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Company Law Assignment
In the present assignment it is essential to study the basis of the company and its formation. A company may be of different forms depending on the structure of the company. Every company is regulated by sole or several directors wherein the directors owe certain duties towards the company. The directors should make sure that they abide by the laws in performing their duties as one.
1. Issue: The issue to be discussed is that how Betty should include the purchase of machinery from her husband’s company into the company’s functions.
Rule: According to the Corporations Act, 2011, the director is supposed to act with duty and care. The director should also disclose any personal profits that he may have from dealings or transactions that benefit him personally according to Section 191. The conflict of interest should be timely informed in order to make a decision at the board meeting. If the constitution allows the transactions of conflict of interest on disclosure only then can the party carry on with the transaction according to Section 198E.
Application: In the given situation, Betty is the director of Production Ltd. The company now wants to purchase a new machinery from Betty’s husband’s company named Jack Foss v Harbottle. It is required by Betty to make sure that the same relationship is disclosed at the meeting as the transaction affects the position of Betty as a Director as she has a conflict of interest from the benefits so derived from the transaction.
Conclusion: Therefore, Betty has an obligation to disclose the fact that John is the husband from which Production Ltd. will be purchasing the machinery.
2. Issue: It is to be determined how the transaction of purchasing the machinery from Betty’s husband is undertaken.
Rule: According to the Corporations Act, 2001 the directors should always act in the best interest of the company, in good faith, with duty of care and disclose the conflict of interest. When a director discloses the conflict of interest in a certain transaction the director shall not have the voting power in the similar transaction under section 194. Also, if the constitution allows to carry out such transactions if the same are timely disclosed then the transaction may be allowed without any penalty under section 137.
Application: In the given case study, the Production Ltd. Company has no constitution formed. As the constitution is absent the rules so mentioned under the Corporations Act, 2011 will be followed. Accordingly, Betty should inform the other directors regarding the conflict of interest with respect to the transaction True Value Solar Holdings Pty Ltd and Anor v Fernandez (2013). Similarly, the directors at the meeting while taking a vote make sure that Betty is not part of the same process. When the vote is taken it should be free from the bias of Betty towards making the transaction.
Conclusion: therefore, it may be concluded that the transaction should be taken on the basis of voting at the meeting that should not involve Betty.
b. Issue: It is required to be determine what Betty should do when the decision regarding the purchase of furniture is undertaken.
Rule: It is determined under the Corporations Act 2011 that whereby the director has a conflict of interest in the transaction and the same has been disclosed then it may be allowed if the constitution of the company allows for it under section 191. When the transaction takes place it is expected from such director that he does not participate in the voting for the transaction to be carried further. Also, the profit share should be discussed between the directors in order to avoid the gross conflict of interest.
Application: Accordingly, Betty should make sure that when the voting process is undertaken by the parties on the issue of making the transaction she should not be part of the meeting in order to vote on it. Betty should ensure that the profit share from the personally benefitting transaction is discussed beforehand to avoid any conflicts as determined in the case of Aberdeen Railway Co v Blaikie Brothers.
Conclusion: It may be concluded that Betty should discharge the duties by informing the directors about the conflict of interest within the transaction.
Issue: It is required to determine the rights and redress that the sacked directors may seek in the given situation.
Rule: According to the Corporations Act, 2001 the general resolution should be passed at a meeting, properly carried out and according to the quorum requirements. Such minutes should be duly recorded and maintained for books of records. The outcome of the resolution is otherwise invalidated. If the company has share capital then the members have a vote for each share according to the class of the shares under section 201R. If no share capital is present, each member holds one vote. In case of ordinary resolutions the members should have a majority of at least 50 % in order for it to pass. The same may be counted either in person or proxies under 201S. Ordinary resolution is allowed in case of election of directors, appointing an auditor, making commercial or strategic decisions, increase or decrease the directors. (Lipton, Herzberg and Welsh 2012)
At a special resolution it is required that at least 75% of the votes are in majority to make the decision. In case of special resolution it is required that the members are provided with the notice that advise them to meet the intent of the special resolution. The notice should be serviced 21 days before the meeting. A listed company requires 28 days of notice. If at least 95% of the members cast vote before then the short term period notice is allowed for.
If the director are to be removed from its positions then the same may be done through passing a resolution that is approved by at least 50 % of the shareholders. The director of the public company cannot be removed by fellow directors as the same is reserved by the shareholders under Section 203 E. Under private companies the directors may be removed with more flexibility. The same may be functioned through the replaceable rules. When doing so it is required that Form 484 by ASIC is filled out within 28 days. (McQueen 2009)
Application: According to the case facts it may be determined that the Kelvin-Decline had been involved in manufacturing and providing fashion clothing. It has been provided that there were three directors of which the managing director is Kelvin. The company is said to have no constitution. In case of having no constitution the replaceable rules of the Corporations Act are applicable. The directors of the company want to shift the production unit and the shift the manufacturing unit to China of which the members are not in favour. The plan to do s was announced at the general meeting. (Ong 2007)
However, at least, 80% of the members had been not in favour of the decision so made by the directors. Thereby, the resolution of not proceeding with shifting the production unit would be passed for having the majority of votes American Delicacy Co Ltd v Heath. Furthermore, it is determined that the same resolution so passed by the members will be ignored and not followed which would be illegal and punishable for not abiding by the rules of Corporations Act, 2011. To this the members decide to remove the managing director from the position for not following the laws. The members vote on same and pass a majority resolution. (Perakis 2004)
Conclusion: It may be concluded that as the members had the majority votes in the situations concerning matters of shifting the production unit and the removal of the managing director the same would be applied. For the lack of constitution the replaceable rules of contract is applied to the company under the Corporations Act, 2011.
Issue: It is to be determined whether the directors have acted in their power while stopping the transfer.
Rule: In case of un-listed companies the transfer of shares requirements are to be complied with essentially. It is so because if the same are not complied with then the on-going resolutions will get affected and challenged under section 198A. This would affect the voting consensus and dividend share put in by the shareholders. In the case of Ku v Song it was determined that a verbal agreement was entered into by the owners of the un-listed company to transfer the share to Mr. Song. A Change to Company Details Form was prepared by Mr. Ku and lodged the same with ASIC. The same records were altered. The share transfer were left out and un-signed by Mr. KU. When resolutions were passed the same were considering the vote of the new sole shareholder. Mr. Ku challenged this aspect for the passing off the resolutions. It was held that the transferor requires to transfer the shares and deliver the same to the company. Then if the company registers the transfers only then it will be considered to be a valid transfer. This would make the document filing with ASIC to be invalid. Similarly, Mr. Ku had to participate in order for the resolutions to be valid. (Quilter 2009)
For a valid transfer to undertake it is required that the transferor should deliver the signed share transfer to the company. An effective transfer is said to have taken place if the same is registered by the CS. The company may have the discretion not to register the transfer if the same is found under the company’s constitution. The submission of a transfer document does not imply registration. The shareholders should follow the transfer process as determined or else the same decisions will be challenged Sidebottom v Kershaw.
When a general transfer of shares is undertaken according to Section 444GA of the Act, the administrator of the deed of company should transfer the same if a written consent of the owner of the shares and leave of court are gathered. The leave of court may only be acquired if the Court is satisfied that the transfer would not unfairly prejudice the interests of the members of the company. (Lipton, Herzberg and Welsh 2012)
Application: It may be determined in the present case provided, Rebecca had applied for the transfer of shares in the company Narrow Pty. Ltd. as well as Wide Ltd. that is unlisted. The shares were intended to be sold to Jess and submits the document accordingly. Rebecca’s then receives the advice from directors of Narrow Pty. Ltd. that only the partially owned shares may be transferred. Also, the directors at Wide Ltd. state that the shares will not be transferred either fully paid or partially paid. It may be determined that the submission of document to transfer the shares are not sufficient. The same would not be considered to be registration as the approval of the company is required in doing so. The director’s advice would have to be followed and abided by in regards with transfer of the share Gambotto v WCP Ltd.
Conclusion: The companies in which Rebecca held shares was each listed and unlisted. The transfer of shares was duly documented by Rebecca but not passed as hoped. The same was valid according to the replaceable rules of Corporations Act, 2001. As both the companies did not have constitution the amount of shares so allowed to be transferred will have to be registered. Thereby, the documentation did not imply registration and the directors of the two companies will be said to have complied with the rules of transfer of shares under Corporations Act, 2001. (McQueen 2009)
A company is different from a corporation. A director performs the functions in the name of the company. A company is protected by a corporate veil wherein the company functions as a person through decisions of the directors. The director’s duties towards the company involves the performance with duty of care, avoid conflict of interest, and do everything in the best interest of the company. The shareholders help in determining the decision for the betterment of the company through voting on such issues. It is required that the directors that they inculcate the shareholders views as they play a main function in the smooth running of the company.
Lipton, P, A Herzberg, and Michelle Welsh. 2012. Understanding Company Law. Pyrmont, N.S.W.: Thomson Reuters.
McQueen, Rob. 2009. A Social History Of Company Law. Farnham, Surrey, England: Ashgate Pub.
Ong, Denis S. K. 2007. Trusts Law In Australia. Annandale, N.S.W.: Federation Press.
Perakis, Evanghelos. 2004. Rights Of Minority Shareholders. Bruxelles: Bruylant.
Quilter, Michael. 2009. The Company Law Notes. Pyrmont, N.S.W.: Thomson Reuters.