Company Law Notes

Description

Table of Contents Sole proprietorship ....................................................................................................................................................... 8 Partnerships .................................................................................................................................................................. 8 Ordinary partnership .................................................................................................................................................... 8 Limited partnership ....................................................................................................................................................... 8 Joint Venture ................................................................................................................................................................. 8 Trust - not going to be looked at. ................................................................................................................................. 9 Company ....................................................................................................................................................................... 9 Types of Companies .................................................................................................................................................... 10 Legal capacity and powers of a company ................................................................................................................... 11 Franchise ..................................................................................................................................................................... 11 Which entity do you choose for your client ......................................................................................................... 11 Corporation Law in context ................................................................................................................................ 12 The development of Australian corporations legislation and its constitutionality .................................................... 12 Constitutionality of Corporation law - not in exam .................................................................................................... 13 Towards a Unified National Scheme ........................................................................................................................... 13 The various bodies involved in administering corporations law - Note 14 Australian Securities and Investments Commission (ASIC) - Note this important ........................................ 14 Other Bodies ........................................................................................................................................................... 14 How a company operates: A brief introduction - Context .......................................................................................... 14 Constitution and powers ............................................................................................................................................. 15 What governs a company's internal management? S 134 ..................................................................................... 15 Management positions in the Act ........................................................................................................................... 15 The concept of replaceable rules ................................................................................................................................ 15 Optional management rules ................................................................................................................................... 15 Replaceable Rules ................................................................................................................................................... 15 The nature and significance of a company’s constitution .......................................................................................... 16 The company constitution ...................................................................................................................................... 16 Effect of constitution and replaceable rules ............................................................................................................... 17 Company & each member (shareholder) (s. 140(a)) .............................................................................................. 19 Company & each director / company secretary (s. 140(b)) .................................................................................... 19 Directors' contract of service .................................................................................................................................. 20 Statutory limitations - alteration affecting members ............................................................................................. 21 Common law limitations ......................................................................................................................................... 21 Corporate veil, separate legal entity ................................................................................................................... 25 Registration: Incorporation of the company .............................................................................................................. 26 Corporate powers ....................................................................................................................................................... 26 Company as a separate legal entity ............................................................................................................................ 26 3 Limited liability of shareholders .................................................................................................................................. 26 Salomon’s Case - Could there be a majority shareholder, who owned the company and was a creditor? ............... 27 Separate legal existence ............................................................................................................................................. 27 Limited liability: Pros and cons ................................................................................................................................... 29 Corporate groups ........................................................................................................................................................ 29 Piercing the veil ........................................................................................................................................................... 29 Piercing the veil By common law ............................................................................................................................ 29 Piercing the veil (cont) Corporate groups ............................................................................................................... 30 The company as an entity ........................................................................................................................................... 30 Stakeholders: Where do they fit? ............................................................................................................................... 31 Contracts binding company, Organic Theory ....................................................................................................... 32 Organic Theory ............................................................................................................................................................ 32 Senior managers may be directing mind and will of company: .............................................................................. 33 Tesco Supermarkets Ltd v Nattras [1972] AC 153 .................................................................................................. 33 Who can be the directing mind and will? Has become more and more flexible ........................................................ 34 Criminal and tort liability ............................................................................................................................................ 35 Contracts with a company .......................................................................................................................................... 35 Directly .................................................................................................................................................................... 36 Agency theory ............................................................................................................................................................. 37 Contracts concluded by company agents - you need authority and to exercise on behalf of 37 Authority ................................................................................................................................................................. 37 Actual authority ...................................................................................................................................................... 37 Sometimes things go wrong .................................................................................................................................... 39 Statutory presumptions dealing with companies ................................................................................................... 41 Customary powers? ................................................................................................................................................ 42 s 129(3) Person held out as director or officer ....................................................................................................... 43 Fundraising ........................................................................................................................................................ 44 External matters .......................................................................................................................................................... 44 Fundraising .................................................................................................................................................................. 44 Aims of the disclosure provisions ........................................................................................................................... 44 When is disclosure to investors necessary?................................................................................................................ 45 General rule (par ) ............................................................................................................................................ 45 Offers that do not need disclosure ............................................................................................................................. 45 Nature of shares .......................................................................................................................................................... 46 Issuing of shares .......................................................................................................................................................... 46 Classes of shares ................................................................................................................................................ 46 “Deemed variations” .............................................................................................................................................. 48 Procedure to vary/cancel class rights ............................................................................................... 48 4 Maintenance of share capital ..................................................................................................................................... 48 Self-acquisition and taking security ........................................................................................................................ 49 Share buy-backs ...................................................................................................................................................... 49 Permitted share capital reductions ............................................................................................................................. 49 Share buy-backs ...................................................................................................................................................... 50 Indirect self-acquisition ........................................................................................................................................... 50 Financial assistance ................................................................................................................................................. 51 What is a dividend? (WLH Ch 10) ................................................................................................................................ 52 General dividend rules ............................................................................................................................................ 52 Payment out of profits - When can dividend be paid? ........................................................................................... 53 Remedies for improper Dividend payment when there has been… ....................................................................... 53 Debentures and the financing of a company .............................................................................................................. 54 Borrowing powers of companies ................................................................................................................................ 55 Debentures (1) ............................................................................................................................................................ 55 Debentures (2) ........................................................................................................................................................ 55 Descriptions of debentures ......................................................................................................................................... 55 Application of fundraising provisions ......................................................................................................................... 55 Division of powers, Roles in the company, Meetings (board and GM) .................................................................. 56 Directors ............................................................................................................................................................ 56 Directors ............................................................................................................................................................ 56 Who is a director - how to tell? .................................................................................................................................. 57 Types of directors (appointed) .................................................................................................................................... 58 Managing director (CEO) - Chief managing director of the board .......................................................................... 58 Chair of directors (p262). ........................................................................................................................................ 58 Execs and non-execs ............................................................................................................................................... 59 Other types of directors .......................................................................................................................................... 59 Board and GM - everything to do with management of a company .......................................................................... 60 Functions and powers of the board ........................................................................................................................ 60 Management powers .............................................................................................................................................. 60 Division of powers - GM .............................................................................................................................................. 61 Shareholders cannot override management .......................................................................................................... 61 Board procedure (1) .................................................................................................................................................... 62 Appointment of directors (1) .............................................................................................................................. 64 Disqualification from managing a corporation .................................................................................................... 64 Disqualification - who is allowed to be a director and who is allowed to remain a director. .................................... 64 How disqualification can occur ................................................................................................................................... 65 Automatic disqualification ...................................................................................................................................... 65 Automatic disqualification when Undischarged bankrupt ..................................................................................... 65 5 Disqualification by Court order ............................................................................................................................... 65 Disqualification by 66 Court’s leave to allow management of corporation (1) ............................................................................................. 67 Removal of director - Termination of appointment ................................................................................................... 68 Remuneration (1) ........................................................................................................................................................ 69 Disclosure of remuneration, margin loans and other benefits (2) ......................................................................... 69 Termination Payments ............................................................................................................................................ 70 Company secretary (1) ................................................................................................................................................ 70 Shareholders’ meetings ...................................................................................................................................... 71 Calling a meeting ......................................................................................................................................................... 72 Who may call meetings? ......................................................................................................................................... 72 Notice of meeting ................................................................................................................................................... 73 Proceedings at meetings ............................................................................................................................................. 74 Resolutions .............................................................................................................................................................. 75 S1322- irregularities ................................................................................................................................................ 76 Brief on fiduciary duties - Internal matters - controlling interests ........................................................................ 76 Why is fiduciary duty imposed? .................................................................................................................................. 76 Director’s fiduciary duties ........................................................................................................................................... 77 Does the person owe a Corporations Act duty? (1) .................................................................................................... 77 Consequences of breach of CA duties ........................................................................................................................ 78 Summary of duties: ..................................................................................................................................................... 79 Good faith and proper purpose (1) ............................................................................................................................. 80 Acting in best interests of the company - Good faith and proper purpose (2) ...................................................... 80 Conflict of interest (1) ................................................................................................................................................. 80 Duty of Due care, skill and diligence ....................................................................................................................... 82 Chair ........................................................................................................................................................................ 82 83 Business judgment rule ........................................................................................................................................... 83 Reliance on others Defence ........................................................................................................................................ 83 Responsibility for actions of delegates ....................................................................................................................... 83 Consequences and remedies ...................................................................................................................................... 83 Company’s remedies ............................................................................................................................................... 84 Duty to prevent Insolvent trading ............................................................................................................................... 84 Consequences of contravention ............................................................................................................................. 85 Directors duties ................................................................................................................................................. 86 Director's fiduciary duties .................................................................................................................................. 86 Good faith and proper purpose (1) - General Law (below for statutory duty) .................................................. 92 Best interests? Was it objectively in the best interests of the co? ....................................................................... 94 6 …for a proper purpose - most likely about issuance of shares ............................................................................. 97 Conflict of interest .............................................................................................................................................. 100 How to breach conflict of interest duty .................................................................................................................... 100 Profits arising from office ............................................................................................................................. 100 Improper use of position: s 182 ................................................................................................................... 102 To gain advantage or benefit ................................................................................................................................ 103 Bribes and misuse of company funds .......................................................................................................... 103 Taking up a corporate opportunity .............................................................................................................. 104 Company consent ................................................................................................................................................. 105 Misuse of confidential information ............................................................................................................. 106 Confidential information ....................................................................................................................................... 106 Improper use of information - statutory supplement of fiduciary duty. .................................................. 107 Competing with the company ...................................................................................................................... 107 Disclosure and permission .................................................................................................................................... 108 Self-interested transactions ......................................................................................................................... 109 Shareholder approval ................................................................................................................................ 112 ASIC v Adler [2002]................................................................................................................................................ 113 Standard apply to : .......................................................................................................................................... 116 CL Test for Breach of Duty of care and diligence (1) - Daniels v Anderson ........................................................ 118 (a) (CL) Directors need to have some understanding of the business industry they're in. ......................... 119 (d) (CL) Understanding of the company’s financial affairs (1) ......................................................................... 120 (e) (CL) Duty to safeguard company’s interests ........................................................................................... 121 Permitting company to contravene the law ......................................................................................................... 121 Meeting attendance (1) - isn't a defence ..................................................................................................... 122 Business judgment rule (BJR )(the blow job rule) ........................................................................................ 123 Elements of BJR ......................................................................................................................................... 123 Reliance on others - Defence ........................................................................................................................... 124 Conditions for reliance .............................................................................................................................. 124 Responsibility for actions of delegates ............................................................................................................ 125 What happens when the delegate person fucks up? .................................................................................. 126 Consequences and remedies of breach of duty of due scare and diligence ...................................................... 126 Consequences of breach .............................................................................................................................. 126 Company’s remedies .................................................................................................................................... 127 Directors and creditors ....................................................................................................................................... 128 To determine when company incurs a debt, need consider: .......................................................................... 129 Types of debts .............................................................................................................................................. 129 When is a debt incurred? ............................................................................................................................. 129 When is a company insolvent? ........................................................................................................................... 130 7 Signs of insolvency: s 588G(1)(b) requires proof company was insolvent at time debt incurred. .............. 130 Rebuttable presumptions of insolvency .......................................................................................................... 130 Reasonable grounds to expect solvency (1) .................................................................................................... 130 (2) Reasonable reliance on information provided by others (1)...................................................................... 131 (4) Reasonable steps to prevent incurring of debt .......................................................................................... 132 Duty not to prejudice creditors ........................................................................................................................... 133 Consequences of contravention of breach of duty to prevent insolvent trading (3) ......................................... 133 (1) Payment of compensation ............................................................................................................................... 133 (2) Breach of civil penalty provision ...................................................................................................................... 134 (3) Criminal penalty: .............................................................................................................................................. 135 Court may relieve director partly from liability .................................................................................................... 135 Defences to contravention of s 588G ................................................................................................................. 135 (5) Safe harbour (1) s 588GA ........................................................................................................................ 135 Remedies and Relief when Directors breach their duty ..................................................................................... 137 Topic overview: ......................................................................................................................................................... 137 Key actors .................................................................................................................................................................. 137 Company’s remedies ................................................................................................................................................. 137 Remedies ............................................................................................................................................................... 137 Damages or compensation ................................................................................................................................... 138 Account of profits (disgorgement) ........................................................................................................................ 138 Rescission of contract ........................................................................................................................................... 139 Injunction .............................................................................................................................................................. 139 Return of property ................................................................................................................................................ 139 Civil penalties ............................................................................................................................................................ 139 Declaration of contravention ................................................................................................................................ 140 Statutory injunction .............................................................................................................................................. 141 Criminal penalties ..................................................................................................................................................... 141 Exoneration and relief for breach of duty ......................................................................................................... 141 Exoneration (1) .......................................................................................................................................................... 142 Exemption from liability ............................................................................................................................................ 142 Members’ remedies ......................................................................................................................................... 143 Personal rights Minority shareholders and corporate rights Possible remedies