Question a)
The purpose of this assignment is to highlight the objectives of the directors of the company as well as their limitations and duties in relation to the issuing of the shares and dividends in relation to the shareholders. This paper also focuses on the consequences that what can happen when there is a second strike that takes place by the shareholders of the company when they are not satisfied by the remuneration reports. The legal issues as well as the their relation with the share of dividends has been highlighted in this assignment also the application that will be provided for the concerned issue and to sum this up law will be taken into account for the conclusion of this case study.
Do the authorities of Waldmart have the right to issue bonus shares and can the shareholders in the coming up annual general meeting oppose them not to issue the share?
In Australia the Corporations Act 2001 are adopted for its legislations from section 254T and 254A under these provisions issues have been related in respect to the shares and the debentures and the bonus of the shares by the directors. The Corporations Amendment Bill 2011 highlighted the consequence as well as the circumstances that caused the second strike in the company. it is the duty of the director to state that the company under the sections 180-182 of the Corporation Act. With respect to these sections, the directors in the company have to power to deal with the affairs of the company with care and reasoning. These sections also show the duties of the directors and their duties to maintain the decorum of the company in order to support the company in the case of conflict between the company and its members.
In section 254 A it can be said that in case of the first issue this can be applied as well as other laws that are connected to the bonus shares can also be applied. In section 254 A of the Corporations Act, the directors of the company do have certain rights and duties to issue the bonus shares according to their discretion. The main role of the directors is to be sure that at the time of making these discretions the director of the company should be sure that his decision should be in the favor of the company as well as the shareholders. These kinds of issues cannot be brought up if the company is regarded to be insolvent due to their issues. The ability as well as the capability of the company should be considered while making the payments in relation to the liability of the company once the shares have been issued. In the Waldmart’s case, it has issues bonus shares to attract the shareholders in order to get them to give their consent for the for the remuneration report to prevent the second strike in the company. The best interest of the company was not considered by the directors of the company causing breach of contract. Thus, the shareholders of the Waldmart Ltd have the right and the power to challenge the decisions of the director in their Annual General Meeting as well as in the court. This can be seen in the case of ASIC v Foretescue Metals Group Ltd.
Question b)
Do the shareholders have the right to stop the directors from increasing and paying the decided dividend?
Under the section 254 A of the corporation Act, the directors of the company are allowed to issue the bonus shares to its shareholders. When no remuneration is given in respect to the to the bonus shares in section 124 of the Corporations Act will be abided. The capital structure of the company shall face no changes since the issuing of the shares are for free. In case of any failure on the part of the director to oblige by their duty causing breach in their functioning of the company this can be noticed in the case of The Bell Group Ltd V Westpac Banking Corporation (No 9) [2008] WASC 239.
Only the directors in a company can allow the issuing of the bonus shares in case there is no disadvantage being caused to the company in giving back the pay to their shareholders and the creditors of the company. In section 254 T of the Corporations Act, the rules in relation to the issuing of the dividend in respect to the companies that are not limited by the guarantee are capable if issuing the dividends unless the liability of the company becomes lesser than the assets of the company in such situations the director of the company shall be allowed to issue the dividends. As per the sec 198A, give powers to the directors. They can issue shares, borrow money and issue debentures.
Waldmart Ltd has highlighted the issues that have been dealt with the dividends and are specified in the section 254 T of the Corporations Act, providing the principles and the other issues that have been related to dividend in Australia. The directors in the company can issue the dividends only if they are sure of the fact that once they issue the dividend there will be no financial loss caused to the company and this should be done in the best interest of the company. The Waldmart Ltd has the directors to be sure about the fact that the assets of the company are more in comparison to the liability of the company making it easy for the company to clear off all its debts.
As per the Sec 232 of the Corporation Act 2001 stated the powers of the court where they can give orders to the company for making the business resolution. The court also gives orders if there is any contrary arise to the interest of the member as a whole or they involved with unfair prejudicial or any discrimination against any member or members. Whereas as per the Sec 236 of this act give the powers for bringing or intervening in proceedings on behalf of the company. The person who holds the share of the company can register as a member of the company. Braga v Braga Consolidated Pty Ltd [2002] NSWSC 603 at [9] is a case where these statues are applied.
According the Corporation Act 2001, the directors of the com-any have such fiduciary duties towards their shareholders. They must provide the duties to the shareholders as per the best interest of the shares. The shareholders must have their proper dividend amount of share capital. They should take care about the duty of loyalty towards the shareholders and maintain such situation if no conflicts arises. They must not breach their duties. In one of the famous case Queensland Mines Ltd v Hudson [1978] 18 ALR 1 have applied this fiduciary duties of the directors.
Application
It becomes the directors’ duty to be fair and just to the shareholders before declaring its dividends. However, if the directors have attracted their shareholders only due to getting their consent in relation to the remuneration report in order to avoid strikes from taking place in the company. However, in this case the issue is being faced due to the directors making the decision that was not in the best interest of the company and its shareholders so that the company does not face any financial stability. The shareholder does have the right to oppose against the directors of the company having full knowledge about the decision being made as well as being aware of the fact that the decision that has been made by the will cause financial loss to the company and is not made in the best interest of the company and its shareholders.
Parker v National Roads & Motorists Association (1993) 11 ACSR 370 is another famous case where the shareholders had requested for a general meeting according their powers as per the Corporation Act. Shareholders who have at least 5 per cent of the votes as per the proxy votes that may applied for on the resolution, or at least those shareholders who can give votes at a general meeting, may give a company notice for the resolution reports that they giving a propose to at a general meeting under Sec 249N. The resolution is must be considered under Sec – 249O at the next general meeting of the company and will take action in between two months after the notice is given, and the company must give all shareholders notice of the resolution.
Hurley v BGH Nominees Pty Ltd (No 2) [1984] 37 SASR 499 is case where the directors have failed to maintain their fiduciary duties and breach the duties. Therefore, a conflict has arise between the shareholders and the company.
Thus, the shareholders decided to oppose the decisions of the shareholders can be done in the Annual General Meeting of the company, as the directors of the company did not make the decision in respect to the interest of the company and the shareholders. Breach was made in relation to the duties of the director of the company. In the case, QBE Insurance Group Ltd v AISC it has been stated that the directors of the company did not issue the dividends to determine the company.
If shareholders vote against the remuneration report and a second strike is achieved, what will be the consequence of Waldmart Ltd and its director?
Remuneration is the casual salary amount which employee gets for the employment in the company. The nominal or minimum wages that employee get at the time of his employment is the lowest remuneration. The shareholders of the company are also performing as indirect employee in the company. The shareholders who are the indirect employee of the company get their remuneration as per their investments in the shares.
The details of remuneration reports always included in the reports of the director where the director make it sure that there must be details of the remuneration amount, payment details, share policies and the interest of the shares. In the Annual General meeting, the shareholders give their votes for the remuneration reports. The directors are always make it sure that no conflicts will arise at the time of providing the votes.
The two-strike test defines the procedure of giving votes, which provide the rights to the shareholders to give votes against the remuneration reports. When nobody give the votes for the remuneration reports and the quantity of the votes must be 25% or more than it. In the vote, process if needed then the re-election must be happen in between 90 days. In the vote process, the directors of the company have no rights to vote for the re-election. The quantity of the vote if exceed more than 50% or the minimum 50% then the directors in between 90 days, should arrange for a spill meeting. The details of the spill meeting should include in the Annual General Meeting of second strike which must published by the directors. In the details, the directors must mention about the circumstances of the resolutions where shareholders use the proxy voting process.
The details of nomination of the voting candidates must mention in the spill meeting. When the Annual General Meeting will happen, the directors will vacate their positions for the next directors. When the voting process get over and the nominated candidate elects, the managers of the company cease the office. In between, if the directors of the company not satisfy as per the shareholders the directors will treat requirement and the vote process not process in between the 90 days then it as an offence. In the proxy voting process, if the proxy holders do not give their votes, then the amount automatically transfers to the chairperson. The chairperson must give their votes to all the proxy holders. The remuneration report must disclose by the company, where the company must consultant with the consultants.
The proxy voting process only allows the shareholders to give their votes where the voting process cast as per the directed proxy requirements. The proxy voting not process separately. As per the remuneration report, the voting process of the proxy holders continues as the present of the directors of the company.
As per the Sec – 198A defines the powers of directors where the directors have powers to manage the business of the company. In the famous case of Foss v Harbottle (1843) 67 ER 189 stated the rights of the minority shareholders. As per the Sec 260 of the Corporation Act defines the financial assistance of the company for acquiring the shares in the company or holding the company.
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd & Ors [2001] NSWCA 97 is another famous and recent case of the South Wales Court where the court intervene for assisting a minority shareholders where the Sec 260 of the Corporation Act 2001 applied. BL & GY International Co Ltd v Hypec Electronics Pty Ltd and Re Biposo Pty Ltd1 and SingTel Optus Pty Ltd v Weston another cases where the conflict of interest between the shareholders took place. Westgold Resources NL v Precious Metals Australia Ltd [2002] WASC 221 at [21] where the Supreme Court give orders for the inspection of register of shareholders.
In the Waldmart Ltd, the shareholders can give their votes against the remuneration reports. If such acts happen then the second strike took it place. It is the liability of the directors that they will arrange the spill meeting for proxy voting. In the spill meeting, the directors will mention about the proxy voting process of the remuneration report. They must arrange the meeting in between 90 days before the spill meeting happen.
Conclusion
As per the case study, it can conclude that the powers to issue the bonus shares are given to the directors. The directors have also right to apply their rights with duty of care. The duties always sever not only the company but also towards the shareholders and the employees. As per the sec 254A of the Corporation Act, the powers to issue bonus stated with the proper application of the acts. In the sec 180-183 of the Corporation Act, describe the powers of the issue bonus. The two-strike test defines the procedure of giving votes, which provide the rights to the shareholders to give votes against the remuneration reports. The directors of Waldmert can arrange the spill meeting for the shareholders if the two strikes take place. Hence, while considering the re-election the managing director of the company will not be involved in this process.
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