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Ch 6: Internal Governance (Constitution is enforceable between the company…
Ch 6: Internal Governance
Prior to July 1998 companies had to have: :fountain_pen:
Articles of association
Internal governance and management
Shareholder rights
Appointment of directors
Regulation of meetings
Memorandum of association
External matters
Operation of the company
Name of the company
Limit of liability for members
The memorandum and articles were replaced after July 1998
Due to confusion
Company Law Review Act 1998 (Cth)
A company can choose to:
Not have its own constitution and reply on the replaceable rules
Mixture of the constitution and replaceable rules
Ultra vires doctrine
Exceeding the power of the entity
Contract: Any activity outside company's activities in memo were void
Ashbury Railway Carriage & Iron Co v Riche
Restricted companies from taking new ventures
Hurt innocent third parties
Now: companies have the full capacity of an individual
(s 124)
Can still restrict its activities via object clause
(s125)
but contract still valid
Replaceable rules :pen:
Corporations Act
s 135
provides the basic standards if no constitution
s 141
has a table of replaceable rules which are found throughout the Act
s 134
provides that a company must comply with:
the replaceable rules
favoured by pty companies
s 249X
member's right to appoint a proxy is mandatory for public companies
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the corporate constitution
favoured by public companies
s 136
can be modified by passing special resolution
s 9
- special resolution is passed by 75% of votes by members
Lion Nathan Australia Pty Ltd v Coopers Brewery
- commerical document that must be read as a whole and objectively
or a combination of both
Benefits of adopting
Automatically reflect statutory changes
Parts of the Act contain the rules in them
Protection of shareholder rights :silhouettes:
Statutory protection
s 232-234
remedies for minority shareholders against:
oppressive, unfairly prejudicial or unfairly discriminatory conduct
majority acts outside of company interest
s 140
no further liability on members unless agreed in writing
Ding v Sylvania Waterways
- extra annual levy overturned despite special resolution
Common law
Peters' American Delicacy Co v Health
- changing constitution 'should be bona fide for company as a whole'
Revised in
Gambotto v WCP Ltd
compulsory expropriation which benefited the company
High Court held alteration for expropriation of minority shareholders only valid if:
'Gambotto test'
For proper purpose
To protect the company from significant detriment or harm
Sidebottom v Kershaw
minority shareholder competing with co
expropriation is necessary (e.g. 52 shareholders)
Not proper purposes: corporate restructure, commercial advantage
Fair in all circumstances
Process should be fair - full disclosure
Price paid should be fair
Constitution is enforceable between the company and: :lock:
its members
in its capacity as a member
Benefits
can take action if non-compliant
Hickman v Kent or Sheep Breeder's Association
court allowed company to rely on constitution to solve dispute
directors and company secretaries
note constitution can be altered without them
member and member