The_law_of_business_organizations__(澳大利亚纽卡斯尔大学;_Daniel_Matas).ppt

lobo week 11 the law of business organisations lobo week 12 law of business organizations ncourse coordinator 2.enter contracts; or 3.sue or be sued in its own name lobo week 124 incorporated associations ngeneral term is “corporation” includes: ncompany - corporations act nstatutory corporations (e.g. uni of newcastle) nstrata title corporations nincorporated clubs/bodies - associations incorporation act nfinance companies, co-operatives, building societies etc - separate acts lobo week 125 incorporated (non profit) associations nincorporation under the associations incorporation act (1984) nsw nlimited liability for members nact permits 5 or more persons to incorporate provided it is not carried on for for the object of trading or securing pecuniary gain for its members. nmust appoint a public officer who works with the dept fair trading nmust notify dept if rules or object change lobo week 126 incorporated (non profit) associations ngeneral meetings convened annually with income and expenditure for last financial year (business decisions) 2.capital decisions; appointment of auditors nsome significant or related party transactions nwinding up, residual powers lobo week 1122 introduction nexamine three issues of membership nmembers decision making nmembers meetings nrestriction on members decision making power lobo week 1123 member voting nright to make certain decisions about the company is reserved to the members in general meeting by the internal management rules or the corporations act noften, the internal management rules operate on a principle of majority rule - that is, members vote and the view of the majority prevails lobo week 1124 control and the exercise of voting rights nvoting rights are a means by which members control what happens to their company ncontrol depends not only on the presence of voting rights, but also the capacity and information to exercise them lobo week 1125 members specific powers nprecise scope depends on the internal management rules ndifferent for public and proprietary companies members of public cos generally have more voting rights nlisting rules confer additional powers on members lobo week 1126 changes to structure nmember approval is required to: nadopt, modify or repeal the constitution: s 136 nchange the companys name: s 157 nchange type (e.g. from proprietary to public): s 162 nspecial resolution is required in each case lobo week 1127 variation of class rights nsection 246b: variation or cancellation permitted only: nin accordance with the constitution, or nwhere the constitution is silent, by special resolution of the company and a separate special resolution of the class lobo week 1128 variation of class rights (cont) nvariation obviously includes the situation where the resolution is to remove voting rights of members belonging to a particular class. nbut what about the issue of additional voting shares? nwhat is a variation of class rights? see greenhalgh v arderne cinemas lobo week 1129 variation of class rights (cont) co issued 31,000 pref shares or 2. a decision is made to prosecute the companies controllers; or 3.members move to ratify directors breach of duty lobo week 1141 law of business organisations members meetings lobo week 1142 members meetings nmeetings ntypes of meetings nconvening meetings nconducting meetings nmember voting ndecision making without a meeting nfixing procedural irregularities lobo week 1143 types of meetings nall public companies must hold an annual general meeting: s 250n nother meetings are called “extraordinary general meetings” nrules governing meetings are set out in part 2g.2 of the corporations act and the internal management rules lobo week 1144 calling a meeting nusually, meetings are called by the board. n can also be called: nrr s 249c by single director nlisted company by single director: s 249ca ncourt, on application by a director or member if it is otherwise impracticable: s 249g lobo week 1145 calling a meeting (cont) nrequisition by 5%+ or 100+ members: s 249d ndirectors need not convene if the purpose is improper: nrma v parker ndirect convening by 5% + members: s 249f s:249 g court may convene meeting lobo week 1146 agenda nwho decides what the meeting can consider? nonly matters that have been included in the notice of meeting can be considered at the meeting - other than matters stated in s 250r in case of agms ns:250r these matters only able to be excluded from notice for agms not other meetings lobo week 1147 agenda (cont) nusually, where the directors are calling a meeting, they will determine the agenda nmembers can request the inclusion of resolutions for consideration by the meeting: s 249n lobo week 1148 notice of meeting ngeneral rule - 21 days. consent to short notice is possible: s 249h nlisted companies - 28 days: s 249ha nnotice must be given to members, directors and auditor ncontents of notice: s 249l incl. date, place, time, general nature of the business to be conducted, copies of any motions to be put requiring special resolution or nvaluable proprietary rights attached to their shares (e.g. voting or dividend rights) ncategory 2 amendments: other amendments involving a conflict of interest (not involving expropriation) lobo week 1174 category 1 amendments nare only valid if: nproper purpose, and nno oppression of minority shareholders nproper purpose test is very restrictive lobo week 1175 category 1 (cont) nthe only proper purpose recognised by the court is to prevent harm being done to company, e.g.: nminority s/h is competing with company nremoval of member is necessary to allow company to continue in present business lobo week 1176 category 1 (cont) nalso must show that there was no oppression. this requires: nprocedural fairness full disclosure and justification for rejection of alternative options nsubstantive fairness company must demonstrate the price being offered for the shares is fair (may not always be market value) lobo week 1177 category 2 amendments nare only valid if : ndone for a company purpose, and nno oppression of minority shareholders nmore purposes are valid here compared with category 1 category 2 amendments can be undertaken for much broader purposes than the category 1 requirement that require there be the need to prevent significant determent to the co lobo week 1178 gambotto (cont) ngambotto has no application where expropriation is conducted in accordance with the corporations act (eg, selective capital reductions) npolicy aspects nis it appropriate to disregard commercial advantages to the company ? nshould price be the only concern ? ndoes gambotto facilitate greenmail ? lobo week 1179 other protections for the minority nmust comply with procedural requirements (e.g., requirements for holding meetings proper notice, quorum, conduct at meetings) nvoting restrictions on interested shareholder (eg, provisions of corporations act or asx listing rules for members of listed companies that restrict interested members voting on share buy backs and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. lobo week 1212 what is the standard of care? noriginally, under the common law, the courts used a largely subjective test : ntook into account the background, skills and experience of the director concerned na director with little knowledge of his/her companys business, and little skill, was judged against the standard of someone with the same (poor) knowledge and skill lobo week 1213 modern standard of care ndaniels v awa ltd (1995) - general law nnote the wording of s 180(1) nthere is no “uniform” standard for all directors nbut it is no longer a largely subjective test nthe standard of care required of director x is the care that a reasonable person doing xs job in xs company would exercise (a largely “objective” test) lobo week 1214 minimum requirements under the modern standard nsee daniels v awa ltd nevery director must : 1.obtain a basic understanding of their companys business and 2.after making an independent assessment of the information or advice having regard to the directors knowledge of the company and the complexity of the structure 3.at the time the debt was incurred, there were reasonable grounds for suspecting the company was insolvent or would become insolvent. lobo week 1230 incur a debt nfor certain actions, see the operative table in s 588g(1a) nfor other debts case law is not always consistent but some principles are that the debt: nmust be for a specific amount ncan be contingent nmust be incurred voluntarily by company lobo week 1231 what is insolvency? nsection 95a : insolvency worked out using cash flow test (not just balance sheet test) nquestion is: is company able to pay all its debts, as and when they become due and payable? nso: what cash does company have? what access to finance does company have? lobo week 1232 insolvency ntwo presumptions of insolvency: ns 588e(3) - if company insolvent at any time during 12 months before winding up, then company presumed insolvent for whole 12 months ns 588e(4) - failure to keep financial records in accordance with s:286 leads to presumption of insolvency lobo week 1233 grounds for suspecting insolvency nsection only applies if, at the time the debt is incurred, there are reasonable grounds for suspecting insolvency nobjective test : judged according to director of ordinary competence lobo week 1234 step 2 contravention of s 588g(2) 4. director failed to prevent company incurring the debt where: (i) the director was aware that there were reasonable grounds for suspecting insolvency (subjective test), or (ii) a reasonable person doing that directors job in that company would have been aware that there were reasonable grounds for suspecting insolvency (objective test) lobo week 1235 step 3 defences 1.director had reasonable grounds to expect, and did expect, that company was solvent and would remain solvent.(s:588h(2) nharder to “expect” than to “suspect” - metropolitan fire systems v miller nto expect something implies a measure of confidence. to suspect something requires a much lower threshold of awareness. nignorance of companys finances no excuse lobo week 1236 defences (cont) 2.delegation and reliance on competent and reliable person nhad reasonable grounds to to believe and did believe: (a) competent and (b) person was fulfilling that duty; and (c) company was solvent. (s:588h(3) lobo week 1237 defences (cont) nremember, no requirement to demonstrate delegate was actually competent walker nnote this is not a duty to creditors it is a duty to the company ne.g. no removing assets kinsela v russell pty ltd (in liq) (1986) lobo week 1249 corporate groups ndo directors have to consider the interests of each subsidiary separately, or can they do what is best for the group overall? nfor some wholly-owned subsidiaries, directors allowed to act in interests of holding company if the requirements of s 187 are met lobo week 1250 effect of s 187 ndirectors are taken to meet the requirements if: nconstitution expressly authorises that the director may act in interests of parent company; nthe directors act in good faith in best interests of holding company; and nthe subsidiary is and remains solvent at the time of the directors act. lobo week 1251 other group companies nwhere s 187 does not apply, each companys separate interests prevail ntest: whether a person in the position of the director could have reasonably believed the decision would benefit the company: charterbridge nequiticorp: can be an indirect benefit lobo week 1252 interests of other stakeholders ncan directors take into account the interests of employees, customers, suppliers and the community? ncannot consider interests of employees over interests of company: parke v daily news naustralian metropolitan life insurance co ltd v ure (refusal to register a transfer of shares) nre smith v fawcett ltd lobo week 1253 duty to act for a proper purpose nsection 181 - also a general law duty neven if directors actions are in companys best interests, may still be a breach of duty if a power is not exercised for a proper purpose lobo week 1254 two step test nsee howard smith case: nquestion of law for what purpose was the power conferred? nquestion of fact for what purpose was the power exercised? lobo week 1255 mixed purposes ndecision to issue shares can be for both a proper and improper purpose. nin these circumstances,to be found in breach, it must be shown that the substantial purpose was improper (b)the company benefited; or (c)the director did not actually (personally) receive a benefit lobo week 1265 transactions with the company nvery common situation triggering the general law conflict rule ndirectors interest in the transaction may be: ndirect nindirect, e.g. through another company or a partnership (aberdeen railway) lobo week 1266 aberdeen railway co v blaikie bros nheld: a fiduciary cannot enter into an engagement in which he or she has (or could have) personal interests conflicting with their duty as the director of a company. nimmaterial the company may have benefited nimmaterial no alternative method to acquire goods. nfull disclosure is the only way to prevent breach lobo week 1267 transactions with the company (cont) ntransvaal lands ncase where director disclosed but not to the full extent. n director held shares in another company as a trustee nalso offered directorship or 2. divulge to, or use for the benefit of, the rival company, confidential information. lobo week 1279 nominee directors ndefinition : person appointed to represent the interests of a particular group (usually) within the company (ie employees, particular group of shareholders etc) nnominee directors: duty to the company prevails over duty to nominator bennetts v board of fire commissioners of nsw lobo week 1280 but will not be a contravention if ncompany consents: nfull disclosure made to members in general meeting and members ratify by passing an ordinary resolution approving, or nconstitution permits it with full disclosure to board, and full disclosure is made (e.g. rr s 194) or nthe constitution modifies the duty lobo week 1281 effect of the constitution nconstitution may include provisions allowing conflict with full disclosure to, and consent of, the board nfor proprietary companies, see rr s 194; public companies must expressly include nmodification of nominee directors duty eg levin v clark lobo week 1282 statutory regulation (four parts) ndisclosure of interests by directors nrestrictions on voting by directors of public companies nprohibition on improper use of position or information nfinancial benefits given by public companies to related parties, including directors nnote: statutory provisions add to general law in 2 ways: 1.can apply to different people (eg employees) 2.content provides additional rules (ch 2e) lobo week 1283 disclosure of interest nsee s 191-194 ndirector must disclose material personal interest to the board, unless exempt na material interest is one which relates to the affairs of the company (broad interpretation), and is one that would influence the vote of a director upon the decision to be made. nthe potential for conflict must be real and substantial ndoes not apply to single director proprietary company lobo week 1284 voting restrictions public company directors nsection 195: director with a material personal interest in a matter being considered by the board must not: 1.be present; or 2.vote at the meeting unless the other directors (or asic in limited circumstances) allows it nremember, other directors decision to allow must be in best interests of company lobo week 1285 improper use of position or information (ss:182 or 2.cause detriment to company. conduct in breach of the duty to act for a proper purpose and in the interests of the company (s:181) may also constitute a breach of s:182. lobo week 1286 related party transactions nremember that chapter 2e restricts ability of public company, or entity controlled by public company, to confer a financial benefit upon (among others) the public companys directors, their family or entities controlled by them nunless exempt or approved by ordinary resolution of general meeting lobo week 1287 consequences of breach ngeneral law duty company may have civil remedy e.g. compensation, account of profits, void contracts (chapter 14) nstatutory provisions: ns 191: fine $1,100 and/or 3 months prison, ns 195: fine $550 ns 182 2.information is confidential 2.section 182; or 3.section 183 if the person is found to have acted recklessly or intentionally dishonest in committing the breach. ns:184 basically says any breach of 181,182 or 183 with recklessness or dishonesty present will attract criminal sanctions na reckless or intentionally dishonest breach of s: 180 will not sound in criminal penalties ndishonest insolvent trading is also an offence s 588g(3) ncriminal burden and rules - 2,000 penalty units or 5 years jail, or both company remedies breach of general law duties ninjunction (e.g. to restrain proposed improper issue of shares)(or prevent director from directing business opportunities to his/her newly created company) ncompensation or damages naccount of profits (e.g. regal (hastings)(take opportunity belonging to co) nrescission of contract (where co k with dir) nconstructive trust (where co k with dir) company remedies breach of statutory duties ncompany can also seek compensation for breach of statutory duty nstatutory duties are the civil penalty provisions nif an officer contravenes a civil penalty provision, company can apply to court for a compensation order nasic can bring legal proceedings on companys behalf, seeking civil remedies ngenerally occurs where company is near insolvent because of directors breach and 5.w/i 14 days of application being made, the applicant