Case 1: Setting up a new company and amending its constitution
Section 136 of the Corporation Act (Amendment of constitution)
Rules in relation to the process in that the company’s constitution can be changed are given by the Corporation Act 2001 (Cth). Under the CA the constitution has been said to be the key document that sets the relation of the owners with third party, organization and among the members. A particular process is there that is required to be complied with to change the constitution and these changes has been set out in the section 136 of CA.
Section 136 of the Corporation Act (Process for alteration)
The section 136(2) of CA had stated that the company’s constitution might be modified through a special resolution. The section 136(3) of the Corporation Act has further stated that it might be given by the constitution that no effect will be there of the special resolution until the requirement that was mentioned in constitution has been complied with regards to its repealing or modification. It has been additionally clarified that until the constitution gives denial, the company will modify and repeal the requirement that has been mentioned under the section 136(3) in case that need is satisfied it.
The Gambotto v WCP Limited Case
The rights of the majority owners have been limited by the court in the case of Gambotto v WCP Limited, to change the constitution with regards to the share expropriation. The judges in the given case had stated that the constitution’s alteration to expropriate the minority’s shares will only be legal if it has been done for an appropriate reason and it will not be unfair to the minority owners. The court had further clarified in this given case that the share expropriation has been permitted in situation where the minority members act in such a manner that is unfavourable for the organisation or they have been competing with company. The change in the constitution will not be approved if the company’s directors are getting into this for their commercial advantage.
Whether the amendment of the company Oh My Private Limited is valid?
The initial requirement is the special resolution to change the constitution under the section 136 of the Corporation Act. The meaning of the special resolution is voting done by the 75% of the company’s owners. In the given case, Huw and Sammy have 90% company’s shares and therefore they hold the right to pass the special resolution for changing the constitution via the section 136 of the Corporation Act. Furthermore, no requirement has been provided by the facts that can prevent the changes of the constitution under the section 136 of the Act. However, the implementation of the given case Gambotto v WCP Limited is also necessary to evaluate the legality of the amendment that has been done by Huw and Sammy. It is given by the facts that the changes is being held with regards to the shares expropriation of those people who hold lower than 11% shares and in the given case it’s Amaya.
Case 2: Transfer of profitable business and potential breaches of duties
In the given case, the court had stated that the expropriation will only be legal of it has been done for the proper reason and it will not be unfair to the minority owners. In the given case it may be said that expropriation has been unfair to Amaya as she is the minority shareholder. The court had further clarified in this given case that the share expropriation has been permitted when the members in minority act in such a manner that is unfavourable for the organisation or they have been competing with company Amaya is acting as an accountant for the company’s competitors. Amaya is trying to contact Gracey so that she can take podcasts to some other organizations. Therefore, it is obvious that Amaya having competition with the organisation and the constitution’s alteration will be therefore legal.
Pre-registration Contracts
The rules that are in relation to the pre-registration contract have been given under the provisions of the section 131 of the CA 2001. The section 131(1) of this Act states that if an individual has or wants to form a legal agreement on behalf of the organisation or for its benefit before the registration, then the organisation has to abide by the contractual terms and is permitted to gain the benefits of the organisation or an organisation that is reasonably identifiable with it that helps the contract to ratify. Within a specific period of time, the ratification must be done to that the parties in relation with the legal agreement have approved or a prudent time if no agreement is there.
In addition, it is clarified under the section 131(2) of the Corporation Act 2001 that an individual is responsible for the compensation that he needs to provide to that party who has been registered before contract of the organisation do not ratify the legal agreement within the given time or if it is not incorporated. The amount of the compensation will be that amount which the organisation would have paid if the legal agreement was ratified by the organisation and was breached.
In case, the proceeding is there that is brought with regards to the section 131(2) of the Corporation Act 2001, the courts holds the power if it gets recognised even though the organisation is registered, the contract is not being ratified or has gone to a replacement of it, to do such things that is considered to be appropriate in the circumstance under the section 131(3) of the Act. This might include paying the part of the damages or all of it that an individual is legally responsible to pay, return the received property under the legal agreement and pay the compensation to another party of the contract.
Conclusion
Furthermore, under the rules that has been provided under the section 131(4), if a registered before contract has been ratified by the company and it cannot perform it in part or altogether then the court can order the individual to pay for those damages that the organisation needs to pay.
Legal agreement with Gracey
The information that has been stated in this case specifies that a contact was formed between Huw and Gracey in which it has been mentioned that Gracey is supposed to be paid with the amount of $4000 every month for a month period with regards to the rules of the weekly podcasts. This is done on the date 20th of April 2018 and was done on behalf of Gosh. The disadvantage was that this name Gosh did not exist and the registration of the organisation had been done in the name of Oh My Private Limited. This states that the company Oh My Private Limited is that organisation that is prudently noticeable with the name Gosh. The legal agreement was formed before the company’s registration and therefore under the section 131 of the Corporation Act 2001 it is said to be the pre-registration contract. If an individual has or wants to form a legal agreement on behalf of the organisation or for its benefit before the registration, then the organisation has to abide by the contractual terms and is permitted to gain the benefits of the organisation or an organisation that is reasonably identifiable with it that helps the contract to ratify. However, the contract was not ratified by the company Oh My Private Limited.
The above statement means that under the rules of the section 131(2), Huw has to pay compensation to Gracey because no ratification was done on this circumstance and Gracey had decided to claim. In addition, the implementation of the section 131(3) signifies that if a claim is made by Gracey then the court might ask the organisation to pay a part or all the damages that Huw is legally responsible to pay Gracey and return the received property under the legal agreement and pay the compensation to another party of the contract. Furthermore, in the section 131(4), the court can ask Huw to give compensation to Gracey if it is seen that the company Oh My Private Limited has ratified the legal agreement with Gracey and he has violated the legal agreement.
Duties of the Directors
Several duties are there that have been enforced on the directors through the action of the Corporation Act 2001 and common law. There are two types of duties that have divided into general duties and statutory duties. There is a duty under the common law in which the directors must act bonafide and for a reasonable purpose and assure the company’s best interest. These duties are mentioned in the Corporation Act 2001 by the provisions of the section 181.
Section 181 of the Corporation Act
The duty is with regards to director’s good faith and the other officers. In the section 181(1) of the Act it has been stated that an officer or the director of an organisation must exercise their powers and release their duties for a reasonable purpose and act bona fide towards the best interest of the company. In case this section is breached then it will results in the provisions of the civil penalty that has been given in the section 1317E of the Corporation Act.
In the case named Kinsela v Russell Kinsela Pty Limited the rules of the breach of this section have been discussed. In the given case, it has been stated by the court that company’s best interest do not include the owner’s interest. However, the creditor’s interest must be considered when the organisation is about to get bankrupt or is insolvent. Furthermore, in the case of Whitehouse v Carlton Hotel Pty Ltd, it has been stated that the powers that the directors use must be only for a planned purpose. In situation where the act has not been considered of a reasonable purpose by an prudent individual then the court has the right to recognize the violation of the above-mentioned section as mentioned in the given case Bell Group Ltd (in liq) v Westpac Banking Corp (No 9).
Breach through the directors of the company Drink It Up Pty Ltd
In this situation, it has been given that the directors of the company named Drink It Up Pty ltd have taken a decision to make a new organisation because they have been facing loss in their business of fruit juice and they have been making profit in their business of spring water. Every asset has been passed with respect to spring water to their new company and it has been named as H2O Pty Ltd. This new company was formed to prevent the financial difficulty that the Drink Company was subjected to with respect to pay the creditors in the business of fruit. In the section 181 of the Corporation Act it has been stated that the directors must act bonafide and for an appropriate reason for the best interest of the company. In the present circumstances, an appropriate reason can be seen by the court independently according to the case of Re S & D International Pty Ltd (No4). Any prudent person will not understand that this action is for a planned reason was given by the case of Australian Securities & Investments Commission v Adler An attempt was taken by the directors to deceive the creditors. This act was not at all considered to be in the company’s best interest as given in the rules of the case Hodgson v Amcor Ltd. The company named Drinks have subsequently been injured and it may be mentioned that the act that entered by their directors was not for a good purpose to divide the organisation and was not bona fide for Drinks’ best interest. Therefore, the directors of this organisation have breached the section 181 of the Corporation Act 2001. They need to pay fine amounting to $200000 under the section 1317E of the Act or it can be forbidden to manage the organisation under the section 206C of the Act.
The Duties of the Directors to Individual Owners
The court had stated in the case named Percival v Wright that the company’s directors have only been imposed with general duties with respect to the organisation altogether and not to the individual owners. In the given case, the shares have been bought by the company’s directors from the owners who intend to trade the shares at a low cost prior selling the organisation that will help in raising the shares’ price. It was held by the court that no breach of duty was there by the directors become they do not oblige with the duties to the individual owners.
However, the court did not follow the above mentioned decision on the case named Coleman v Myers. The court stated in this case that the directors have fiduciary duty towards the owners in which they have to reveal all the materialistic facts with respect to the offer that might change the mindset of an individual to get in the transaction. In the case named Peskin v Anderson, this situation was discussed. In the given case the court had stated that an exception is there to the general rule as given in this case. This will happen when the circumstance is like that a big duty has been owed through the directors to an individual shareholder where it is seen that the owner is depending on the directors for such assistance or when the owner is a helpless individual.
In addition, it has been given in the section 588G of the Act that the directors must not get involve in trading after knowing that the organisation is bankrupt. In case the directors have involved themselves in such conduct that can be taken as insolvent trading, the directors might be personally responsible for the loss that was sustained by the investors.
Breach of the duties of the directors through Kristofer
Whether Kristofer has violated the duties of the directors or not, will depend on whether he had owed any kind of duty to Dhruv individually. In the situation, the implementation of the case named Percival v Wright will clear the information that the company’s directors have the general duties enforced on then with respect to the organisation altogether and not to the individual owners. Here, the case facts are same as the information in hand. In the given case, the shares have been bought by the company’s directors from the owners who intend to trade the shares at a low cost prior selling the organisation that will help in raising shares’ price. In this given situation, no duty was seen. Therefore, in the case of Kristofer and Dhruv, the court held that no owner is there of the individual duty. However, there are no conflicting rules that were made in the case named Peskin v Anderson and Coleman v Myers by giving an exception to the common provision. An exception is there when it can be seen that the owner is depending on the directors for such help or when the owner is a helpless individual. However, the information that has been given by this case does not portray any dependence that was put on to Kristofer by Dhruv. This signifies that the exception given in that case Peskin v Anderson and Coleman v Myers cannot get applied in this circumstance. Thus, the insolvency of the company was not supposed to be disclosed in front of Dhruv by Kristofer.
Therefore, evidently it can be said that no such duty was owed individually by Kristofer to Dhruv and there was not breach of duty.
Australian Securities & Investments Commission v Adler (2002) 168 FLR 253
Coleman v Myers [1977] 2 NZLR 225
Corporation Act 2001 (Cth)
Gambotto v WCP Limited [1995] HCA 12
Hodgson v Amcor Ltd [2012] VSC 94) at [1339].
Percival v Wright [1902] 2 Ch 401
Peskin v Anderson [2001] BCLC 372
Re S & D International Pty Ltd (No4) [2010] VSC 388
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
