Corporate Law Cheat Sheet: Revision Notes, Questions & Answers (Melbourne), Exams of Corporate Law

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Corp law cheat sheet revision notes - Corporate

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Corporate Law (University of Melbourne)

Choice of form of Business Benefit of corporate:

1. Limited liability,
2. perpetual succession,
3. free transferability of interest
4. Corporate law as standard
5. contract, tax consideration

Characteristic of corporate company :

1. Separate legal entity Separate legal personality, Limited liability, Legal capacity Salomon v Salomon separate from its controlled, benefit apply to single director 2. Company obligations & liabilities are its own Credit cannot find member for debt **516

3. Company can be sue by its own name 119** Company comes into existence as a body corporate 4. Company’s property does not belong to participant Macaura v Northern Assurance Insurance’s name not under company 5. Company can contract with its participants Lee v Lee’s Air Farming Able to enter into an employee contract 6. Perpetual succession Company life is indefinitely until winding up Liquidation: secured creditor, priority creditor, unsecured creditor

Holdings and subsidiary and related body corporate

Subsidiary and holding company Definition of Subsidiary Company: D6 of Pt1.2: satisfy 1 below: other body:

1. Controls the board
2. Cast or control the casting of more than ½ of vote in general meeting
3. More than ½ of the issued share
4. The Sub is a Sub of another Sub of HC 46 Ho^ v^ Akai^ Ltd(2006)^ no definition of subsidiary need to have power, transfer of power (holding 45% of shares not consider as holding ) Related bodies corporate What is consider a body corporate

• Holding company
• Subsidiary
• A sub of a holding company of another body corporate 50 Controlled entities: An entity control a second entity if the first entity has the capacity to determine the outcome of decision of financial and operating policies. (Practical influence) (45% of shares can consider as controlled ) 50AA(1) NOTE: A company could be control by another company without being its SUB **Rules that apply to corporate

1. Insolvent trading:**

• when the HC reliable: HC is liable for DEBT of SUB after SUB became insolvent (Definition of HC and SUB) 2. Related party transaction:
• contains special rules that regulate transaction of Public Company and SUB (Definition in s 50AA(1)) 3. Financial Statement
• Financial reports an Audits (Definition in s 50AA(1)) 4. Large & Small proprietary:
• The A&L of SUB also consider into Size of Proprietary (s 50AA(1)) 5. Director’s Duty:
• Director of a wholly owned SUB act in good faith in BEST interest of HC if: (1) written in the constitution SUB to act in interest of HC (2) Director act in good faith for HC (3) SUB doesn’t become insolvent becoz of Directors action 588V CH2E CH2M 187

Set up a company

Procedure to Mainly set out in all companies must have at least 1 member proposed member must consent in writing to apply must have at least 3 directors/ 1 directors directors must give consent in writing to become one Public company must have one secretary ACIS issue a registration and allocate an CAN New company come to an existence on the day 117 Public company – LTD Set up a Proprietary company – Company 114 PTY LTD No liability - NL 231 201A 120 204A 118 119 Company’s Special rules apply to selecting name other than it CAN 148 NAME 1. Certain names are prohibit A change in the name requires SR (75%) 157 Company’s legal capacity and power a) issue and cancel shares b) issue debenture c) grant issue over unissued shares d) distribute company’s property to members e)grant a security interest in uncalled capital f)grant circulating security interest over property 124

Definition mainly in S9:

Officers

Definition of officer

• Director or secretory
• Include liquidator, administrator
• Statutory duty apply on officer
• Reasonable care, diligence, best interest An officer is a person
• Who make or participate in making decision that affect the whole or substantial part of business
• Who has the capacity of affect significantly the entity’s financial standing S9 Morley v ASIC definition of officer: decision that affect business

Role of Secretary

Role of secretory

• Public company must have one secretory
• Ensure company meet its obligation
• Larger company, secretory greater responsibility
• Consider as officer- duty of care, honest, loyal 204A Panorama Developments(Guildford) Ltd v Field Furnishing Fabrics Ltd Larger company has greater responsible. Morley v ASIC Secretory is officer, expect to have duty of care, honest and loyalty

Procedural irregularity

IRREGULARI

TY

Definition What is consider as irregularity procedural irregularities

• absence of quorum
• not reasonable notice of time - not consider invalid (anything about procedure) apply to both member and directors’ meeting 1322(1a) (b) (i) (ii) Poliwka v Heven Holding Pty Ltd: no giving of notice, J think shareholder will not go anyway, still valid Invalid if it’s substantial injustice its only invalid when judge thinks it causes substantial injustice that cannot be remedied by court 1322(2) MTQ Holding Pty Ltd v RCR Tomlinson Ltd result will not change no substantial injustice Whitehouse v Capital Radio Network Pty Ltd no quorum Not receive notice Person entitled to notice didn’t receive it, meeting is not void due to this reason

Equitable limitation

Case involving constitution amendment Category 1 : amendment of constitution to allow expropriation of:  Minority’s shares  Valuable proprietary rights attached to their shares (voting or dividend right) The amendment is only valid only if (1) proper purpose (commercial interest not enough)

• allow company to run
  • minority competing (2) no oppression of minority shareholders
• procedural fairness
• substantial fairness; price is fair Category 2: amendment of constitution: involving a conflict of interest it is Only valid if: a) Proper purpose b) No oppression of minority shareholders Gambotto
• Amendment that expropriate shares
• Other amendments that give rise to conflicts Gray Eisdell Timms Pty Ltd v Combined Auction Pty Ltd proper purpose Bundaberg Sugar Ltd v Isis Central Sugar Mill Co Ltd improper purpose Gambotto does not apply: expropriate of shares followed by the statutory procedure Winpar Holdings v Goldfields Kalgoorlie capital reduction carried out in statutory requirement Case not involving amendment in constitution S 136: amendment may be invalid due to equitable limitation Shareholder may misuse their right to bully the minority Breach equitable limitation (1) Biala v Mallina Holdings: not suing the wrongdoer (2) Menier v Hooper’s Telegraph work: taking away company’s property Majority vs Minority: vote by vote --------- add up all the people voting the same 5 people with 20% shares each Majority: 60% voting to pass Minority: 40% voting not to pass

Requirement to be Directors

1. Minimum no director : Proprietary- 1 201A(1) Public- 3 (2 resident in AUS) 201A(2)

2. Who can be - 18+, human not company **201B(1)

• not** disqualification eg bankrupt **201B(2)

3. Consent to act as Director:**

• need for signed consent 201D(1) - company must keep the consent 201D(2)

Director making decision: director’s power

• Management in director’s direction RR198A(1) Members cannot interfere with powers of board
• exercise all the power except the one in RR198A(2) Automatic Self-Cleaning Filter constitution that need to exercise in general Syndicate Co Ltd v Cunningbame meeting Member cant override decision Sell asset
• single director’s power 198E John Shaw & Sons (Salford)Ltd v
• elect a chair 248E Shaw vote not to sue, member cant override decision
• negotiable instrument RR198B Howard Smith Ltd v Ampol
• Member cannot give instruction to board Petroleum Ltd director within their power may make decision against Type of decision: member

1. Enterprise decision : operation Role of director:
2. Capital decision: finance ASIC v Healey higher rank, high
3. Constitutional decision: internal governance responsibility, reasonable to attract enquiry even outside the area of expert and pay attention

Member disagree with the board

1. Change the director (203C, 203D)

2. Change the constitution: (136(2)) 3. Sell shares
   • NRMA Ltd v Parker
   • Australasian Centre for Corporate responsibility v CBA Member cannot use their power to call a meeting to pass a resolution relate to matter that is within the board’s power

Type of director

Chairperson of director Director elect to chair the meeting and sign the minutes of the meeting Nominee director Person appointed to represent the interest of a particular group. Eg employee Director Being appointed officially 9a(i) Alternative director Appointed as alternative and act in its capacity 9a(ii) De Facto Act in the position of director Appointed to the position of a director but is not described as a director 9b(i) Chamdeon Mining NL v Murchision Metals Ltd Did a lot of director’s job Deputy Commissioner of Taxation v Austin Negotiate with taxation on behalf of the company Mistmorn Pty Ltd v Yassee Describe as consultant but is doing director’s job Shadow director/ company act in accordingly to his 9b(ii) Buzzle Operation Pty Ltd v Apple computer Australia

• Possible for one to be both DFT and shadow
• Not necessary that the wishes cover the whole area that the director is responsible of
• X Setting impose condition does not make one
• There must be connection of wish & action
• Requires “habitual compliance over a time”
• “governing majority” act accordingly wishes – EXCEPTION: advice NOTE: (b) does not include

1. power to call a meeting 249C
2. signing the minute 251A(3)
3. notice to ASIC change address 205B A director of an insolvent company may be 588G liable to the debt in some circumstance Managing director Role of managing director Entwells Pty Ltd v National and General Insurance Co Ltd role of managing director, run daily business

Remove directors

PTY LTD Unlisted public company Public Company Check constitution (may allow board/member to remove) Members may remove by ordinary resolution 203D (despite constitution or any agreement) (2)- 2 months’ notice of intention Members may remove by ordinary resolution 203D

- (2) 2 months notice of intention If RR applies, members may remove by ordinary resolution RR203C Board cannot remove director 203E Board^ cannot^ remove director 203E Resignation of director By written notice 203A Removing directors can revoke or vary the confer power RR198C(2) Managing director a person drop position of director also drop MD RR203F(1) Directors may revoke or vary the appointment of MD RR203F(2)

Director’s Meeting

Call by director/ Notice Any director can call by “reasonable notice” RR248C Paper meeting - resolution can be pass when all the director signed 248A(1) Only one director - director can pass the resolution by signing

• declare by keeping a record and signing it

248B(1)

248B(2)

Technology use All director need consent 248D Chairing - directors can elect a chair

• Require to select a director to be chair:
• If the director has not already been elected
• the elected chair is not available to act

248E(1)

248E(2)

(i) (ii) Quorum at least 2 director 248F Passing the vote - majority vote

• the chair has a casting vote

248G(1)

248G(2)

Decision made Minute must keep the resolution passed at meeting 254A(1)

Variation of class right

Definition of class right When there is different rights attached to the shares Crumpton v Morrine Hall Pty Ltd Different right attach different share create classed Common Law (general law) Variation of right exist only when there is a change in strict legal right Greenhalgh v Arderne Cinemas Ltd: Strict legal does not change White v Bristol Areophane: bonus issue of shares no consider as variation Action 246C Whose varied Resolution 246B (1) One class divide into further classes and the rights attached to all the shares are not the same All holders of original class  SR of company  SR of each class (2) Rights of a class are varied All holders of original class

1. SR of company
2. SR of holders whose right are varied
3. SR of holders whose right not varied (3) Company with 1 class of shares issuing new shares (not the same as original, not in the constitution) Holder of existing shares (1) SR of company (6) Issue new preference shares rank equally with existing preference shares (unless it’s in constitution ) Holder of existing preference shares

• SR of company
• SR of holders of the existing preference shares

Procedure with variation of right

Constitution may set out the procedure Follow the instruction 246B(1) Constitution didn’t set out a procedure Follow the table above 246B(2)

Not agree with variation of right

Application to set aside Not happy with change in (a) rights (b) constitution Member with 10% vote right can apply to the court

246D(1)

Time Within one month of the variation 246D(2) Variation take effect 1 months after/ after court reject the application 246D(3) Appointment Members may appoint other on their behalf 246D(4) Lodgment with ASIC Within 14days 246(6)

Shares

Director duty Issue share in good faith and best interest of the company 181 Residues Treatment & Trading Co Ltd v Southern Resources Ltd With improper purpose, member can get personal remedy Power of the company Company has power to issue share Director has the power to issue share

198A

First time issuing State no, classes and price of share 117(2)(k) Power to issue share To issue preference, redeemable preference Company can decide the right attached [term]

254A

254B

Preference share If the terms not provided in constitution, required a vote 254A(1) High court in Beck v Weinstock :[nature of preference share] priority in dividend Restriction on rights of shares Unlisted company : one vote per share RR250E Call – partly-paid shares Shareholders are liable to pay the remaining calls 254M(1) Pg 395 *No Liability has no reliable to pay

• not liable to pay he rest of the call
• no liability to pay for company’s debt

253M(2)

Limited Liability limited liability to the amount not paid S9 Edwards v Attorney

- General of New South Wales purpose of limited liability Converse of shares a) convert from ordinal to preference b) Convert from preference to ordinal (variation of class right apply: s246B-246G)

254G(1)

Notify ASIC Within one month 254X

Issue share capital:

Process (1) Define the Power to issue (2) Must exercise the power for a proper purpose (3) Member approval may be required (4) Check on restriction

198A

Is member approval required?

**1. Financial benefit to related parties Ch2E

2. Variation of class right CH2F.
3. If constitution must be amended 136
4. ASX Listing Rule; public listed company
5. Constitution or shareholder approval**

Restriction to issue shares

Pre- emption - Need to offer to existing shareholders before issuing

• The company may by resolution passed a general meeting to issue shares with complying with (1)

254D(1)

to issue 254D(4) shares for Pro Ltd Pty Ltd cos Max 50 non-employee shareholders 113(1) Pty Ltd Cant issue if it require disclosure under chapter 6D: 113(3) Cannot issue - Only public company can issue product disclosure statement (Pty Ltd cant) shares if it requires disclosure Offer share without disclosure (1) Small-scale, personal offer 708

• Must be limited to 20 new members (offers) (1a)
• Max $2M (1b)
• Within 12 months (3) (2) Sophisticated investors:
• One person is buying $500,000 shares 708(8)
• License dealer (3) Professional investor: 708(11)
• Control $10M > gross asset (4) Associated with body 708(12)
• senior manager, related party or their spouse, parent children sister *Chapter 6D: (5) Required disclosure for public share issuing

How to call a member’s Meeting – Notice

Notice - [TIME]21 days

• Shorter notice: (a)agree in AGM (b)other GM, 95% of members agree
• Shorter notice not allowed for removing or appointing directors (public company)
• shorter notice not allow to remove auditor For listing company
• [Time] 28 days
• only apply to listed company
• despite of constitution

249H(1)

249H(2)

249H(3)

249H(4)

249HA(1)

Give out the notice to:

1. members and directors: written notice to each members and directors
2. Auditor: like normal member

249J

249K(1)

Contents of notice of meetings of members content of notice: a) Place, date time b) general nature of meeting c) if SR is required, set out the intension to propose and its intension d) state out how members can use their proxy (2): notice of AGM of listed company …….250V 249L Devereaus Holdings Pty Ltd v Pelsart Resources NL: TEST “substantially true and fair” Easy to read as member. Kaye v Croydon Tramways Co [true information, member’s right ] The content need to be clear, concise, effective Include detail explanation

249L(3)

Australian Securities v Investment Commission Act [ fail to give true info , breach consumer law as misleading ] Information about share buy-back need to include

Residues Treatment & Trading Co Ltd v Southern Resources Ltd [sufficient information]

Members’ Meeting – conduct of meeting

Quorum - 2 members must be participate at all time RR249T(1)

- only count as 1 when there is 2 proxy of same person or proxy and that RR249T(2) member is there

• if no quorum present 30mins: RR249T(3) a) same day next week(date not specified) b) same time (if time not specified) c) same place (if place not specified)
• meeting dissolved if there is no quorum RR249T(4) Use of use technology that enable members to participate 249S technology [meeting in more than 2 places] If technology fail – procedural irregularity 1322 Directors - Director can elect a chair 249U(1) elect chair - directs must elect a chair if the chair is not available (2)
• member can elect a chair if there is not chair elected by director or the (3) chair is not present
• chair must postpone the meeting if members vote to do (4) Casting vote of chair RR250E(3)