (Hastings)(take opportunity belonging to Co)nRescission of contract (where Co K with Dir)nConstructive trust (where Co K with Dir)Company remedies breach of statutory dutiesnCompany can also seek compensation for breach of statutory

299、dutynStatutory duties are the civil penalty provisionsnIf an officer contravenes a civil penalty provision, company can apply to court for a compensation ordernASIC can bring legal proceedings on companys behalf, seeking civil remediesnGenerally occurs where Company is near insolvent because of Dire

300、ctors breach & ASIC considers pursuit of compensation to be in the public interest nNote s 1324 injunction for person affectedRelief from liability for breachnCan involve:nCourt granting reliefnCompany ratifying breach of dutynOfficer being insured or indemnified against consequences of breach Relie

301、f granted by the courtnFor breach of statutory and general law dutiesnSection 1317S (civil penalties) and s 1318 (general)nCourt may order partial or total reliefnRequirements for relief of a statutory & general law duty :1.The officer has acted honestly, and2.Considering all circumstances, it is “f

302、air” for the officer to be excused from liabilityRatification by the companynOrdinary resolution of members in general meeting can ratify some breaches of officers general law (not statutory) dutiesnmembers must be given full information regarding breach and proposal to excuse (or ratify) the breach

303、nIf resolution passes the result is that the officer cannot be sued by the companynBut note restrictionsRestrictions on ratification:nNot effective if:1.Statutory duties in 180 1842.It is oppressive (see chapter 15)3.Company is insolvent / virtually insolvent (chapter 12)4.It breaches the equitable

304、limitation on majority voting power (chapter 8)5.A personal right of a member would be eliminated6.Results in a misappropriation of Company property7.It is a fraud on a power (i.e. for an improper purpose)Insurance nDirectors and officers insurancenSometimes possible for officer or officers company

305、to obtain insurance to cover breaches of certain duties.nUnder the policy, the insurance company pays any compensation / damages ordered against the officernPremiums may be paid by officer or companyInsurance (cont)nSection 199B: Company (or related company) cannot pay premiums for:nwillful breach o

306、f duty in relation to the company, orncontravention of s 182 or s 83 (chapter 13)nBut could cover, for example, duty to act in good faith, in the interests of the company for a proper purpose.nA director may take out own insurance for any breach but most insurance companies will not insure against w

307、illful breaches of duty IndemnificationnWhere a company has given an officer an “indemnity”, company pays any amount ordered by court to be paid by officernProblem is: Amount payable may be damages / compensation for breach of duty owed to companynTherefore, court can order Dir pay but indemnity fro

308、m Co means Dir does not pay any compensation for breachIndemnification (cont)nSection 199A: Company (or related company) cannot indemnify an officer against liability:nowed to the company or a related companynfor a pecuniary penalty or compensation order resulting from breach of civil penalty provis

309、ionnowed to someone other than the company or a related company that did not arise out of conduct in good faithnProhibition on indemnification also applies to the liquidator, receiver & manager, administrator & auditor of the CoIndemnification (cont)nExceptions to the limits on indemnification nWhat

310、 can be indemnified?nCompany can indemnify officers legal costs and expenses where officer successfully defends legal proceedings (civil or criminal)nCompany can indemnify officer against liability to someone other than the company (or related companies), unless liability arises out of conduct invol

311、ving lack of good faithnSo can indemnify for claim of negligenceMembers RemediesOppression and Derivative ActionsMembers remediesnMembers statutory remediesnOppression remedynCourt-ordered winding upnStatutory injunctionnStatutory right to inspect company booksnMembers personal actionnMembers deriva

312、tive actionIntroduction to members remediesnMembers remedies may be available where officers have breached their dutiesnBut sometimes members can also obtain a remedy even though there has been no breach of officers dutynEg, oppressed or unfairly treated by membersnMembers have statutory and general

313、 law remediesWhy do minority members need remedies?nDirectors and majority shareholders can use their power to harm minority shareholdersnNot always possible for a shareholder to sell their sharesnThis explains why the oppression remedy is most commonly sought by shareholders in proprietary companie

314、s rather than public companiesnNo liquid market to sell shares in Pty Ltd ConCommon for small Pty Ltd Companies to have restriction in Constitution on sale of shares Members statutory remediesnOppression remedy (Part 2F.1)nCourt-ordered winding up (S:461)nStatutory injunction (S:1324)nStatutory righ

315、t to protect rights attaching to shares (Part 2F.2)nStatutory derivative action (2F.1A)nStatutory right to inspect company booksnOther (general law) protections :nProtection of personal rights (eg, right to vote)nWhere other members breach their equitable limitation on voting powerOppression remedy

316、Part 2F.1 Section 232nAvailable in respect of: nthe conduct of the companys affairs, ornan actual or proposed act or omission by or on behalf of the company, orna resolution, or a proposed resolution, of members or a class of membersOppression remedy (cont)nWhere the conduct complained of is either:

317、ncontrary to the interests of the members as a whole, ornoppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacityTo what types of companies can the remedy apply?nIn theory, any companynBut in practice, most oppr

318、ession actions are brought by members of proprietary companiesnwhich have only a few participants, andnin which members are also involved in managementnTwo reasons1.Potential loss of remuneration2.Restriction on sale of sharesWho can apply to the court ?nA member, even if the oppression relates to:n

319、the member in a capacity other than a membernanother member in their capacity as a membernA person removed from the register of members because of a selective capital reductionnA person to whom a share in the company has been transmitted by will or operation of lawnA person who will cease to be a me

320、mber if the oppression action relates to the circumstances in which they cease to be a membernA person whom ASIC thinks appropriate having regard to its investigations into the companys affairsWhat are the tests ?nWaydes case : Was directors decision one that no board of directors acting reasonably

321、would have made?nWaydes case demonstrates discrimination does not always = oppressive conductnNot necessary for directors / majority shareholders to have acted dishonestly or intended to harm the minority - it is a question of impact - is the conduct oppressive in effect?nCt often asks: “have the re

322、asonable expectations of the member been breached?”nTo be oppressive, there must be a unfair prejudice or unfair discrimination against a member or membersWhat are the tests ?n41% of oppression cases involved a complaint that the person was being oppressed by exclusion from managementnVery common in

323、 small CompaniesnPart of courts consideration on the question of oppression is balancing the differing expectations of company membersnEg some want a larger dividend while others seek to be conservative (Thomas v HW Thomas Ltd) Examples of oppressive conductnDiversion of business opportunities (Co-o

324、perative wholesale Society Ltd v Meyer)nImproper exclusion from management (Hogg v Dymock)nUnfairly restricting dividends (Thomas v HW Thomas Ltd)nOppressive conduct of board meetings (John J Starr)nShare issue for improper purpose (Kokotovich)nBreaches of directors duties (see cases on p288-289) Sp

325、argos Mining & Jenkins v Enterprise Gold MinesWhat orders can the court make?nAny order “it thinks appropriate”nFor example:nwinding upnRegulating the companys affairsIn Spargos Mining court ordered removal of some directors & appointment of other persons. Then ordered new board to investigate Co de

326、alings for further EV of breaches npurchase of oppressed members sharesMost common remedy, CT decides fair priceWhat orders can the court make?nOrder that the company (or member on behalf of the company) commence or defend legal proceedingsnAppointment of a receiver or receiver & managernrestraining

327、 someone from doing something, or requiring someone to do somethingPermanently modify companys ConstitutionIn Spargos Mining court ordered deletion of certain provisions in Const which allowed Co to appoint additional directorsEmpirical StudyMost widely pleaded allegation said to constitute oppressi

328、ve conduct is exclusion for management (40.9%)Next is lack of information (29.5%)Followed by breach of fiduciary duty (26.1%) & misappropriation (20.5%)Most popular relief sought was winding up (37.5%) but this is one of the least ordered remediesEmpirical StudyMost popular relief granted is an orde

329、r requiring the purchase of oppressed members shares (23.3%)Next most popular are declaration (9.3%) & order regulating affairs of the Co (8%)In 2/3 of cases, courts were prepared to make orders regulating the conduct of the affairs of the CoCourt-ordered winding upnSection 461(1)(e), (f), (g), (k)n

330、Member (and some others, e.g. a creditor, ASIC) can apply to court to have company wound up where :njust and equitable (k) orndirectors acting in own interests (e) ornoppressive, unfairly prejudicial or unfairly discriminatory conduct (f & g)Courts will be most reluctant to wind up where Co is solve

331、nt, has a future & where a viable, alternative remedy is available. Therefore, where person is seeking winding up, they should bring an oppression claim as opposed to a straight application under s 461Winding up on just and equitable groundnDeadlockWhere directors are unable to make a decision. Must

332、 demonstrate differences unlikely to be resolvednFraud or misconductWhere the Co is established for these purposes or misconduct is present in its operations (Loch v John Blackwood Ltd 1924) nFailure of substratumThe reason for the companys existence is no longer being pursuednBreakdown in mutual tr

333、ustTypically occurs in small companies Statutory injunction s 1324nCourt order to stop someone breaching the Corporations ActnParticularly useful where conduct is continuing or about to occurnFor example, an injunction may be sought to stop a director selling company property or withdrawing company

334、fundsnWho can apply ?nASICnsomeone whose interests have been affectedne.g. a creditor (sometimes) (eg, where the Co is selling an asset well below market value Allen v Atalay 1993)ne.g. a member (sometimes) (some courts have maintained breaches of civil penalty provisions can only be enforced by ASI

335、C even if the only order sought is an injunction)Statutory right to inspect booksnSection 247A - Member can apply to court for authorisation to inspect company booksnUsually occurs where assertion is that Directors are not providing members sufficient information about management, finances and/or co

336、mpany operations nCourt can authorise either the member or their representativenMember must be acting in good faith and for a proper purposenTherefore, inspection to obtain information on value of shareholding or confirm whether there has been a breach of directors duties is oknInspection to obtain

337、information for rival is not Inspection of books (cont)nRR s 247D - Directors or general meeting of members may authorise a member to inspect company booksFor example, where two persons set up a company to conduct a businessEach person initially contributes say $50,000 into the business by way of a

338、loan to the companyFollowing ongoing disagreements one director walks out, renounces directorship but maintains membershipAfter some time, requests repayment of loanRemaining director states company not in position to pay out loan at this timeMembers personal actionnPersonal action = a legal action

339、to enforce a personal rightnHow might a member have a personal right? nMay arise under express contract, statutory contract (Const)(s 140), Corporations Act, or general lawPersonal rights (cont)nFrom an express contractnBetween the member and other members, ornBetween the member and the companyEg Co

340、ntract b/w member & company which allows member to appoint additional dir & company is moving to take away this personal rightnFrom the statutory contractn s 140 - Companys constitution and the replaceable rules have effect of a contractn members may have personal rights due to s 140Eg, where in a s

341、mall Pty Company the constitution says Member must offer their shares for sale to other company shareholders before offering to non members Personal rights (cont)nFrom the Corporations Act5 examples on p 298ne.g. right of a member holding at least 5% of votes to call a general meeting: s 249FnFrom t

342、he general lawnE.g. the right to receive adequate information in a notice of general meeting (Kaye v Croydon Tramways Pty Ltd)nRight to vote at meetings of membersnRight to have voting rights protectedMembers derivative actionnAn action to enforce a right of the companyne.g. to enforce a breach of d

343、irectors dutiesnEven though a member brings a derivative action, the action is not for the benefit of the member - its for the companys benefitnany remedies go to the companynException to the proper plaintiff ruleDifferences B/W the members SDA & members statutory remediesnMembers statutory derivati

344、ve actionnBreach of a general law duty owed to the company but bought by the member on behalf of the company nIf action is successful, compensation is paid to the company with the members benefiting indirectly.nAction by member requires court approval nMembers statutory & personal remediesnAction is

345、 bought by the individual member in their capacity as holder of a personal rightnIf action is successful, member directly benefits from order made by the court nAction by member does not require court approvalStatutory derivative action: Part 2F.1AnIntroduced March 2000nDeals with “standing” of the

346、applicant - not the “merits” of the casenWho may apply?na member, former member, or person entitled to be registered as a member of the company or a related companynan officer or former officer of the companyWhat are the criteria?nCourt must grant leave if all of the criteria are met:1.It is probabl

347、e that the company will not take legal action2.Applicant is acting in good faith3.Is in the best interests of the company for applicant to be granted leave4.Serious question to be tried; and5.W/I 14 days of application being made, the applicant gave company notice & reasons of intention to make appl

348、ication or no notice provided & court says not providing notice is appropriate in the circumstancesCourt Decisions on the CriterianAny reaction to the notice by the company will go to answer the Q of whether the company is likely to take legal actionnIs the applicant acting in good faith?nThis will

349、depend on 2 factors:1.Whether the applicant honestly believes (subjective) that a good cause of action exists (note solicitors duty would apply as well)2.Whether the applicant is making the claim for a collateral purpose which amounts to an abuse of process. Court Decisions on the CriterianBest inte

350、rests of the Company?Normally, to demonstrate the pursuit of a derivative action is in the companys best interests, the applicant must show:1.Ev of character & business of the company (this goes to likely impact of litigation on company)2.Ev that remedy being sought is the best available for the com

351、pany3.Is the substance of the remedy being sought available through other means4.Defendants ability to meet any debt.Court Decisions on the CriterianIs there a serious Q to be tried?nNo need for applicant to run his/her case.nJust have to show the court there is sufficient material to enable it to m

352、ake a decision & that there is a serious Q to be triednOnce a member is granted permission to bring proceedings on behalf of the company, any settlement must be approved by the courtnAn earlier ratification by other members does not prevent another member pursuing a derivative action on the subject

353、of the ratification but the ratification itself will be a consideration for the court (will go to the Q of best interests)One Approach to Answering Legal Problems1.Material facts2.Legal issue3.Legal principle (Ratio decidendi)4.Apply the facts to the law5.Reach a decisionMaterial FactsnNot all facts

354、 will be relevant. Only the material facts will be of legal importance.nFrom the material facts, you should be able to identify the area of law to which the problem relates. nUnless you know your work well, you may encounter difficulty in separating material facts from those which have little signif

355、icance and identifying the relevant area of lawnYour answer should clearly state the relevant issues.Legal IssuenAfter identifying the material facts and the relevant area of law, you then need to identify the legal issue (or issues) to which the material facts relate.nFor example, certain facts pro

356、vided may lead you to the conclusion that the legal issue is whether or not a Director is in breach of S:588G.Legal PrinciplenLegal definitionnSet out a statement of the relevant legal principles as they affect the issue(s)nProblems questions can & often call on students to address more than one leg

357、al principle in a problem question.Legal PrinciplenSupport your statement with an authoritynGenerally, there is no need to discuss the facts on which the authority is basednStating the ratio and naming the case will generally be sufficientApply the Principles of law to the factsnThis is one of the m

358、ost important parts of answering a problem question and as such, a large proportion of your marks will come from how you apply the law to the particular facts at hand.nSometimes the facts of a problem question will be near identical to those of the precedent case making it impossible to distinguish

359、the facts of the problem question.Apply the Principles of law to the factsnIn other cases, you may find the facts are slightly different or even ambiguous.nIn these cases, you should consider the range of all possibilitiesnWhere you believe more information is necessary to give a more complete answe

360、r, say so.nWhere two answers are possible depending on the further information, indicate the range of possibilitiesConclusionnState your conclusionnRemember, there is no right answer or conclusion.nWhen stating your conclusion, indicate the facts from the problem question that persuade you a particu

361、lar result is the correct one.Final comments on answering problem questionsnAim is to test how well you can apply the knowledge acquired.nYou must discuss all legal issues raised on the facts by applying the relevant law.nIt is not uncommon for students to take a different view of the facts.Final co

362、mments on answering problem questionsnAccordingly, students who identify and discuss all the legal issues by reference to the correct legal principles but draw different conclusions may still obtain the same high marknException is where an incorrect conclusion is drawn in circumstances where only on

363、e is possible nRemember to apply legal (not moral) principles to the factsnRead pages 39 - 41 of the textLaw of Business OrganizationsShares and Shareholders 1&2Shares and shareholding 1nShare capitalnMembershipnShareholder rightsnLimited liabilityWhat are shares?nA companys power to issue shares is

364、 contained in s:124nClaims against a company to which particular rights attach, in particular:ndistribution rights (interim and final)ncontrol rights (e.g. information, voting)nA “chose in action” - a form of personal property (but intangible)nNot an interest in the companys assets (compare with a t

365、rust)Classes of sharesnShares can be created with different rights attaching (s:254B)nPower to issue shares in the hands of the directors, but the issue of shares in a new class may require shareholder approval if:namendment to the constitution is requirednthe issue varies existing class rightsClass

366、es of shares (cont)nCompanies issue different classes to accommodate different needs of investors & Company itselfnTypically classes of shares have differing:nentitlement to dividendsnpriority in relation to payment of dividendsnvoting rights (entrench control)npriority in repayment of capital on wi

367、nding upnright to share in surplus assets on winding upClasses of Shares (Cont)Unlisted Companies few restrictions on rights that can be attached to a shareRR 250E provides 1 vote per share but this can be variedListed Companies ASX listing rules say 1 vote one share for ordinary sharesnShares issue

368、d are either ordinary or preferencenIssue of ordinary shares means member has right to vote, share equally in dividends, right to be repaid their capital on winding up & right to share pro rata in any surplus assets on winding up. Preference sharesnContrast preference shares and ordinary sharesnPref

369、erence shares usually carry:nfixed dividend (provided profits are available)npriority for repayment of capital (over ordinary S/Hsnlimited voting rights (unless dividends are in arrears or on winding up or on matters affecting classes of shares or Companys capital)nno right to share in surplus (on w

370、inding up)Preference sharesCumulative preference shares entitlement to distribution carries forward to next yearNon Cumulative preference Shares year to yearRedeemable Preference Shares allows for repayment of the principle at a particular time or occurrence of an event.Converting Preference Shares

371、right to fixed dividend for period of time which then converts to ordinary sharesPartly paid sharesnCompany may issue shares that are partly paidnShareholder is obliged to contribute further if a call is made (s:254M(1) S/H must pay a call on shares in accordance with terms on which shares are issue

372、d)nIf not, shares may be forfeitedCompany then auctions shares, retains amount of call & issues balance to defaulting S/HCompany can sue for balance if auction price is below the sum of the callCompanies typically offer partly paid shares to lock in a commitment for equity funding OptionsAn option i

373、s a right to buy or sell something at a pre agreed price or by an agreed future timenOptions over unissued shares give the holder the right to subscribe for a share at a later date at a pre-agreed pricenOptions over issued shares may be put options (entitling the holder to sell) or call options (ent

374、itling the holder to buy). OptionsPut option person who holds option has right to require other party to buy the share at the agreed priceCall option person who holds option has right to require other party to issue or sell them the share at the agreed exercise price“in the money” / “out of the mone

375、y”MembershipnMost shares in small businesses are held by the business operator and their familynAt page 352, figure 18.3 gives breakdown of ownership in small businesses & suggests company founder and/or family members hold 80% of sharesnIn listed companies, note the relative significance of institu

376、tional, private & overseas investors (figure 18.5 suggests overseas & individual investors hold majorityMembershipS:114 says all Companies must have at least one memberA member can be a human or artificial person such as a Company.A person can become a member on registration or after the Company is

377、registered by subscribing for new shares or acquiring shares already issued via a share transfer (in unlisted Companies) or via a broker (listed Companies)Becoming and ceasing to be a membernA person can become a member by subscribing for new shares, or acquiring already issued shares from another p

378、ersonnA person ceases to be a member by transferring their shares, or having them cancelledTransfer may be to another person, to Company via buyback or cancelled by reduction of capital, non payment on a call & upon deregistrationShareholder rightsnRights of shareholders that we have covered during

379、the course include:nvoting rightsndistribution rights (dividends)ninformation rights which include:Information with ASICInspection of Company booksRight to be informed of meetingsRight to receive annual financial reportsShareholder rights (Cont)nclass rights (where share are divided into more than o

380、ne class)S: 246B(2)Above right may be modified by constitution or the terms of issue of the particular share classS: 246D (additional protection)Limited liabilitynRemember companies have separate legal personalitynIn a company limited by shares, a members liability to contribute to meet the debts of

381、 the company is limited to the amount (if any) remaining unpaid on their sharesLimited liability (cont)nAllows investors to quarantine the risk of a particular venture from their other assetsTherefore, if Co fails, limited liability principle prevents creditors demanding the Companys participants ma

382、ke up the shortfallnIn practice, creditors may negotiate personal guarantees from controllersGuarantee is a promise to pay anothers debt in the event of default by contracting partyLimited liability (cont)nEconomic benefits:nEncourages entrepreneurial risk taking that in turn promoted a nations econ

383、omic growthnReduces the need for investors to monitor their investment, allowing efficient diversification and reducing agency costsnPromotes free transferability of sharesWealth of shareholder is irrelevant under the principlenAt whose cost?nunsecured creditorsnvictims of negligence (people may not

384、 be as careful)Shares and shareholding 2nIncreasing share capitalnCapital maintenancenDividendsnSelf-acquisitionnFinancial assistancenPermitted buy-backsnPermitted reductions of capitalIncreasing share capitalWe are not here talking about shares issues at the formation stage of CompanynProcess of sh

385、are issuengenerally, a decision of the boardndirectors must exercise their share issue power in good faith & for a proper purposeVarious expressions used for large offersnShare issues: IPOs, private placements, rights issues, DRPs and bonus issuesIncreasing share capitalUnderwriting where underwrite

386、r (usually a stockbroking firm) agrees to take up any shares offered but not subscribed for during the offeringThis arrangement guarantees success of offer & Co will pay underwriter a fee.Underwriters sometimes contract with sub underwriters to minimise riskKey rules governing share issueGenerally,

387、dirs have power to issue shares but when doing so they must ask themselvesnIs member approval required?nAre there any restrictions on the types of people to whom shares can be offered?nMust a disclosure document be prepared and lodged with ASIC under Chapter 6D?Key rules (cont)nMember approval may b

388、e required in special circumstancesIf creating a new class of shares, an amendment to the Co Const may be required. (Special resolution)Variation of class rights (where issue itself amounts to a variation of existing member share rights)Related party transaction if Co issuing is a public Co and give

389、s a financial benefit to a related party, the public Companies members will have to approve unless exceptions in CH 2E applyIf member approval is required under Const or S/H agreementIf ASX listing rules require member approvalKey rules (cont)Restrictions on types of people to which shares can be is

390、suednProprietary companies cannot offer shares in circumstances requiring Chapter 6D disclosure s 113(3)Therefore cannot invite public to subscribe for sharesLimited to existing members, employees or certain professional or sophisticated investors such as a subsidiary of the company nPublic company

391、proposing an issue of shares may require Chapter 6D disclosure unless s 708 appliesKey rules (cont)Restrictions on types of people to which shares can be issuedWhere internal governance rules or a S/H agreement contain pre-emption rights (ie, new shares to be offered to existing members 1st) (preven

392、ts dilution) (covered by RR 254D)Where proposed S/H lacks legal capacityWhere rules against self acquisition applyDisclosure under Chapter 6DnUnless exclusion in s 708 applies, a disclosure document (prospectus) must be prepared and lodged with ASICnMandatory disclosure about the company, the offer

393、and the sharesnCertain offers excluded under s 708: e.g. small private offers and offers to large investorsSmall private offer = no more than 20 new members or subscriptions totalling no more than $2m in a 12 month periodLarge investor = a sophisticated investor. Involves subscription of $500,000 or

394、 more or investor with net assets of $2.5 M or salary of $250,000 or more Exceptions to Disclosure under Chapter 6D (cont)Large investor also = a professional investorEg, trustees of super funds & people with $10m to invest in securitiesDisclosure not required for offers to:Persons associated with t

395、he Company (eg Directors)Offers under dividend reinvestment schemesBonus share plans (no consideration)Offers made in special circumstances (eg, offers made in connection with a takeover)Maintenance of capitalnGeneral principle of company law that a company must maintain its paid up share capital: r

396、ule in Trevor v WhitworthnMore modern view tied to principle of limited liability nExtended and modified in Chapter 2J of the Corporations Act, dealing with:nself-acquisitionnpermitted share buy-backsnreductions of capitalnfinancial assistanceDividendsnCan only be paid out of profits s 254T nWhat ar

397、e “profits”? nNot defined, but includes current & accumulated past year profitsnS:254V says that the improper payment may trigger the insolvent trading provisions in s 588G (making Directors directly liable to creditors for amounts paid to membersSelf-acquisitionnPart 2J.2 prohibits:na company acqui

398、ring shares in itself: s 259Anthe issue or transfer of shares to a controlled entity: s 259CnRationale for prohibition: Rule against self acquisition exists to prevent board entrenching their control & avoids the possibility of a false impression of substance nDoes not extend to redeemable preferenc

399、e shares (involves repayment at a particular time or on the occurrence of a particular event prior to winding up)Financial assistancenPart 2J.3 only allows a company to “financially assist” the acquisition of shares in the company or its holding company if:nit does not materially prejudice the inter

400、ests of the company or its shareholders or its ability to pay its creditors ornit is approved by shareholders (s 260B) ornit is exempt (under s:260C)n“Financial assistance” is not defined but examples of financial assistance include:ngiving a loanngiving a guaranteenGiving a gift which is later used

401、 to acquire sharesFinancial assistance (cont)nMaterial prejudice - question of fact to be determined in light of the circumstances.nA material prejudice will occur where the company is impoverished overall by the transaction - ASIC v Adler Santow J suggested one must look at the interlocking element

402、s of the commercial transaction as a whole & determine where the net balance of financial advantage lies.Permitted buy-backsnBuy-backs are allowed by the law in certain circumstancesBuybacks are an exception to precipitation on self acquisition & financial assistanceBuy backs occur where the Company

403、 offers to buy back some or all shares owned by some or all membersCompanies engage in buy backs because they have an excess of equity capital & not enough debt capital to produce the optimum return for S/Hs Permitted buy-backsnIndividual shareholder has the choice of accepting or rejecting a propos

404、ed share buy-backnBuy-backs are prohibited in circumstances where the buy-back stands to materially prejudice the companys ability to pay its creditors nCertain buy-backs (in particular, large buy-backs and selective buy-backs) must be approved by members resolution Procedures for buy-backsMinimum h

405、oldingListed Co where buyback $500,000CEO negotiates loan for $1m without approvalBecause Company is large, it will be accepted CEO had enough IAA to bind the CompanyBank entitled to assume Company complied with clause in Constitution, even though it has not.Cant rely on indoor management rule if nA

406、ctual knowledgeA deliberate shutting of the eyes to avoid discovery that there is no authority will also constitute actual knowledgenPut on inquirynhas outsider failed to make inquiries that would usually be made by someone in their position?nwould a reasonable person in outsiders position have been

407、 put on inquiry and investigated?Northside DevelopmentsNorthside (owner of land)Barclays BankMortgage - to secure loans to Sturgess companiesSturgess companiesloansMortgage signed by R & G Sturgess - No benefit to Northside from the loans but big risk. Bank knew loan was to party unrelated these fac

408、ts should have led bank to make inquiries as to proper authorityStory v Advance BankFleetwood Star (owner of property)Advance BankMortgage - to secure loan to Mr StoryMr StoryloanFixing of Company seal was witnessed by Mr Story who also forged Mrs Storys signature. Company argued Bank was bound by p

409、ut on inquiry exception- Fleetwood Star received part of loan proceeds, through Mr Story so Companys argument failed as court said any inquiry would have revealed the loan was partly for the benefit of the companyThe statutory assumptionsnSections 128, 129nOverlap to large extent with common law age

410、ncy principles and the indoor management rulenBut in some circumstances, the statutory assumptions will save an outsider where the common law put on inquiry exception defeats enforcement of the contractnThis is because the limitation on the statutory assumptions (as expressed in s:128(4) is arguably

411、 narrower than the common law, “put on inquiry” exception Statutory assumptionsnSection 129(2)nAssumption about authority of certain officersnIf ASIC info says person is a Dir or Co Secretary then person can assume they have been properly appointednSection 129(3)nAssumption about apparent authorityn

412、Similar to Common law requirement of a holding out by someone with authority but whether or not reliance is a requirement is not clearnSection 129(1)nThe statutory indoor management rulenPersons entitled to assume Co Const is complied withLimitation on statutory assumptions nWhere outsider “knew” or

413、 “suspected” assumption was incorrect s 128(4)nprobably narrower than the common law “put on inquiry” exception - where outsider had no subjective suspicions, and was just negligentnTherefore, relying on the statutory assumptions may be better because if person is negligent in not making inquiries t

414、hey may still be able to rely on the statutory assumption because it is subjective whereas the put on inquiry test talks of reasonableness (objective) Contract made directlynFor the contract to be validly made, must have BOTH substantive authority and formal authoritySubstantive = resolution by Comp

415、any to enter the contractFormal = proper execution by proper peoplenWhat can outsider do about defect in “formal authority”?nWhere common seal has been used s 129(6)nWhere no use of seal s 129(5)Contract made directly (cont)nWhat can outsider do about defect in “substantive authority”?ns 129(5), (6)

416、 will not assistnuse common law agency principles or statutory assumption in S:129(3)nS:129(3) is the statutory assumption relating to apparent authority.Companies liability for civil wrongs Vicarious liability Direct liabilityAttribution of fault under common lawAttribution of fault by statuteLiabi

417、lity for civil wrongs (cont)nVicarious liability (secondary liability)nemployer liable for torts committed by employees acting within scope of employmentnDirect liability (primary liability)nAttribution of fault under common lawnNeed to look for the officers who are the “directing mind and will” of

418、the companynAttribution of fault by statuteHow can companies commit crimes? Vicarious liability Direct liabilityAttribution of fault under common lawAttribution of fault by statuteCommon law crimesStatutory offencesHow can companies commit crimes?nWhich crimes can companies commit?ne.g. murder & man

419、slaughter - in some placesnVicarious liabilitynDirect liabilitynAttribution of fault under common lawn“directing mind and will” - Tesco v NattrassnAttribution of fault by statuteLaw of Business OrganizationsPiercing the corporate veilCorporate liability and the corporate veilnCompanies liability for

420、 civil wrongsnCompanies liability under the criminal lawnCompanies can commit both civil & criminal offences directly and & indirectly via vicarious liabilitynThe corporate veilnPiercing the corporate veilWhat is the corporate veil?nExpression that lawyers use to describe the legal rules that keep p

421、articipants (members, officers) separate from the company in a legal sensenUpholds the separate legal personality doctrinenCorporate veil reflects and results from companys separate legal personalityWhat is the effect of the corporate veil?nStops the law from seeing the participants that make up the

422、 companynMeans that the law cannot look through the veil of incorporation and say that the companys obligations, liabilities, rights or property are obligations, liabilities, rights or property of the participantsnVeil of incorporation serves to protect shareholders and others from personal liabilit

423、y except in some exceptional circumstances Exceptions - piercing the corporate veilPiercing or lifting the corporate veil refers to the judicially imposed exception to the separate legal personality principle 3 instances court will be prepared to pierce.nAt general law (rare)ncorporate form used to

424、avoid an existing legal duty Gilford, Jones v Lipman & Creasey v Breachwood motorsExceptions - piercing the corporate veilncompany is the agent or partner of the controller - Smith, Stone & Knightnprinciples underlying a particular law require the veil to be pierced - Re Darby, Daimler Co v Continen

425、tal TyreExceptions (cont)nStatutory exceptions where the veil will be pierced nUnder the Corporations Act, in the insolvent trading provisions in s:588G and s:588VnS: 588G: provides that where a Company is found to be trading insolvent, the corporate veil will be lifted / pierced making Directors pe

426、rsonal liable & accountable to pay compensation equal to loss or damage claimednS:588V same thing but makes a holding company liable. Exceptions (cont)nUnder S:588V, no need to show holding company failed to prevent subsidiary from incurring the debtnHolding company is liable if:1.Company is a holdi

427、ng company (Div 6 of Pt 1.2) at the time the subsidiary company incurs the debt & 2.Subsidiary company is insolvent at that time or becomes insolvent by incurring the debt &3.There are reasonable grounds for suspecting the subsidiary company is or would become insolvent & the holding company or any

428、one of its directors is or ought to have been aware of those grounds.Exceptions (cont)Note the differences between s 588G (imposing a duty on directors to prevent insolvent trading) and s 588V (giving liquidator a right to recover from the parent company)James Hardie - FactsnConsider the 2004 contro

429、versy over the James Hardie fund including NSW commission of inquirynTwo issues in James Hardie - limited liability of subsidiary, and parent company now domiciled in the NetherlandsnJH was Australias largest manufacturer of commercial & domestic asbestos containing products throughout the 20th Cent

430、urynDuring this period, JH enjoyed a dominant market positionnEvery 3rd dwelling built before 1982 thought to contain asbestos productsnExposure to asbestos proven to cause a number of deadly diseases including lung cancer & other malignancies, respiratory diseases & mesothelioma the symptomsJames H

431、ardie - FactsnOf which present some 37 years after initial exposure.nNo known curesnEvidence later presented suggested JH was aware of the dangers of exposure to asbestos as early as the 1930snFrom approx 1937, JH restructured its Corporate group by establishing subsidiary companies to supply asbest

432、os productsnSubsidiary companies included James Hardie & Coy Pty Ltd (Coy) & Hardie-Ferodo (later Jsekarb)nCoy was the principle source of income for JH Industries until the mid 1990snBetween 1995 & 2000, JH parent company began a process of removing assets from Coy leaving it with the bulk of JH gr

433、oups asbestos liabilitiesJames Hardie - FactsnIn 2001, JH established the Medical Research & Compensation Foundation (MRCF) with $293 Million in assets.nAs part of this move Coy & Jsekarb indemnified the JH parent Co for any asbestos related liabilitiesnJH advises ASX & Aust public the trust fund wo

434、uld be able to meet all asbestos compensation claims into the futurenIn October 2001, permission is granted to JH to move to the Netherlands to set up as a Dutch Co taking with it no less than $1.9 Billion in assets from its Australian Subsidiaries. nPermission granted on an undertaking from JH that

435、 assets taken offshore would be available if needednNetherlands one of only 2 countries which Australia has no treaty to enforce civil court judgements James Hardie - FactsnIn 2003, Dutch based JH cut final links with its Aust based subsidiaries & effectively cancelled any avenue for them to call on

436、 the $1.9 Billion to pay asbestos victimsnJH did not advise the authorities of the cancellation of the $1.9 Billion lifelinenCampaigns by unions & asbestos groups increase public awareness of the conduct of JH.nIn February 2004, the NSW Premier authorises Mr David Jackson to conduct an inquiry into

437、the adequacy of the funding provided by MRCF & the circumstances of JHs separation from its Australian subsidiaries.nJackson inquiry found JH had under-funded the trust by approx $2 billion & made misleading & deceptive statements in relation to the trusts establishment.James Hardie - FactsnPublic o

438、utrage grows as the full extent of JHs deception becomes public knowledgenJH maintains no obligation, legal or otherwise, to make further payments to asbestos victims.nAfter receipt of the Jackson report, Premier Bob Carr calls on JH to negotiate a settlement.nAs a result of the increased mounting p

439、ublic condemnation of JH & threats to ban &/or boycott JH products, JH, in July 2004, agreed to recommend to its S/H that additional funds be committed to a new asbestos compensation scheme on the proviso a cap on compensation payouts & limitation on the legal rights of claimants is agreed.nBecomes

440、clear that proposed injection of funds will not meet totality of JHs future asbestos liabilities James Hardie - FactsnIn September of 2004, negotiations stumble & JH threatens to withdraw resolution asking its European shareholders to vote on the question of committing funds.nAnti JH movement gains

441、momentum & goes international.nUS unions rally at JH headquarters in California in support of Aust asbestos victimsn US market provides JH 80% of its incomen On 17 September 2004, international & Aust unionist rally at the JH AGM meeting in the NetherlandsnOn 22 Sept 2004, ASIC announce it will inve

442、stigate JH over its asbestos funding arrangementsnOn 28 Sept 2004 JH announce CEO Peter Macdonald & CFO Peter Shafron will step asideJames Hardie - FactsnNegotiations for a settlement are revived in October 2004n15 October 2004, all states & territories announce they may move to ban use of JH produc

443、ts if negotiations do not result in a settlement for asbestos victimsn22 October 2004, JH announce resignations of CEO (Macdonald) and CFO (Shafron)nMacdonald receives $10million golden handshake & kept on as a consultant for $7,000 per monthnBoth the state and federal Govt announce in the absence o

444、f an agreement, they will introduce legislation aimed at unravelling the corporate restructure carried out by JH thereby forcing the Dutch JH company to face its asbestos liabilitiesJames Hardie - FactsnOn 2 December 2004, JH agree to pay the trust fund interim funding of $88 millionnUnder intense p

445、ressure, JH agrees to sign a Heads of Agreement the terms of which included:nAn open ended funding commitment;nNo caps on payments to victims;nPayment of an up front cash buffer equivalent to 2 years claims + further year of claims in advance ($250 million)nAdditional annual payments nA maximum cap

446、on the annual payments will be 35% of JHs free cash flow ($70 million 1st year)nMin term of funding agreement set at 40 years with option to extend indefinitely if requirednFunding contribution from JH for asbestos base medical research & education.James Hardie - FactsnTax issues arising from JHs pa

447、yments into the fund & the funds distribution to asbestos victims saw an Amended Final Funding Agreement entered on 21 November 2006nOn 7 February 2007, 99.6% of JH S/H approved the amended compensation package.nOn or about 12 February 2007, JH made the first payment to the compensation body in the

448、sum of approximately $184.3 Million Questions for considerationnThere has been a growing call to lift the corporate veil which has been fundamental to corporations law for over 140 years.nShould the doctrine of the corporate veil continue to be recognised by the law?nAdvantages & disadvantagesnIf so

449、, should the present exceptions be expanded upon?nIf so, how?nCases of personal injury?nWholly owned subsidiaries? nIndemnity or contribution from parent company in cases of tortious conduct resulting in personal injury?nWhere in the public interest?One Viewn“Corporate Australia must be re-educated

450、as to its original purpose and accept that limited liability is a privilege carrying social responsibility and not an inherent corporate right We should demand nothing less than socially responsible behaviour, failing which, such privilege ought to be legislated away” Edwina Dunn Sydney Law Review,

451、2005Law of Business OrganisationsExternal Admin & Winding upOverviewnThree types of external administration:nReceivershipnVoluntary administrationnWinding Up (liquidation)Members voluntaryCreditors voluntaryCourt OrdernInsolvency is commonly - but not always - the reason for a company going into ext

452、ernal administrationOverview (cont)nDifferent forms of administration serve different purposesnReceivership - way for secured creditor to get their money backnVoluntary administration - temporary safety zone from companys creditors, and possibly a chance to trade out of difficultiesnWinding up - liq

453、uidator sells off companys assets and distributes proceeds to creditorsReceivershipnWhat is a receiver?nPerson appointed to take control of some or all of a companys assetsnWho is allowed to be appointed?nA registered liquidator (s:418)nA receiver is required to have appropriate qualificationsnWho m

454、ay appoint a receiver?nA Supreme or Federal Court (very expensive)nSecured creditor wishing to enforce securityFunction of the ReceivernBroadly, where appointed under a charge (i.e., by a secured creditor), receivers function is to collect the property secured by the charge, sell it and distribute t

455、he proceeds to the chargee (i.e., the secured creditor)nReceiver is an agent of the company, not the secured creditor.nThis means that the company (not the creditor) is responsible for the acts / omissions of the receiver.Powers of receiversnSources of receivers powers:nInstrument of chargens 420 gi

456、ves a receiver the power to do all things necessary to achieve the objectives of the receivership including but not limited to:1.Carry on the companys business2.Convert property into cash3.Execute documents4.Act for the company in legal proceedings5.Employ & dismiss employees6.Appoint agentsnUnder a

457、 general receivership, receiver takes control of the majority (if not all) of company property & businessDuties and liabilities of a ReceivernArise by way of contract, tort and fiduciary principlesnReceiver owes duties to the appointernAlso owes duties to the companynOnce appointed, a receiver is de

458、emed an “officer” of the company & therefore must avoid breaching ss:180-183 of the Corporations Act.nSale of company assets (General law & s:420A)Further Liability of ReceiversnHas various other types of liability, for example:1.Liability arising from an invalid appointment2.Liability arising from

459、contracts entered into prior to receivership3. Liability arising from contracts entered into prior to receivership4. Liability to preferential creditorsFurther Liability of ReceiversnWhat if a receiver is found to be in breach of their duty?nBecause receivers become liable to several parties upon ap

460、pointment, an indemnity is routinely obtained from the appointer upon appointment.nReceivership occurs where charge holders take the following steps where a security is breached by the company Private Appointment of ReceiverCharge ExistsCharge holder decides to appoint a receiverReceiver formally ac

461、cepts their appointmentCharge holder prepares the document of appointment and executes (Indemnity ?)Receivers liabilityReceiver assumes control over the charged asset(s)Powers defined in charge & s:420 Receiver notifies CompanyVoluntary administrationnGoal of the VA provisions s 435A:nMaximise chanc

462、e of company continuing in business, ornIf that is not possible, provide a mechanism for creditors and members to get a better return than from a winding upnAccordingly, an administration is designed to be a short-lived event in the companys history, usually just less than one month from beginning t

463、o end. Voluntary administration (cont)nRemember that directors of insolvent company have incentive to appoint administrator (s 588G and others)nMajority of appointments are made by directorsnIn recent times, concerns have been raised about the independence of administratorsnVA has two phases: (i) ad

464、ministration, and (ii) deedAdministration phasenAdministrator takes control and investigatesnSafety zone for companys assetsnAdministrator arranges a meeting of creditors within 5 days to form a consultative committee of creditors and/or replace administratorn1st meeting also provides creditors an o

465、pportunity to ask questions of the directors, whose duty is to attend the meeting and assist the administrator.Administration phase (cont)nSecond meeting within 5 days after the 20 day convening period to decide the companys future. Under s:439C options are to either:nend administration and hand com

466、pany back to the directors, ornenter into deed of company arrangement, ornwind up the companynThe decision reached will be made after consideration of the administrators report on the business, property, affairs and financial circumstances of the company.nThe creditors will also often have regard to

467、 the administrators recommendation in respect of the future of the company.The Deed of Company Arrangement (“DCA”) phasenA DCA is a formal arrangement permitting the company to make a compromise or arrangement binding on all its creditors.nOften used to allow a company to continue in existence by un

468、dertaking a restructure that it is hoped will result in payment of a greater dividend to creditors than would have otherwise resulted had the company been wound up.The Deed of Company Arrangement (“DCA”) phasenDCA contains the arrangements agreed with creditors at second meeting, e.g.:ndebt compromi

469、senrepayment schedulendebt converted into equityncreditors supervise managementnCreditors vote to adopt the deed - need majority in “number” and “value”nIf a majority of creditors in number vote one way & a majority of creditors in value vote the opposite, then the administrator has the casting vote

470、.nThe administrators casting vote may be challenged under ss:600B & 600C. The Deed of Company Arrangement (“DCA”) phasenUnder s:444A(4), the DCA should contain:1.Details of Deed Administrator;2.Details of property available to pay creditors claims;3.Nature and duration of the moratorium period;4.Ext

471、ent to which the company is to be released from its debts;5.Any conditions affecting the continuation of the DCA;6.Circumstances under which the DCA will terminate;7.The order in which proceeds are to be distributed and8.The date on or before which the claims must have arisen if they are to be admin

472、istered under the DCA.Winding UpnInvolves selling off the companys assets and distributing the proceeds amongst the companys creditors with any remainder to be shared amongst its members.nWinding up sometimes also referred to as liquidationnLeads to deregistration of the companynWinding up may occur

473、 via a MVL, CVL or by court orderTypes of Winding UpMembers Voluntary LiquidationnUsed where a company has exhausted its purpose but remains solvent.nCompany must be solvent which is established by directors making a written declaration to that effect pursuant to s:494nA special resolution of member

474、s in General Meeting initiates the winding up procedure in accordance with the terms of s:491nDeclaration must be lodged with ASICMembers Voluntary LiquidationnMembers then appoint a liquidator, determine the liquidators remunerationnLiquidator then realises the company assets and distributes procee

475、ds amongst creditors & members if there are surplus funds.nWhat if at some stage the liquidator forms the view that the company will not be able to pay its debts?Company must be solventDirectors meeting to resolve to proceed with MVLMeeting of members whereby resolution they decide company is to be

476、wound upPreparation of Declaration of Solvency & lodgment with ASIC (s:194)Distribution of surplus assets to shareholdersPayment of creditors in full within 12 monthsFinal meeting and dissolutionMembers Voluntary LiquidationCreditors Voluntary LiquidationnTakes place in circumstances where the direc

477、tors are unable to make a statement to the effect that the company is solvent and a meeting of members is convened to pass a resolution that the company be wound up in insolvencynMembers then appoint a liquidatornCreditors subsequently meet and may resolve to replace the members nomination with thei

478、r own appointmentnA CVL can also take place where the liquidator of a MVL forms a view that the company is unable to pay its debts as previously declared by the directorsCreditors Voluntary LiquidationnUnder a CVL, the liquidator realises the assets, conducts an investigation into the companies affa

479、irs and reports any offences to ASIC.nThe liquidator will also ascertain whether there exists any void or voidable transactions which should be recovered for the benefit of creditors.nThe liquidator will also distribute the realised funds to creditors in accordance with s:556.Compulsory Winding Up o

480、n Grounds Other Than InsolvencynSought under Part 5.4A nThe possible circumstances for seeking an order for winding up on grounds other than insolvency are covered in s:461 & include:1.Where the directors are conducting the affairs of the company in a manner that is oppressive or unfairly prejudicia

481、l to the interests of members or;2.In cases where the court is of the view that due to reasons affecting the good functioning of the company, it is fair and reasonable to wind up the company.Compulsory Winding Up On Grounds of InsolvencynCompulsory winding up on grounds of insolvency is dealt with i

482、n Part 5.4.nThe applicant must demonstrate the company is insolvent in accordance with the terms defined in s:95AnMost common way to demonstrate insolvency is by serving a “statutory demand” on the company.Statutory DemandsnDebt must be greater than $2,000.00 nFailure to address the demand within 21

483、 days gives rise to a presumption of insolvencynAccordingly, the statutory demand is a fast track and effective way to get a company to pay its debts.nThe form of demand is prescribed by the Corporations Act regulations and must be strictly followed.nCompany may seek for the court to set aside the d

484、emand on the basis there is a defect or that there remains a genuine dispute in relation to the sum being claimed or that the company is solvent.Who may apply to the court for a winding up order?nThe company itself (by resolution of the members in general meeting or by a board resolution) nA credito

485、rnA director (with court approval)nA Liquidator (or provisional liquidator)nASIC (with court approval)nMember (with court approval)Where a court makes a winding up ordernThe court appoints a liquidatornCompanys property comes under control of the liquidatornDirectors powers are suspendednAny disposi

486、tion of company property is voidnAny transfer of company shares is voidnLegal proceeding cannot be started or continuednSecured creditors right to enforce its security is not affected.Order of Funds Distribution1.Secured creditors2.Expenses associated with winding up3.Unpaid wages, superannuation &

487、other employee entitlements4.Unsecured creditors5.Members (where there remains a surplus)nTwo occasions under which property secured by a charge may be available for distribution: 1.Surrender; and2.Where the funds for distribution are not sufficient to pay certain employee entitlements, those employ

488、ees will take priority over creditors holding a floating charge over company assets. DeregistrationnDeregistration carried out by ASICnSignals the death of the companyn3 types of deregistration1.Deregistration following winding up2.Voluntary deregistration following lodgement of application with ASI

489、C and passage of 2 months 3.Deregistration by ASIC where:(a)Return of particulars remains outstanding for six months or(b)Company has failed to lodge any documents in last 18 months or(c)ASIC has no reason to believe the company is continuing to trade Reinstatement of RegistrationnUpon deregistratio

490、n, the company ceases to exist & any property left over vests in ASICnThe companys name is removed from the register of companies, generally signifying the end of the company as a separate legal personalitynDirectors required to retain company books for 3 years (s:601AD)nReinstatement can be at the initiative of ASIC or the court whereafter the company is taken to have never been deregisterednDirectors are also automatically reinstatednProperty vested with ASIC reverts to the company