statutory exceptions - web viewshareholders are the lowest ranked claimants and the ultimate risk...

http://lawcorners.wordpress.com/

BA1 Midsem Summary

Incorporation

1. Regulatorsa. ASIC: ASIC is a corporation (s 8 ASIC); Watchdog of CA (s 5B CA)b. ASX

i. ASX is incorporatedii. ASX listing rules prescribe standards for companies to be listed on ASX

iii. Creates and regulates financial market c. APRA - Looks after deposit-taking institutions e.g. banks, insurance and super fundsd. RBA - Responsible for monetary policye. ACCC – re CCA

2. Incorporated vs. unincorporateda. Unincorporated (unlimited liability):

i. Sole trader – individual, unlimited liability ii. Partnership

1. Relationship b/w parties carrying on business in common with a view to profit (s 1 PA)

2. Common law concept – can be created orally or by conduct3. Partners have fiduciary obligations (Chan v Zacharia)4. No flexibility of structure5. If partnerships has more than 20 persons, must be incorporated (s 115 CA)6. Death: if one partner dies/withdraws, partnership dissolves

iii. Joint venture – like partnership but no common businessiv. Trust – Exists where one party is obliged to hold/invest property on behalf of another

1. Not a separate legal entityv. Clubs and societies – membership fluctuates

b. Incorporated (limited liability)i. Non-profit corporations – AIA

ii. No liability company - mining (s 112)iii. S 111J Small Business Guide – applies to pty ltd companies, gives general overview of CAiv. Cooperative – limited liability v. Incorporated association - 5 or more people (s 7(2)(a) AIA)

vi. Company:

Proprietary Public Max 50 non-employee shareholders (s113) Min 1 member: s114 (1) Min 1 director: ss 201A(1), 198E Sec not reqd: s 204A(1) Resols w/o meeting. No AGM reqd: ss 249A Limited by shares (s 112(1)) Unlimited with share capital (s 112(1)) Requirements for small (at least 2) s 45A(2)

o revenue < 25millo assets < 12.5millo employees < 50

Must dissatisfy at least 2 of above to be large (s 45A(3)

Audit not required, min disclosure reqts: ss 292(2), 301(2)

No Act if req disclosure under Ch6D exc emp/shs: s 113(3)

No max no of members Min no of members: 1 (s114 (1) Min 3 directors: (201A(2)) Min 1 sec residing in Aus (s 204A(2))

o Appointed by directors (s 204D) AGM required: (s 250N) Limited by shares (s 112(1)) Limited by guarantee (s 112(1)) Unlimited with share capital (s 112(1)) No liability mining company (s 112(1)) Listed or unlisted; Can issue shares to public Audit required; including financial reporting &

disclosure: (ss 292, 301(1)) Ch2E related party regime applies


Ch 2E not relevant - ss 191, 192, 1943. Registration of company

a. Company comes into existence by registration with ASIC (s 119 CA)b. Ceases to exist on deregistration (s 601AD Act)

4. Incorporation of a company a. How to incorporate – lodging application etc (s 117 CA)b. Company given ACN and name by ASIC, certificate issued to company (s 118 CA)c. For name see ss 147, 152 CAd. Consent required by members, directors, secretary (s 120 CA)e. Address specified in app for rego because address of company’s registered office on rego (121 CA)f. Minimum number of members: 1 (s 114 CA)

5. Shares and share capitala. Shares are personal property; shareholders have a proportionate interest in the net worth of the

business but no legal or equitable interest in company assetsb. To be a member of a company in law, must have registered shares c. Directors have the power to issue/allocate/sell shares d. Shareholders are the lowest ranked claimants and the ultimate risk bearerse. Shareholder rights:

i. Right to receive notice of meetings of membersii. Right to attend, speak at and demand a poll at shareholder meetings

iii. Right to elect and remove directorsiv. Right to vote, in some cases by proxy, at shareholder meetings on matters that are within

the competence of that corporate organ to determine.

Legal Personalities

1. Limited liabilitya. Generally shareholders and directors are not liable for the debts of a limited liability corporationb. Liability of shareholders is limited to the amounts that are unpaid upon the shares that they hold.c. Therefore, directors are under an obligation to report and give regard to creditor interests

i. E.g. to prevent the company from incurring debts while insolventd. Pros and cons of limited liability (Cheffins 1997)

Pros Cons Encourages investment by those without interest

in or capacity for management participation No need for shareholders to monitor fellow

shareholders’ capacity to contribute in event of company failure

Encourages free liquidity of share capital, reduces cost of capital to company and increases accountability of management through gauging stock performance; facilitates operation of equity markets

Encourages entrepreneurial risk taking by companies

Helps distribute risk away from poor risk bearers (shareholders) to creditors who are more well positioned

Creditors do not all have greater monitoring and risk bearing capacity (Meiners 1979)

Tort claimants against a company may be more vulnerable than contract creditors who have bargain for desired protections. (Meiners 1979)

Shifts risk away from shareholders onto stakeholders and wider society

Encourages management to take part in risky activities in separate corporate structures and insulate group assets from risk of failure (Hardy)

Under Soloman’s, incorporation is as accessible to a small private partnership/sole trader as to a large company, to limit liability

Therefore, general consensus that public deal with ltd company at their peril (Gower 1979)

2. Separate Legal Personalitiesa. Special character


i. While registered company has legal capacity of an individual (s 124 CA), there is no temporal element of its existence and its existence is not affected by change in membership

ii. Can still commit crimes and tort, cannot invoke CL privilege against self-incrimination in answer to a demand for the production of documents under a statutory power (EPA)

iii. Company and only act through natural persons (MacLeod v The Queen)

b. Company and its members are completely separate i. One man companies are not contrary to the intention of the act (Salomon)

ii. Subscribers not required to be independent or unconnected or take a substantial interest in the company (Salomon)

iii. When all shareholders are perfectly cognisant of the conditions under which the company is formed and the conditions of the purchase, impossible to content that the company is being defrauded (Salomon)

iv. One person may function in dual capacity as an employee through contractual relationship but also as governing director (Lee)

Piercing the corporate veil

1. Exceptions to separate legal personalitya. Statutory exceptions

i. Directors are exposed to personal liability if they knew or ought to have known about the insolvency (s 588G CA)

ii. Where company is a subsidiary of another company, the holding company may be liable re debts if they knew or ought to have known the state of financial affairs (ss 588V-588X CA)

iii. Anti-avoidance provision (Pt IVA Income Tax Assessment Act)iv. Vendors of shares responsible for unpaid tax liabilities of company (direct and retrospective

repudiation of Salomon doctrine) (s 5 Taxation (Unpaid Company Tax) Assessment Act)1. Applied where vendor shareholders received such a price for their shares to make it

probably that tax on the company’s profits would not be paidv. Civil liability for contravention for director duties (ss 180-183 CA)

vi. Corporate trustee when not entitled to full indemnificationvii. Consolidated accounts requirement

b. Common law exceptions (Sprieg)i. Partnerships between companies in a group/agency

ii. Mere sham or façade iii. Creation or use of company designed to enable legal/fiduciary obligation to be evade or a

fraud to perpetuated 2. Fraud or improper conduct

a. If incorporation is a device, a stratagem, a mere ‘cloak or sham’ to avoid some breach of covenant/defeat a legal right, then the separate legal personality principle may be disregarded (Guildford Motors)

b. Specific performance cannot be resisted by a vendor who, by his absolute ownership and control of a limited company in which the property is vested, is in a position to cause the contract to be completed’ (Jones)

c. The dft company is a device and a sham, which he holds before his face in an attempt to avoid recognition by the eye of equity’ (Jones)

d. A corporation has a separate existence, even if an individual organised, managed, dominated and controlled’ a fragmented corporate entity’, so long as his associates were doing business in their own personal capacities (Walkovsky)

3. Agencya. Agency involves 3 parties:

i. Principal – passes authority to actii. Agent – in turn through his authority affects the legal relations of the principal vis a vis

iii. Third parties


b. Mere fact that a person or company holds all the shares in a subsidiary does not make the subsidiary the person/company’s agent for the carrying on of the business (Smith Stone)

c. A question is whether subsidiary carried the company’s business or as its own (Smith Stone) i. Were the profits treated as the profits of the parent?

ii. Were the persons conducting the business appointed by the parent?iii. Was the parent the head and the brain of the trading venture?iv. Did the parent govern the adventure, decide what should be done and what capital should

be embarked on the venture?v. Did the parent make profits by its skill and direction?

vi. Was the parent in effectual and constant control?d. If Company A’s participation in the business was negligible and in cooperation with Company B, then

Company A was merely an agent of Company B, brought into existence for the sole purpose of achieving some other benefit (Re FG Films)

e. Generally, creditors of a subsidiary of a group can only look to that subsidiary for payment of those debts – cannot look to parent/holding company for payment (Spreag)

f. If Company A is construed as an agent of Company B, creditors of Company A are entitled to recover, not only from Company A but also Company B (Spreag)

4. Subsidiaries and Negligence a. The proposition that the corporate veil may be pierced where one company exercises complete

dominion and control over another is entirely too simplistic (Briggs v Hardie)b. The conclusion could apply in relation to just about every holding company and fully-owned

subsidiary and the principle of limited liability in relation to the activities of subsidiaries would be left in tatters (Briggs v Hardie)

c. While tests of the kind in Smith Stone may apply to a defrauded creditor, they are inappropriate to actions in negligence to determine whether or not to pierce the corporate veil (Briggs v Hardie)

d. A person suffering from injury as a result of the tortious act of a corporate has no choice in the selection of the tortfeasor (Briggs v Hardie)

e. Creditors of failed companies encounter difficulty when they have to select among the moving targets the company with which they consider they concluded a contract… Fairness or equity seems to have little role to paly (Quintex)

Corporate Constitution

1. Choice of rules to govern internal managementa. Elect to function without cstn, relying solely on replaceable rules (s 134)b. Adopt its own cstn to displace or modify replaceable rules wholly or in part (s 136)c. If incorporated prior to 1 July 1998, it may retain its memorandum and articles of association as the

cstn to the exclusion of inconsistent replaceable rules (s 135)2. Legislation

a. A company’s internal management maybe be governed by replaceable rules, cstn or a combination of both (s 134 CA)

b. Replaceable rules i. Replaceable rules apply to a company registered after 1 July 1998 and a company registered

before 1 July 1998 that has repealed its cstn (s 135(1)(a))ii. Replaceable rules can modified or displaced by a company’s cstn (s 135(2))

iii. Failure to comply with replaceable rules is not in itself a contravention of CA (s 135(3))c. Constitution of a company

i. Company adopts a cstn on registration with all members agreeing in writing (s 136(1)(a))ii. Company adopts a cstn after registration by passing a special resolution with at least 75% in

favour (s 136(1)(b))iii. Company may modify or repeal its cstn by special resolution, however may need leave of

court to modify/repeal (s 136(2))iv. Special resolution has no effect if cstn specifies further requirements (s 136(3))v. A company may modify or repeal further requirement described (3) only if the further

requirement itself is complied with (s 136(4))


vi. Public company must lodge a copy of a special resolution with ASIC within 14 days after it is passed. The company must also lodge with ASIC a copy of the cstn or modification (s 136(5))

vii. An offence based on (5) is an offence of strict liability.viii. Exercise of a power is not invalid merely because it contravenes restriction/prohibition in

the ctsn (s 125(1))ix. Company may also include objects in its cstn, although acts beyond those objects are not

thereby invalid (s 125(2))d. Date of effect of adoption, modification or repeal (‘change’) of constitution

i. The ‘change’ which is a result of a special resolution/court order (s 233) takes effect on the date on which the resolution is passed; or a specified later date (s 137)

e. ASIC may direct company to lodge consolidated cstn (s 138)f. A company must send copy of cstn to member within 7 days of members request/payment of fee

(strict liability offence) (s 139)g. Company’s cstn/replaceable rules has the effect of a contract between (s 140(1)):

i. Company and memberii. Company and director

iii. Member and member

s 141 – Table of replaceable rulesProvisions that apply as replaceable rules

Officers and Employees

1 Voting and completion of transactions--directors of proprietary companies 1942 Powers of directors 198A3 Negotiable instruments 198B4 Managing director 198C5 Company may appoint a director 201G6 Directors may appoint other directors 201H7 Appointment of managing directors 201J8 Alternate directors 201K9 Remuneration of directors 202A10 Director may resign by giving written notice to company 203A11 Removal by members--proprietary company 203C12 Termination of appointment of managing director 203F13 Terms and conditions of office for secretaries 204F

Inspection of books

14 Company or directors may allow member to inspect books 247DDirector's Meetings

15 Circulating resolutions of companies with more than 1director 248A16 Calling directors' meetings 248C17 Chairing directors' meetings 248E18 Quorum at directors' meetings 248F19 Passing of directors' resolutions 248G

Meetings of members

20 Calling of meetings of members by a director 249C21 Notice to joint members 249J(2)22 When notice by post or fax is given 249J(4)22A When notice under paragraph 249J(3)(cb) is given 249J(5)23 Notice of adjourned meetings 249M24 Quorum 249T25 Chairing meetings of members 249U26 Business at adjourned meetings 249W(2)27 Who can appoint a proxy [replaceable rule for proprietary companies only] 249X28 Proxy vote valid even if member dies, revokes appointment etc. 250C(2)29 How many votes a member has 250E30 Jointly held shares 250F31 Objections to right to vote 250G32 How voting is carried out 250J33 When and how polls must be taken 250M

Shares

33A Pre-emption for existing shareholders on issue of shares in proprietary company

254D

33B Other provisions about paying dividends 254U34 Dividend rights for shares in proprietary companies 254W(2)


Provisions that apply as replaceable rulesTransfer of shares

35 Transmission of shares on death 1072A36 Transmission of shares on bankruptcy 1072B37 Transmission of shares on mental incapacity 1072D38 Registration of transfers 1072F39 Additional general discretion for directors of proprietary companies to refuse

to register transfers1072G

3. Powers of the GMa. GM is the primary “corporate organ” through which shareholders exercise voting rights b. General rule is shareholders assembled in a GM may act by ordinary resolution for the company,

unless overridden by statute or a company’s cstn (Clifton)c. Residual authority permits directors to exercise all the powers of the company, except those in the

Act or company cstn requiring the company to exercise in a GM (s 198A(2))d. Greater powers require special resolution, not limited to:

i. Alter the company’s name (s 157)ii. Adopt, repeal or modify the cstn (s 136)

iii. Changing the company’s type (s 161(1))e. Directors commonly retain power to issue shares; GM powers in relation to shares:

i. Convert all/any shares into larger/smaller number by ordinary resolution (s 254H)ii. Reduce share capital to approve a buy-back of shares (ss 256-257)

iii. Alter rights attached to sharesiv. Declare dividend and capitalise profits (Pt 2F.2)

f. GM powers to change composition of the boardi. Appoint a person as director (s 201G)

ii. Remove a director at any time (ss 203C-203D)iii. Determine the remuneration of directors (s 202A)iv. Directors cannot affix their own remuneration (Strong)

g. Other powers of the GMi. To act or sanction a transaction because the BOD has a conflicting interest

ii. Appoint/remove company directors (ss 327A, 327B, 329)iii. Resolve to wind up company voluntary by special resolution (s 491) or resolve that it be

wound up by the court (s 461(1)(a))iv. Approved financial benefits given to related parties of a public company (s 208(1)(a)v. Approved termination payments of company officers (ss 200B, 200C)

vi. Advisory vote on adoption of remuneration report, not binding on directors (s 250R)4. Powers of the board (directors’ management powers)

a. No specific corporate powers, except 2 replaceable rule provisions:i. Business of company managed under direction of directors (s 198A(1)), and

ii. Directors may exercise all powers of company, except where Act or cstn requires exercise in GM (s 198A(2))

1. In regards to s 198(2), Campbell v Rofe found a similar article “clearly delegated to the directors power to do everything that the company could do except where the authority of a GM is expressly prescribed”.

iii. Mandatory rule applies to proprietary sole director/shareholder: business of such company to be managed by/under direction of its director (s 198E)

5. Access to books and documentsa. A director may inspect at all reasonable times for the purpose of a legal proceeding (s 198F(1))

i. The right continues during 7 years after ceasing to be director (s 198F(2))ii. Person authorized to inspect books can take copies (s 198F(3))

b. A director can access financial records at all reasonable times (s 290(1)i. Court can order inspection on director’s behalf (s 290)

6. Directors’ independence in the exercise of their powera. General principle: Where act/ctsn makes not provision as to which organ has the power, or where

such a provision is made and the organ is unavailable, GM by ordinary resolution acts to bind the corporation (Clifton)


b. However, s 198A(2) reverses the GM principle above and makes the GM the holder of the residual power of the company; directors exercise all other powers

c. Non-intervention by shareholders i. Members in a GM cannot give direction to the board on how to exercise its powers of

management, nor can the GM overrule any action of the board (Automatic Self-Cleansing)ii. Extraordinary resolution required to supersede powers of directors; mere ordinary

resolution by majority insufficient (Automatic)iii. Mere ordinary resolution to override directors’ powers prejudices minority interests and

defies the purpose of the requirement of special resolutions to remove a director (Automatic)

iv. Shareholders cannot usurp the powers, which by articles, are vested in directors; only way to exercise control of these powers is by altering the articles or refusing to reelect director (John Shaw)

7. Appointing directorsa. Minimum number of directors (S 201A):

i. Pty: at least 1 director in Australiaii. Public: at least 3 directors; 2 must reside in Australia

b. Restrictions upon director appointmenti. At least 18, must not be disqualified from managing the corporation (S 201B)

ii. Act does not impose share holding requirement, although cstn may do soiii. If cstn impose shareholding requirement, non-compliance voids appointment (Stevens)iv. Cannot be director of public company/subsidiary if >72+, unless authorised by section (s

201C)c. Consent to act as director (s 201D)

i. Signed consent required before appointment; company must keep consentd. First directors named in registering of business, provided they give consent (s 120A) e. For public company there cannot be a single resolution that seeks to appoint one or more director

unless voting in favour unanimously (s 201E)f. For single director/single shareholder pty company may appoint another director by recording

appointment and signing the record (s 201F)i. If person dies/mental incapacity, trustee may appoint a person as the director

g. ASIC to be notified within 14 if new or alternate director is appointed (s 201L)h. Act by director effective, even if appointment of director invalid because director did not comply

with cstn or provisions of CA (s 201M)i. Does not resolve issue of whether company is bound in its dealings with/liable to 3 rd parties

i. Replaceable rules i. May appoint a director by resolution passed in GM (s 201G)

ii. Directors may appoint other directors (s 201H)1. Confirmation by GM required within 2 months for pty or at next AGM for public

iii. Directors can appointment 1 or more of themselves as MD (s 201J)1. Directors can confer, revoke or vary powers of MD (s 198C)2. Directors may revoke or vary appointment of MD (s 203F)

iv. Director may appoint an alternate director to exercise powers for a specified period (s 201K)8. Remuneration of directors

a. Determined by resolution (s 202A) (replaceable rule)i. Also applies to single director/single shareholder pty company (s 202C) (not replaceable)

b. Company may disclose remuneration paid to each director if directed by (s 202B)i. Members with 5% of votes, or

ii. At least 100 members entitled to voteiii. Company must comply with direction ASAP by preparing statement, having it audited and

sent 9. Resignation, retirement, removal of directors

a. Replaceable rules:i. Director may resign by giving company written notice (s 203A)

ii. Pty company may remove then appoint new director by resolution (s 203C)


iii. Persons ceases to be MD if they cease to be a director (s 203F)b. Person ceases to be a director if disqualified from managing corporations (s 203B)c. Public company

i. May remove director by resolution, despite anything in cstn or agreement between company/directors/members (s 203D)

1. Requires 2 mths notice before meetingii. Directors cannot be removed by other directors (s 203E)

10. Disqualification from office and from managing companies (SEE THEORY)a. Automatic disqualification

i. Bankruptcy (s 206B)ii. Conviction of indictable offence involving decisions affecting company’s business, dishonesty

punishable by imprisonment > 3 months; offence punishable by imprisonment > 12 mths (s 206B)

b. Period of disqualification i. Usual period of disqualification 5 yrs (s 206B)

ii. Upon ASIC application court can increase period up to 15 yrs (s 206BA)c. Court can disqualify

i. Court can disqualify on its own motion for repeated contraventions of the Act where a person has at least twice been an officer and failed to take reasonable steps to prevent contravention or at least twice contravened (s 206E(1))

ii. Conditions1. Satisfied that disqualification is justified (E(1))2. Give regard to persons conduct in relation to mgt of company (E(2))

d. On application of ASIC, court may disqualify person from managing corporation as it sees fit, e.g. if they contravened a civil penalty provision (ASIC v Adler)

11. Board make effective decisionsa. Replaceable rules

i. Directors may pass resolution without director’s meeting if all directors entitled to vote sign a document stating they are in favour (s 248A)

ii. Director may call meeting by giving reasonable notice individually to every director (s 248C)iii. Directors may elect director to chair their meetings (s 248E)iv. Quorum for directors’ meeting is 2 directors and must always be present (s 248F)v. Resolution by directors must be passed by majority of directors entitled to vote (s 248G)

b. Director of pty that only has 1 director may pass resolution by recording and signing (s 248B)c. Directors’ meetings may be called using technology consented to by all directors (s 248D)

12. Executive directors’ service contractsa. Traditional view: directors are not employees (Hutton)b. Modern view: directors can function in both capacities (Lee)c. Directors can also delegate their powers to employees of the company (s 198D)d. Removing MD from office may breach contract that could give rise to damages e. Contract of employment determined by articles – if articles change contract does not necessarily

follow (Bailey)f. Contractual provisions adapt to changing articles, change in contractual provision operates

prospectively (Allen)g. Breaking contracts

i. Distinction between company’s power to break contract (liable for damages) and its right to do so (express power in contract)

ii. Ordinary rule that either side has to give reasonable notice to terminate employment, unless express right in article of company and thus no claim for damages (Read v Astoria).

1. Terms of articles for appointment and dismissal of MD may, in the absence of a specific contractual term, enable company from dismissing MD lawfully without notice (Read v Astoria (No 2))

2. Reasonable notice to be given to termination is not an implied term inherent in every contract (Read v Astoria (No 2))


iii. Articles of a company override external rights as the article operates as a contract between the company and any member/director (Read v Astoria)

iv. An agreement will override the articles to the extent of any inconsistencies; therefore an employment contract for an MD will not be subject to the articles (Shindler)


Meetings of Members

1. Resolutions without meetings (s 249A)a. May resolution without meeting if all members sign doc stating they are in favour (s 249A(2))b. Can sign separate copies of doc if text is identical (3)c. Resolution passed when last member signs (4)d. Resolution treated as if it were passed at GM, under same obligations and requirements e.g. lodging

with ASIC, notice to members (5)(6)e. Resolutions of 1 member companies – passed where member signs and records (s 249B)

2. Calling meetingsa. Director may call meeting (s249C) – replaceable ruleb. If company is listed director can call meeting, irrespective of cstn (s 249CA)c. Must call meeting if required by members with at least 5% casting vote/100 members with voting rights

attend GM (s 249D(1)i. Voting number subject to regulations (s 249D(1A))

ii. Request in writing, state nature of resolution, be signed by members and presented to company (s 249D(2))

iii. Directors must call meeting within 21 days of receiving request; meeting to be held in 2 months of receipt (s 249D(5)

d. Members with > 50% of votes of all members can call GM where directors do not respond in 21 days; company must pay reasonable expenses incurred to members due to directors’ failure (s 249E)

i. Company may recover amount from directors (s 249D(5))ii. Director not liable if took reasonable steps to cause directors to comply with s 249D; directors

jointly/individually liable, sum to be taken out of fees/remuneration (s 249E(5))e. Members with > 5% votes that may be cast at GM may call meeting at their own expense (s 249F) f. Court can order meeting by director or member if impracticable to call meeting any other way (s 249G)

3. Noticea. Time required is generally 21 days unless cstn specifies otherwise (s 249H(1))b. Less notice may be given for AGM if all members entitled to attend & vote agree beforehand, & any

other meeting if members with at least 95% of votes agree beforehand (s 249H(2))i. Exceptions:

1. 21 days if resolution is to remove or appoint a director of public company (s 249H(3))2. 21 days if resolution is to remove auditor (s 249H(4))3. 28 days for listed company, irrespective of cstn (s 249HA)

c. How notice is given (s 249G)i. Individually to members; if joint members to 1st member named on register

ii. By post, personally, electronically, any other means in cstniii. Defect in notice may not invalidate meeting (s 1322)iv. Auditor must be given notice of meeting/relevant communications that member is entitled to

receive (s 249K)d. Contents of notice: - time, place, general nature, intentions, proxy rights; if notice of AGM must inform if

resolution on remuneration report will be put at AGM (s209L); Notice must worded and presented in a clear, concise and effective manner (s 209L(3))

i. Exceptions - Regulations may specify that notice is not required by s 240L or may include different conditions for info and notice requirements (s 241LA)

e. New notice required if meeting adjourned for 1 month or more (s 249M) – replaceable rule4. Members resolutions

a. Unless regs state diff %/number, notice of proposed resolution can be given by (s 249N):i. Members with at least 5% of votes that may be cast on resolution; or

ii. At least 100 members entitled to vote at GMb. Notice must be written and signed by members proposing to move the resolution (s 249N(2); Separate

copies to sign okay as long as identical (3)c. If company given notice under s 249N, resolution to be considered at next GM, at least 2 months after

notice given (s 249O(1))i. Notice to all members at same time, ASAP, and in same way as notice of a meeting (s 249O(2))


d.No notice required if notice of resolution is >1000 words/defamatory/if members to bear expenses of sending notice (unless members give sum reasonably sufficient to meet expenses that will reasonably incur in given notice (s 249O(5))

e.Cost of giving notice to members i. Company’s responsibility (3), unless notice not given in time (s 249O(3))

ii. Members requesting resol liable for expenses reasonably incurred by company in giving notice if company does not receive notice in time to send it out with notice of meeting. (s 249O(4))

5. Distribution of member statements (s 249P)a. Member requesting resolution or any other matter may give company written request to company to

distribute statement to other members (s 249(1))b. Unless regulations specify otherwise, request must be made by members with at least 5% of the votes

that may be cast on resolution; or at least 100 members entitled to vote at the meeting.c. Company must distribute copy of statement after receiving notice ASAP (ss 249(2)(2A)(3))d. Costs: company’s responsibility unless request not made in time (s 249P(7))e. No compliance required if: statement is > 1000 words/defamatory/members making request are

responsible for costs of distribution (s 249P(9))6. Holding meetings

a. Must be held for proper purpose (s 249Q); at reasonable time or place (s 249R)b. Quorum (s 249T) – replaceable rule

i. 2 members, must be present at all times (s 249T(1))ii. If quorum not present in 30 mins of meeting due to start, meeting adjourned (s 249T(4))

iii. Meeting dissolved if no quorum 30 mins into rescheduled meeting (s 249T(4))c. Chairperson – to be elected by director; or a chair has not previously been elected by the directors to

chair the meeting; or by members if previously elected chair unavailable, or declines to act, for the meeting (or part of meeting) (s 249U)

d. Auditor –has the right to attend, give written authority for rep to attend on their behalf to attend/speak at GM (s 249V)

e. Adjourned meetings i. Resolution passed at a meeting resumed after an adjournment is passed on the day it was

passed (s 249W(1))ii. Only unfinished business to be transacted at meeting after adjournment (s 249W(2) –

replaceable rule7. Proxies and body corporate representatives

a. Appointment i. Member with right to attend and vote at meetings can appoint proxy (individual or body

corporate); can appoint 2 if entitled to 2 votes (s 249X) – replaceable ruleii. Company sending appointment forms or lists of proxies must send to all members (s 249Z(1));

failure is strict liability offence (s 249Z(2))iii. Appointment valid if contains member’s name and address, company name, proxy’s name/office

held, when appointment may be used and signed/authenticated under regulations (s 250A)b. If appointment specifies way proxy is to vote (unless proxy is a member) (s 250A(4):

i. Proxy need not vote on a show of hands, but if the proxy does so he proxy must vote that wayii. If the proxy has 2 or more appointments that specify different ways to vote on the resolution—

the proxy must not vote on a show of handsiii. If the proxy is the chair—the proxy must vote on a poll, and must vote that way; iv. If the proxy is not the chair—the proxy need not vote on a poll, but if the proxy does so, the

proxy must vote that way.c. Proxy appointment and proxy appointment authority documents

i. Must be received 48 hrs before meeting unless cstn specifies otherwise (s 250B)ii. For listed company in a notice of meeting for the company, irrespective of cstn (s 250BA)

1. must specify place and a fax number to receive documents2. may specify an electronic address and other electronic means by which a member may

give the company docsd. Validity of proxy vote – valid even if :

i. Proxy not a member (s 250C(1))


ii. Appointing member dies/mentally incapacitated/revokes appointment or authority under which the proxy was appointed by a third party (2)

iii. member transfers the share in respect of which the proxy was given (2)iv. Proxy suspended if appointed member at meeting (s 250C)

e. Rights – same speaking/join in demand for poll/voting rights as member, unless cstn says no (s 249Y)f. Body corporate May appoint rep to exercise their powers (s 250D(1)):

i. at meetings of company members, debenture meetingsii. re resolutions passed without meetings

iii. In capacity of member’s proxy under s 249X(1)g. Appointment by body corporate may set restrictions on power (s 250D(2)

8. Voting at meetingsa. Number of votes that members have (s 250E) – replaceable rule

i. Company with share capital: show of hands – 1 per member; on poll - 1 per share (s 250E(1))1. Nb Body Corporate rep has all powers that body corporate has as a member

ii. Company without share capital: 1 vote on show of hands and poll (s 250E(2))iii. Chair has casting vote: and if member, any vote in capacity as member (s 250E3))

1. May be precluded from voting if conflicting interestb. Jointly held shares (s 250F) – replaceable rule

i. Only vote of the member whose name appears first in register of member countsc. Objections to right to vote (s 250G) – replaceable rule

i. Challenge must be made at meeting and determined by chair whose decision is final d. Vote need not be cast in same way : On poll, person entitled to 2+ votes does not need to cast all their

votes, nor do they need to cast their vote in different ways(s 250H)e. How voting is carried out (s 250J)

i. Resolution put to vote decided by show of handsii. Before vote take chair to inform meeting whether proxy votes have been received and how they

will be castiii. On show of hands declaration by chair evidence of result, provided declaration is conclusive

evidence of show of hands and votes of proxies received 9. Demanding polls

a. Can demand poll on any resolution, unless cstn says that poll cannot be demanded on resolution re electing chair or adjourning meeting (ss 250K(1),(2))

i. Demand for poll may be withdrawn (s 250K(3))b. Poll may be effectively demanded by

i. At least 5 members entitled to vote on resolution, (s 250L(1)(a), or members with at least 5% of the votes that may be cast on the resolution on a poll, (s 250L(1)(b), or the chair (c)

1. Cstn may provide different number/% requirements (s 25OL(2))ii. Time that it can be demanded (s 250L(3):

1. before a vote is taken; or2. before the voting results on a show of hands are declared; or3. immediately after the voting results on a show of hands are declared.

c. When and how polls must be taken (s 250M)(replaceable rule)i. Poll demanded on a matter other than the election of a chair or the question of an adjournment

must be taken when and in the manner the chair directs (1)ii. A poll on the election of a chair or on the question of an adjournment must be taken

immediately (2)10. AGMs requirements for public companies

a.When to hold meetings i. Public company must hold AGMS within 18 mths after its registration (s 250N(1))

ii. Must hold AGM at least once in each year & within 5 months after the end of its financial year. (s 250N(2)) – nb held to satisfy (1) if (2) satisfied

1. Breach of (1) or (2) is strict liability offence (s 250N(2A)iii. AGM to be held as well as any other meetings held by pub co. in the yr. (s 250N(3))iv. No AGM required if public company only as 1 member (s 250N(4))

b.Extension time for holding AGM


i. If extension required, can lodge app with ASIC to extend time period (s 250P(1))ii. If applying before end of expiration period, ASIC may extend period in writing; ASIC must specify

the period of the extension (s 250P(2))iii. If granted extension, must hold AGM within extended period (s 250P(3))iv. ASIC may impose conditions on extension and company must comply with conditions (s 250P(4))

- strict liability for non compliance s 250P(5)c.Exemptions - (externally administered companies) (s 250PAA(1)):

i. Classes exempt by ASIC from holding AGM by legislative instrument:1. a specified class of companies that are being wound up (a);2. a specified class of companies under administration (b);3. a specified class of companies subject to deeds of company arrangement (c).

ii. Order may be unconditional or subject to condition(s) (s 2450PAA(2))iii. ASIC may cause copy of order to be published in Gazette (s 250PAA(3))

d. Exemptions - (individual externally-administered companies) (s 250PAB) i. Classes exempt by ASIC from holding AGM if successful app lodged by:

1. Liquidator of a company that is being wound up 2. Administrator of a company under administration 3. The administrator of a deed of company arrangement

ii. If application lodged under above, ASIC may exempt company by writing (s 250PAB)(4).iii. Order may be unconditional or subject to condition(s) (s 250PAB(5))iv. ASIC may cause copy of order to be published in Gazette (s 250PAB(6))

11. Auditors and listed Company AGMsa. Written questions to auditor before AGM

i. May be submitted by member of listed company who is entitled to case vote at AGM, if question is relevant to the content of the auditor’s report to be considered by the AGM, or the conduct of the audit of the annual financial report to be considered by the AGM (s 250PA(1))

ii. Despite question being addressed to auditor, listed company may examine contents of question and make copy of the question (s 250PA(2))

iii. Listed question must be passed on to auditor ASAP, even if company believes the question is irrelevant (s 250PA(3))

iv. If auditor is an individual auditor, auditor will be in contravention if they do not prepare and give document (‘the questions’ list) to company ASAP, including (s 250PA(4):

1. Questions that company has passed to auditor2. Questions considers to be relevant

Must do this ASAP and by reasonable time before AGRM – contravention is strict liability offence (s 250PA(5))

v. Question need not be included in question list under (4),(5), if same in substance or not practicable to include question in list due to time that question was passed to auditor (s 250PA(8))

vi. Listed company must at or before start of AGM , make copies of question list reasonably available to members attending AGM (s 250P(9)

b. Business of AGM may include:i. Considering reports (s 250R(1)(a))

ii. Electing directors (s 250R(1)(b))iii. Appointing auditor (s 250R(1)(c))iv. Fixing auditor’s remuneration (s 250R(1)(d))v. Must vote on resolution that remuneration report be adopted (s 250R(2)

1. Vote on resolution advisory only, does not bind directors or company (s 250R(3))c. Auditor required to attend listed company’s AGM (s 250RA(1))

i. ‘Auditors are entitled to attend any general meeting of a company and to receive notice of and to be heard at any general meeting’ (Re Compaction Systems)

ii. Individual auditor in breach if:1. Auditor does not attend AGM at which the audit report for that financial year is

considered; and2. Does not arrange to be represented by qualified member of audit team that conducted


audit and in position to answer questions about audit (s 250RA(1)a. Contravention is strict liability offence (s 250RA(2))

iii. Lead auditor in breach if (s 250RA(3):1. Listed company’s auditor for financial yr is an audit firm/audit company; and2. The person is the lead auditor for the audit; and3. The person is not represented by qualified member of audit team that conducted audit

and in position to answer questions about audita. Contravention is strict liability offence (s 250RA(4))

12. Chair’s responsibilities at AGM of listed companya. Questions/comments:

i. Chair must allow reasonable opportunity for Questions/comments re:1. Company management (s 250S(1) – Strict liability offence (s 250S(2))2. Remuneration report (s 250SA)

ii. Where auditor/rep is at meeting, chair must allow reasonable time to ask qs re (s 250T(1)(a):1. The conduct of the audit; and2. Preparation and content of the auditor’s report; and3. Accounting policies adopted by the company in relation to the preparation of the

financial statements; and4. Independence of the auditor in relation to the conduct of the audit

iii. Chair must also allow reasonable opportunity for the auditor or their representative to answer written questions submitted to the auditor under s 250PA (s 250T(1)(b))

iv. Contravention of (1) is strict liability offence (s 250T(2))b. Auditor’s written response

i. If auditor/rep is at meeting and auditor has prepared a written answer to written question submitted to auditor under s 250PA, chair may permit auditor/rep to table answer (s 250T(3))

ii. Listed company must make the written answer tabled under (3) reasonably available to members as soon as practicable after the AGM. (s 250T(4))

Disclosure re GMs

1. Disclosure obligations under statutea. Stating general nature of business of meeting (s 249L(b) CA)

2. CL duty to frame proper noticesa. Must sufficiently state objects and general nature of the meeting (Holmes)b. Need not be meticulously precise, but fair and reasonable intimation required (Ryan)c. Shareholders must be given a full, fair and accurate account of proposed new provisions prior to a

meeting (Bancorp Investments)d. Effect of insufficient notice: Resolutions can be set aside if notice misstates effect of proposed resolution

(Devereaux)3. Equitable duty to make full and fair disclosure

a. Fiduciary (actually equitable) duty to make full/fair disclosure of material facts to shareholders:i. Whether or not to attend the meeting (Bulfin)

ii. Explain proposed changes to a resolution to alter a constitution (Fraser v NRMA)iii. Not limited to directors’ knowledge: May need to undertake inquiries to obtain relevant info

(Fraser v NRMA)iv. Must disclose where directors have an interest in the subject matter of a resolution or may

derive benefit (Chequepoint)b. Must not mislead members through suppression/expression of info (Devereaux)

i. Breach of this obligation need not be dishonest or involve moral turpitude (Chequepoint)1. Court will see whether info provided was capable of misleading, not whether a particular

person was induced to act ii. However, not a breach if directors make clear that they are putting forward their own views, in

the absence of dishonesty/trickery (Peters’ American Delicacy)c. Standards of clarity and intelligibility:

i. Notices should be ‘so plan that those who run may read’ (Alexander v Simpson)


ii. Providing more information may confuse rather than be helpful (Killen)iii. Notice must be understood by a layperson ‘ (Marra Development)

d. Fair Disclosure vs Clarity i. The need to make full and fair disclosure must be balanced against the need to present a

document that is fair and intelligible to readers (Fraser v NRMA)ii. ‘The question is whether there is any reasonable ground for supposing that such imperfections

as may be found in the circular have had done so under some serious misapprehension of the position.’ (Re Imperial Developments)

Irregularities

1. Validity where irregularities presenta. Proceedings under Act with irregularities not invalid unless:

i. The Court declares it invalid because the irregularity caused or ii. May cause substantial injustice that cannot be remedied by a court order of the Court and

declares the proceeding to be invalid (s 1322(2)b. Meeting or notice for meeting not invalidated simply due to accidental omission to give notice or the

non-receipt by any person of notice, unless Court, on application of person concerned, person entitled to attend or ASIC, declares proceedings at the meeting to be void (s 1322(3))

c. Participation in meetings: If a member does not have a reasonable opportunity to participate in a meeting of members held at 2 or more venues, meeting will only be invalid on that ground if (s 1322(3A)

i. substantial injustice has been caused or may be caused; andii. the injustice cannot be remedied by any order of the Court; and

iii. the Court declares the meeting or proceeding (or that part of it) invalidd. Voting rights: if exercised in contravention of s 259D(3) (re company controlling entity that holds shares

in it) the meeting or the resolution on which the voting rights were exercised will only be invalid on that ground if (s 1322(3B)):

i. a substantial injustice has been caused or may be caused; andii. the injustice cannot be remedied by any order of the court; and

iii. the court declares the meeting or resolution invalid.2. Orders that court can make upon application by interested person (s 1322(4):

a. Declaring that any act/matter/thing/proceeding purporting to have been done/instituted/taken not invalid by reason of any contravention of the Act or a provision of the cstn (s 1322(4)(a)

i. Act must be essentially of a procedural nature (s 1322(6)(a)(i))ii. Person(s) in or party to the contravention or failure acted honestly, or (ii)

iii. That it is just and equitable that the order be made (iii)b. Directing rectification of any register kept by ASIC under this Act (s 1322(4)(b))c. Relieving a person in whole or in part from any civil liability in respect of a contravention/failure of a kind

referred to in s 1322(4)(a) (1322(4)(c))i. Person must have acted honestly (s 1322(6)(b)

d. Order extending the period for doing any act/matter/thing or instituting/taking any proceeding under this Act or in relation to a corporation or abridging period for doing such an act, matter or thing or instituting or taking such a proceeding; (d)

e. Consequential or ancillary orders as the Court thinks fit. (d)f. Must only make order if no substantial injustice has been/likely to be caused to any person (s 1332(6)(c))

General Meeting’s Residual Control Over Directors

1. Board powers revert to the GMa. E.g. where there is a deadlock or board lacks quorum by reason of disqualification of interested directors

of vacation of all board offices (Barron v Potter)b. Different views on extent of GM’s power:

i. Injunctive relief/appointment of receiver may be granted when directors cannot act (Steinfield)


ii. Narrower view that GM’s reserve power is limited to reconstituting board so that it can effectively exercise management powers under cstn (Massey v Wales)

2. Ratification of directors’ acts: a. Although GM can ratify directors’ acts that are in abuse or excess of their powers, they may exceed their

powers without abusing. i. E.g. exercising borrowing powers in excess of a limitation fixed in the cstn (Irvine)

b. The circumstances in which the company may plead the breach of such a restriction are now restricted by ss 124 and s125 CA.

3. Dual initiative to litigate in the company name?a. Board can commence litigation on behalf and in the name of a company (s 198A CA)b. If company has a COA and director will not commence proceedings, shareholders may apply to court to

enforce claim for benefit of the company (Redmond 5.150)c. GM can commence proceedings on behalf of a company if directors fail to do so (Gower)d. However, has been contended that the rule that the GM may not make management decisions applies

to commencing legal proceedings the same as any aspect of the management of a company’s business (Massey v Wales)

4. Informal corporate acts doctrinea. Company is bound in a matter intra vires by the unanimous agreement of his members’ (Salomon)

i. E.g. if the board is not consulted about a matter within its power, but all shareholders agree individually and separately to a COA for the company

ii. Doctrine of formalities: If shareholders who have voting rights at a GM assent to a matter which a GM could carry, the assent is binding as a resolution in a GM (Re Duomatic)

1. Not a doctrine of waiver; can only operate where the persons attending a meeting have full knowledge and consent (Herrman)

b. However, company entitled to protection from a duly convened meeting and properly considered, carried and recorded resolution (Re George Newman & Co)

c. Informal assent of members will sometimes be effective d. Sovereignty and totality of shareholders (Re Express)

i. ‘Directors of a company in discharging their duty to the company must take account of the interest of its shareholders and creditors’. (Kinsella)

e. Estoppel - Application of estoppel to prevent assenting member from challenging the validity of the informal agreement; the company on the initiation of the liquidator is entitled to the aid of the court to avoid estoppel (Kinsela).

f. Course of dealing: i. Unregistered articles of association may be deemed valid by acquiescence and agreement of

shareholders through their course of dealings (Ho Tung)ii. ‘Where it can be shown that all shareholders who have a right to attend and vote at a general

meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be’ (Re Duomatic)

1. This principle not applied in Kinsela, where the directors had authorised the company to lease some assets to the directors, in order to avert their sale by liquidators - principle was not ‘intended to exclude a challenge based upon an allegation of misuse of a director’s power deliberately to prejudice or encumber creditors.’

statutory exceptions - web viewshareholders are the lowest ranked claimants and the ultimate risk...

Documents