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After going through the fact given in this assignment, in this question, the issue that needs to be decided is if Norah is allowed by the law to prevent Unique Victorian Arts and Crafts Ltd (UVAC) from acting on the shortlist that has been given to it by Seek-Easy Consultants. This issue arises due to the reason that Seek Easy Consultants have not approved by class A shareholders as by the company's constitution.
For deciding this issue, there is a need to consider if the remedy that has been mentioned in section 232 of the Corporation Act can be availed by Norah. In this regard, it needs to be mentioned that generally, a corporation is under the control of a particular shareholder or a group of shareholders. These are the shareholders that have the majority of shares. Therefore they are in a position of appointing the directors of their choice. At the same time, these majority shareholders also control the actions of the corporation. In such a situation, the minority shareholders are having very little or no control at all on the development and direction of the company.
Keeping in view the situation, the Parliament and the courts have recognized the gravity of this issue. Therefore, attempts were made to provide some protection to the shareholders having minority shares. This prediction was offered in the form of section 232. Therefore, it provides that the members can seek a number of remedies that are present in section 233. For dealing with the above-mentioned issue, these processes are to be examined and it has to be seen if the members were facing oppressive conduct and also the resources that have been provided to them in cases where oppressive conduct by the majority is established.
In this regard, section 234 contains the list of the persons who have been allowed by the law to apply for an order under section 232. These persons are as follows:
It also needs to be noted that the court has to consider certain requirements while making an order related with oppressive conduct. Therefore, a successful claim related with the oppression of the members requires the establishment of the facts that the activities of the company were directed in a way, that under the circumstances it can be described as oppressive, unfairly prejudicial or discriminatory for such member. However in this context it is necessary that there should be something more than simply a dissatisfied shareholder so that a claim can be made under section 232. In this regard, oppression is the lack of fair dealing. Therefore in such a case it is required that something wrongful, burdensome and harsh should have taken place. But it is not required that he should also be established under the claim that the conduct can be described as illegal.
It also requires that the conduct that is the subject matter of the complaint should be related with the affairs of the corporation.
In the present case, the Constitution of UVAC had clearly mentioned that a director can be appointed only after report and the process of shortlisting has been completed by an independent consultant. The Constitution of UVAC further mentions that consultant should have been appointed by the majority Class A shareholders. But in this case, the directors have failed to follow this procedure. Therefore, Georgiana and Yasmin appointed Seek-Easy Consultants without the approval of the Class A shareholders.
In view of the circumstances, it can be concluded that Norah is in a position to stop the company from taking action on the short list supplied by Seek-Easy Consultants.
The issue that arises this part deals with the required <the atop the company's constitution and also it needs to be seen if the amendment can be prevented by Norah, according to which the buyback of shares held by class A shareholders has been allowed.
Every corporation operating in Australia is administered by the rules that provide a method of managing the corporations. In case of a number of companies, these rules are present in their constitution. The issue may arise, what is going to happen in case there is a change in the Corporation or its people or the business undertaking out if there is a need for updating the constitution. At the same time, the requirements related with the amendment of the Constitution also need to be considered. The rules that are applicable concerning the management of the affairs of a company are present in the Corporations Act. These rules have been described as replaceable rules. At the same, the company's constitution or both of them may be used for this purpose. At the same that it also needs to be mentioned at all amendments are not permitted. Therefore, there are certain restrictions placed on the amendments that may affect the voting rights of certain shareholders or the amendments that may cause change in particular constitutional provisions.
In order to amend the company's constitution, the members have to allow for a special resolution that is going to be passed at the general meeting where these amendments need to be approved. The procedure related with the amendment of the constitution should follow certain steps so that the amended constitution is considered as valid under the law. These include the constitution's review, issuing a notice, holding a general meeting of the shareholders, proxy voting for members who are not in a position to attend this meeting.
Under the law, the company's constitution as irritated as a contract formed between the company and its members. Therefore, the members can start proceedings in the court for enforcing the provisions of the Constitution.
As a result of the legal rules that have been discussed above, it can be stated in this case that Norah is in a position to prevent the introduction of an amendment in the Constitution of UVAC, according to which the buyback of the shares held by class A shareholders is going to be permitted.
The issue here is if Lovely Teas Pty Ltd is liable for breach of section 181 and equivalent duties and what remedies or penalties may apply?
The common law provides for the duty of good faith. As a result of this duty, the directors have to act in good faith and keep in view the best interests of their company. The duty also imposes an obligation for acting in for a proper purpose. It is also a part of this duty that the director should avoid any conflicts of interest. There is also an obligation imposed on the directors according to which the directors should reveal and manage the presence of any conflicts of interest. The city can be described as a duty of loyalty and trust. Consequently, it can be described as a fiduciary duty. Apart from the common law, this duty has also been mentioned in s181, the Corporations Act
This duty is going to be applicable in case of the directors and officers of the corporations. It requires that the director should be honest in their transactions. There is an obligation present on part of the directors which requires them to consider the best interests of the corporation at all times. In this regard, the best interests of the company include the interests of:
The members: best interests are not always what is demanded by majority. The courts have held that there is an obligation on part of the directors to act in the interests of the company as a whole. Hence, there is our responsibility to present on part of the directors for maintaining a balance between the majority interests and the interests of the minority. It also needs to make knowledge that most of the times; the interests of the company are going to be intertwined with the interests of majority. The company is treated as a distinct entity that is separate from its members.
The creditors: In case the company becomes insolvent there is an expectation on part of the directors that there is also giving you the interests of their creditors. For instance, an obligation is present, according to which the directors and should make sure that the creditors of the company are being paid in accordance with any contractual agreement formed with the company. In this regard, the courts stated in Walker v Wimborne that the interests of creditor company are going to be considered by the director when their company becomes insolvent. The court stated in this case that the transaction concerning the property has been undertaken for placing the properties and assets of the company away from the creditors. Consequently, it was against the creditors’ interests even if the transaction at the approval of the company's shareholders. On the other hand in Spies v the Queen, it was mentioned by the court that there was no direct duty on part of the directors towards the creditors however they owe a duty towards the company as a whole.
In view of the facts given in the present case, it needs to be mentioned that the directors of Lovely Teas Pty Ltd can be held liable for the breach of their duties mentioned in s181 and the corresponding duties that have been mentioned under the general law. Consequently, in this case, a parody may be imposed on the directors of the company that are applicable for the violation of these duties. The remedy that has been provided to the creditors of the company is to force these directors personally responsible for the loss that has been caused to them.
The issue present in this case is if Terrific Teas and Coffees Pty Ltd can be held responsible for the debt that was due to the creditors of Lovely Teas.
For deciding this issue, it is required that the rules that provide for the lifting of corporate really need to be applied. Generally the law allows that a company can be established for carrying out the activities that allow the controllers of such company to escape their personal liability. But there are certain situations related with the misuse of corporate form in order to evade liability and in such cases there is a scope for lifting the corporate veil and to impose the company's liability on the controllers of the company. It is appropriate that the liabilities of a corporation are imposed on a shareholder, for instance, a parent company, if the parent company is controlling the subsidiary company and it derives the benefits from the activities of the subsidiary company, which resulted in such liability. In view of economic analysis, it is generally believed that limited liability related with involuntary creditors or torts is inefficient.
In this case also, the newly formed company, Terrific at for only for avoiding the liability imposed on Lovely Teas by Elizabeth. Therefore it can be stated that the formation of the new company has taken place only in order to evade its liability towards Elizabeth. As a result, in this case, the court can lift the veil and hold Terrific and its directors personally responsible for the amount that is owed to Elizabeth by Lovely Teas.
Fiona Buffini, 2005, ‘Calls to Protect Corporate Conscience’ Australian Financial Review (Sydney), 23 November, 4
Ian M Ramsay, 1999, ‘An Empirical Study of the Use of the Oppression Remedy’ 27 Australian Business Law Review23
Jason Harris, Anil Hargovan and Janet Austin, 2008, ‘Shareholder primacy revisited: Does the public interest have any role in statutory duties?’ 26 Companies &Securities Law Journal 355
Robert P Austinand Ian M Ramsay, 2013 Ford's Principles of Corporations Law (LexisNexisButterworths, 15th ed) 633
Case Law
Salomon v A Salomon & Co Ltd [1896] UKHL 1
Spies v The Queen [2000] HCA 43. 201
Walker v Wimborne (1976) 137 CLR 1
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