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Company in Context There are four principle forms of business organisation o Sole traders o Partnerships (general/limited via

Limited Partnerships Act 2008) o Companies o Trading trusts Sole traders and partnerships – economic owners can be sued directly and may also be vicariously liable for torts committed by their manager. Technically possible for sole traders to limit their liability – non recourse credit – “i will only pay for the goods if I make a profit”. If creditors agree to take the risk, cannot ask for more beyond that. Issue Formality Sole Trader None Partnership No writing; No registration except for limited liability partnership Personal + Unlimited unless Limited Liab partnership. Every limited partnership requires at least 1 general partner who is liable as 1 partner under ordinary partnership. Then the limited partners are not liable – but, their identity remains secret. IF they involve themselves in management and they become visible, then they lose immunity (because if you associate yourself with the company, you should be liable). Variable & subject to contract No, subject to contract (there is a Ltd Partnership Presumption). Partners cannot sell the interest in the business; you need agreement with other partners (because you work closely together so cannot sell to someone random) – but it is not the same for limited partners who can sell because they don’t interact with the other partners) Yes: on notice; death; bankruptcy. Prima facie, the partner can terminate, but that forces the other partners to buy them out. If they don’t have the $ to do Company Written subscription; Registration Trust Nothing written required (except if land in trust prop); No registration

Risk of Loss

Personal + Unlimited

No direct or indirect liability if ltd liab is adopted

Direct liability for trustee but not beneficiary; may contract out of indirect.

Control

N/A

Variable & subject to contract

Unanimity subject to contract. Beneficiaries cannot act even by majority unless the deed allows majority.

Assignability/ transferability

Yes

Yes, subject to contract

Yes subject to trust deed

Termination

Free

No, unless 75% agree. Cannot force SH to buy you out but it is the converse of

No: Bs cannot terminate arrangement unless there is unanimity, or the trust deed permits (this is the starting point)

this, they are forced to accept someone new. If there is termination with one partner, technically, they form a new partnership.

partnership, where your investment is stuck if you cannot find a buyer.

Listed and Unlisted companies, and Public Issuers (on the Stock Exchange) – legally significant difference.  Listed companies raise $ from the public, so they are subject to the rules of the stock exchange which can be onerous (see Companies Act & Securities Act). There is no legally significant difference between public and private companies now, or those that are closely and widely held. Sources of Company Law English Roots The NZ Companies Acts of 1908, 1933 and 1955 largely mirrored the English Acts of 1908, 1929 and 1948. UK cases very persuasive, Aus persuasive because adopted English model too. The 1993 Company Law Package In 1993 the following were enacted: the Companies Act 1993 (“CA93”), the Financial Reporting Act 1993, the Receiverships Act 1993, and the Takeovers Act 1993. CA93 was the result of two reports by the Law Commission: Report No 9 — Company Law Reform and Restatement (1989) and Report No 16 — Company Law Reform: Transition and Revision (1990). Both reports provide a thorough background to the reforms. The CA came into force on 1 July 1994. Old Companies Act 1955 applied until end of transitional period 1 July 1997. During transitional period, amended to align with CA93. The North American Influence The 1993 reforms marked a significant departure for NZ company law in that, in several areas, the Companies legislation no longer follows an English model. The major reforms were influenced by Canadian and US legislation, increasing relevance in NZ interpretation. However, in 2006 the UK enacted the Companies Act 2006, which itself has North American influences, including a statement of directors’ duties somewhat similar to New Zealand’s. NZX Listing Rules Each company listed on the New Zealand Stock Market is party to a contract with the market operator, New Zealand Exchange Ltd (“NZX”). That contract is known as the Listing Rules – additional source of private law governing listed companies. Rule 2.1.1 - Listing Rules are enforceable against each listed company for the benefit of the shareholders of that company, and that the Contracts (Privity) Act 1982 shall apply. This means that the shareholders can enforce the agreement directly against the company.

Nature of Company Law Corporate personality – common law Salomon v Salomon & Co Ltd [1897] AC 22 (HL) a. Company is not the agent of SH (ordinarily) b. SH can lend to the Co just like anybody else can

Unanimous acts of shareholders = act of company.the senior manager knew and was closely involved. Andar Transport Ltd v Brambles Ltd (UK 2004): His company = his employer therefore also partially owed duty of care for his injury. Value of forests which FF wanted to sell was > 50% of assets = major transaction. Courts are not going to be paternalistic to creditors: if they were not told that it was a company they were contracting with. Three tiers of attribution – 1. d. The sale was major transaction for FF and not FH so only approval needed was from directors of FH and not from shareholders of FH. S128(1) – subject to modification in company’s constitution. Q – how can guilty mind or state of knowledge of a company agent be attributed to the company? Organic Theory/Doctrine of identification (pre-Meridian) Directing mind and will attributable of persons in control attributable to company Lennard’s Carrying Co v Asiatic Petroleum Co [1915]: CM 25 Includes people who were controlling a particular function of the company . PC used rule of agency – the manager was delegated the authority to undertake the transactions and under agency law the knowledge of the agent acquired during the transaction is attributed to the principal. Re Fletcher Challenge Forests Ltd (2004) 9 NZCLC 263. But here. vicarious liability. apparent authority. Therefore. then the company may not protect the SH. Corporate personality – statute Companies Act 1993.c. that is the company. S129 – if a company wants to enter a major transaction. Primary rules – found in company constitution and Companies Act 1993. Lee v Lee’s Air Farming Ltd [1961] AC 12 (PC) Can owner/director also be employee? PC said yes – company was a separate person and so capable of contracting with sole director as employee even though same person. Three tiers of attribution Primary. .447 Fletcher Holdings = sole shareholder of Fletcher Forests. they knew. collective acts by directors/shareholders to bind company at a valid meeting = act of company. business and affairs of company must be managed by direction of the BoD. s15 – company is separate legal entity and exists until removed from register S16 – company has full capacity to undertake any business activity and full rights/powers/privileges subject to other legislation and general law S16(2) – company constitution can restrict the capacity or powers of the company Attribution A company is subject to the same legal rules as a natural person but it is an abstract legal entity with no physical existence. estoppel. BoD needs SH approval. Someone should have spoken on behalf of the co – the co did have this obligation. General rules – principles of agency. so the company was held to have known and privity was satisfied so there was no limitation of liability. 2. General. Banks have secured debts so they get everything first. Special Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 (PC) Question as to meaning of words in the Securities Act – was a company liable for breaching this Act because they did not announce they had bought shares of another company? HELD: Yes.

Others are disadvantages:  Increased costs associated with complying with various statutory and regulatory requirements. Consequences of incorporation There are several consequences of incorporation under the CA93. Americano’s Ltd v State Insurance Ltd (1999): Contract of fire insurance. D would not be liable. restaurant was deliberately burned down. His wife also owned 25% and was de facto manager. P had given this lease without a guarantee (normal arrangement) – so if the Co didn’t pay. Chen v Butterfield (1996) Defendant was SH in a Co which had taken a lease from plaintiff. A shareholder has no liability to the company’s creditors for the company’s obligations.  Publicity. Defence would have been available if senior management (directing mind and will) had taken reasonable precautions.  Perpetual succession. so could not ask D to pay. and so the company is the most popular form of business organisation. The company is the one that is insured but the company did not have will. small Tesco and manager was negligent. HL said M did not own the land so no insurance. shareholder is not liable for company obligations by virtue of being a shareholder (might be if they were also an agent). Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Supermarket left “Special Price” sign on although goods were at normal price. S97(1) – unless in the company constitution. Here. nobody can benefit from their own wrongdoing. Insurance contract was owned by the company but the arsonist beneficially owned 25% of the shares. Some are advantages:  Limited liability of shareholders  Shareholders do not have any legal or beneficial interest in the company’s property: creditors have priority claim over assets  Individual shareholders cannot liquidate company. Special rules – situations where neither primary or general rules apply. The company was unable to pay. P was clearly dealing with the Co and not D.3.  Holding property. For most business organisations the advantages outweigh the disadvantages. Limited liability Limited liability depends on a combination of two distinct rules: 1. Macaura v Northern Assurance [1925] – Mr M owned some land which had timber. show that the arsonist had some economic interest. He formed a company later and transferred the land but did not tell the insurance company.  Being subject to various mandatory rules in the Companies Act 1993. He took out fire insurance. . Trades Description Act – business owners could be liable unless offence was due to act/omission of another person and due diligence was taken. Here. Policy stated an exclusion for “wilful act or with connivance of insured”. When there was a fire the insurance co said that he was insured in relation to assets he owned. Case by case basis. The general scheme of the companies legislation is to minimise such compliance costs in the case of companies with a small number of private shareholders (closely-held companies).  Transferable shares. Fact specific decision – underlying rationale. and the land was not owned by him.

secured creditors will seek guarantees from the shareholders which diminishes their protection. This is said to reduce transaction costs and add to efficiency. ie. Cos have a separate legal personality: Salomon v Salomon.  It is a well-known model internationally.  Limited liability reduces the need for shareholders to monitor the behaviour of the directors. they are all jointly and severally liable for it. There is a relationship b/w Co & SH but SH have no legal relationship with the company’s assets. › Problems: Jurisdictional issues. Safe Harbour: Vetoing/approving investment under Act is not being involved in management. › The Special Partners have limited liability valued up to their contribution. The Partnerships Act – allows for General Partnerships. but no management of partnership. but the losses do flow through to them. › If a Special Partner would get involved in the management of the business. But shareholders remain protected from trade creditors and unsecured. Special and Limited Partnerships If there is a partnership with a certain number of partners. Here. insolvency. These are specific things LPs can do without losing their limited liability.  Protection for Limited Partners: o No agency o No fiduciary duty o Derivative action [where an SH can take action on behalf of a Co – they have this right from the Companies Act. they must then be liable as a General Partner and incur liability as such.2. › General Partner is responsible for the management of partnership and is liable.” Note – many times. Limited Partnerships Act 2008  You have General and Limited Partners. You may be director either explicitly through agreement or deemed because you act as director would) : (d) Any liability to repay a distribution received by the shareholder to the extent that the distribution is recoverable under section 56 of this Act: (e) Any liability under section 100 of this Act.): “Except where the constitution of the company provides that the liability of the shareholders of the company is unlimited.  It has a separate legal personality (Ltd Liab P’ship = LLP). The point being that in a situation of unlimited risk or liability shareholders incur greater costs of monitoring for the depletion of the company's assets. the liability of a shareholder to the company is limited to— (a) Any amount unpaid on a share held by the shareholder (b) Any liability expressly provided for in the constitution of the company: (c) Any liability under sections 131 to 137 of this Act that arises by reason of section 126(2) of this Act (if SH is also director you have obligations as director. a Ltd Partner can take action against the Gen Partner if the GP does a wrong against the Partnership]. S97(2) . Justifying limited liability  The limited liability corporate form is viewed as a standard form contract that reduces the need to negotiate individual contracts for each transaction regulating their relationships. Tax advantages.  Liab is ltd to Ltd Partners. . The General Partner has a fiduciary duty. A shareholder has a limited liability to the company.

The corporate veil was to be lifted. This is often referred to as "lifting the corporate veil". Limited liability facilitates the diversification of risk allowing a greater spread of investment by an individual shareholder who does stand to lose all his assets in one risky venture. those opposing limited liability argue that it shifts the risk of failure from shareholders onto unsecured creditors. Avoidance of legal obligation . Official Assignee v 15 Insoll Avenue Ltd [2001] .a person convicted for fraud and forgery incorporated a company using the names of fictitious persons.  The diversification of risk argument is less applicable as owner-managers in close corporations have less incentive to diversify their investment and limited provides more incentive to invest insufficient funds and to undertake more risky strategies. Shares were then issued to the infant children of the convicted persons. the economic arguments are less persuasive. This has lead to arguments being put forward that there should be unlimited liability for tort debts. Lifting the corporate veil Courts have been willing in certain circumstances to ignore the concept of separate legal personality and look at the situation behind the corporate personality.  Proponents of limited liability reply that creditors can build a margin to hedge against this risk either by taking a higher rate of return or obtaining a higher price for goods or services supplied. The company was then used as a structure to defeat the creditors of the convicted person. For in an unlimited liability environment the wealth of other shareholders is important as the more they possess the less the shareholder will be liable to pay in the event of the insolvency of the company.  Secondly. Fraud    Where the corporate form is used to commit a fraud or is a façade concealing the true facts the Courts look beyond the company to those persons who control the company. The reduced costs of monitoring managers model does not apply as managers and owners are either the same group of persons or the same person. who as a group are less able to bear the risk. which is said to result in a lower transaction cost and a more efficient market. Re Darby [1911] . such as tortious debts.  Limited liability reduces the need for shareholders to monitor other shareholders to prevent unauthorized dispositions of assets.  Thirdly. on the basis that limited liability shifts the risk back to creditors. for example insolvent trading. Court was entitled to look beyond the company and recover the proceeds of the fraud from the individuals who had perpetrated the fraud. Thus in a close corporation monitoring costs are either zero or low with or without limited liability. in the case of involuntary debts. It was held that the incorporation of the company was a sham and as the company had been operated in a manner inconsistent with it being an independent legal entity.the company was incorporated as a part of a scheme to defraud investors. A tort creditor may not necessarily have any knowledge of the limitation of liability. Furthermore the tort creditor is not in the position to bargain for a higher return or an increased price. Subsequent transfers of the shares were made without the knowledge of the children to other persons without following the appropriate legal procedures. opponents argue that the standard economic analysis has little or no relevance to close corporations. Arguments in opposition to limited liability  Firstly. This allows a shareholder to require a lesser return. The courts have been willing to undertake such action in the following circumstances.

o Chase Corporation sold the property to someone else. Agency Another circumstance in which the courts has lifted the corporate veil is where one company is treated as the agent for another company. they knew it was a Ltd liab company. the business was sold to Salomon Ltd whereas here there was no sale. Held: o Corporate veil would only be lifted in limited circumstances relating to fraud. and the Savils got a caveat upon the land. they sought to sue D. General unfairness Savill v Chase Holdings (Wellington) Ltd (1988) Facts: o Savil entered into an agreement to sell shares in the family company to a Wellington subsidiary of Chase Holdings. Here. When the Co defaulted. they did not ask for a guarantee etc = no sham). Issue: o Did the management of the Wellington company have the authority to contract with the land? Savil asked for the corporate veil to be lifted and get those persons to specifically perform the contractual obligations. H stopped working for GM and Mrs H created a company. Smith. HELD: P needs to show substantial injustice if the corporate veil is going to be removed. Jones v Lipman [1962] 1 WLR 832 "Sham" = the situation where parties enter into a transaction using a particular legal form. Under capitalization .Where a company is incorporated or used to avoid legal obligations of the shareholders the corporate identity of the company will be disregarded. o Just because it was “difficult” or “unfair” was not a basis for lifting it. Gilford Motor Co v Horne [1933] – GM contracted with H including a restraint of trade clause. o These principles were upheld in Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Cooperative Ltd (No. Chen v Butterfield (1996) D owned a Co which leased premises from P. SSK was land owner with short term lease to BWC. sharp practice or criminal activity. Cf in Salomon. Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 (in CM) BWC Ltd wholly owned subsidiary of SSK Ltd. BWC carried on business without transfer of asset after being incorporated as subsidiary – agency relationship characteristic.2) (1989) In Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Co-operative Ltd (No. H solicited GM’s customers and brought them to Mrs H’s company. o Consideration for the shares was conditional—certain properties owed by other subsidiaries had to be delivered by Chase Corporation to the Savils.e. but intend that the transaction take effect other than in that form. P knew who they were dealing with (i. 2) (1989) the Court was of the view that unconscionability does not exist merely because the transaction or deal is unfair to one party. Court said in addition to subsidiary characteristics. P gave lease without a personal guarantee. Short term occupants not compensated for land acquired by Council.

S272(2)(d) – compelling . had to show taht D was withholding funds from OA. S271(1)(b) . they saw it as a company). After bankruptcy. ss 271–272 Piercing veil to enable P to get at SH where the SH is another related company (eg a Parent Co) – you are getting at SHs. Courts are generally more cautious. Funds to purchase land went from D and if OA wanted to take the land. There is a strong case for saying that if it will be so expensive to find out. If this is breached.  Hence. (1) Co must ensure name is printed on all docs if it is to be party (i. No reasonable director or manager would have entered into such a large transaction unconditionally without having adequate finance. and the bankrupts were beneficiaries. the director was held liable. Often people set up many companies deeply with tangled together businesses and assets – unravelling the books can take lots of time and money. every person who issued/signed the doc is liable to the same extent as the company if the Co fails to discharge its obligation unless they show that the other party was fully aware that the K was with the Co (or it is not just & equitable for that natural person to be liable). look to see that A is the beneficiary – it does not do the same thing as 15 Insoll Ave (which basically ignored the Co’s identity – in this.  S135—a director must not agree to the business of the company being carried out in a manner likely to result in serious loss to company’s creditors.  The required finance did not eventuate and the vendor cancelled the agreement and sold the property for a lesser amount  The liquidator brought an action against the director and another party who managed the affairs of the company for fraudulent trading pursuant to s135 of the Companies Act. S272 – criteria guidelines – very broad. Court held that company should be treated as same person as D – no corporate veil. and they misused the company formed. not directors. but he only possessed legal title. Under statute CA93 s 25 Section 25 provides a situation where parliament thought courts should have power to pierce veil.the extent to which businesses have been combined – strongly factual.Related company could be asked to make $ contribution to liquidation of subsidiary. HEB Contractors v Westbrook Development Ltd (2000) 8 NZCLC CM 77 . OA v Sanctuary Propvest Ltd D was SH and Director of SP. Held as trustee on trust for S trust. contracts) (2) If it doesn’t happen. the fair thing to do is to combine assets and creditors.Issue of whether of majority shareholders-directors of companies should be personally for the debts of a company in circumstances where a company is incorporated with inadequate financial resources – case in America. Judicially Official Assignee v 15 Insoll Avenue Ltd [2001] Family owned company purchased land.635 million.e. In Re Wait Investments Ltd (1997)  Company incorporated with $100 capital entered into an agreement to purchase a property for $1. CA93. Pooling is a justified qualification. Court says Co holds property as constructive trustee. assets vested in OA to realise and make distributions. S271(1)(a) .2 or more Cos can be liquidated together to meet the obligations (assets pooled together). you become personally liable for the debts the company cannot pay.

and W said it did not have any assets. so now. is offensive. The subsidiary did not own the land. it used a subsidiary’s name which was similar and set up for this sale. in the opinion of the Registrar. one or more directors Even if sole shareholder dies or sole director resigns. nor did it have any $. HELD: the puppet company was effectively running the whole operation – the veil was pierced.  Test for identicalness is to look at key words – “virtually indistinguishable”? Dr Rust Ltd – Dr Rust Ltd =/= Rust Doctor Ltd Stanley-Hunt Earthmovers Ltd v RoCo’s .the Registrar must not reserve a name — (i) the use of which would contravene an enactment (eg flags). S11 – any person may apply Reservation of name S20 – Registrar must not register company unless name is reserved S21 – name in all documents must end with “Limited” or “Tapui (Limited)” unless they opt out of limited liability. (ii) that is identical or almost identical to that of another company. Formation of Companies Registration under Companies Act 1993 S10 – a name. S22 . HEB had not realised that there were 2 companies. they must register unless there is an identical or almost identical company (limited discretion) Dispute resolution is now only in the HC (no longer DC – but the general law of unfair competition can be used there) . company continues in existence. In the final document. one or more shareholders. one or more shares.Stanley-Hunt Earthmovers Ltd = Stanley-Hunt Earthmovers(1996) Ltd Vicom NZ Ltd v Vicomm Systems Ltd (1988) – Vicom = Vicomm (iii) that. Initial documents had its name.   Law Comm reduced Registrar’s powers. There was a default on W’s part. or to a name already reserved.Section 272(1)(a): W was a property development Co with a development project which it put to tender.

The registrar could not exercise jurisdiction widely – they would have to wait till the company started to trade to take any action. Promoters of companies A promoter is a person who undertakes to form a company with reference to a given project. (3) Governs decisions made on the behalf of the Co.the company’s constitution (if. Constitutions normally contain: (1) Controls on types of business. The Securities Act 1978 mostly regulates the obligations because common law and equity is insufficient to control promoters.A constitution is not compulsory. Form of application for registration S12 .Mandatory – s31 requires consistency with Companies Act Adoption. S174 – relief available if alteration is unfairly prejudicial to shareholders S110 – buy out right available for unsuccessful voters if alteration imposes/removes restricting on company activities . must be approved by special resolution of those affected. Alteration. and who takes the necessary steps to accomplish that purpose .Twycross v Grant (1877).a notice reserving the name . Flight Centre (NZ) v Registrar of Companies – they wanted the registrar to not register another company (Flight Centre (xyz)).signed consents to be a shareholder . . Shareholder voting against alteration unsuccessfully entitled to buy out right.The form must be signed by each applicant and be accompanied by: .signed consents to act as a director . the company is going to have one) s13 – Registrar must register application if properly completed and issue certificate of incorporation s14 – certificate is conclusive evidence that all registration procedures have been complied with and incorporation states on the date of the certificate. Revocation S32(1) – company without constitution can adopt one at anytime by special resolution S32(2) – company can alter or revoke constitution by special resolution Mandatory restrictions on company ability to alter/revoke – S117 – if alteration affects rights attached to shares. you will be attacked through those other routes.Optional – effective only if adopted into constitution  s59 power of company to buy own shares . Companies Act 1993 provides a default constitution. Constitution of a company Nature and Content S26 . (2) Controls on what the Company can do.Presumptive – operate unless modified by constitution  s16 restrictions on company capacity and objectives  s39 transferability of shares  s45 offerings of new shares  s59 repurchase of shares . The result is that although you can get on the register. as is likely. Promoters usually have special fiduciary duties. you cannot trade because when you do. who sets it going.

Enforcement by the company S164 – apply to HC for injunction restraining directors from contravening constitution S97(2)(b) implies but does not expressly support company v shareholder action Effect of non-compliance on outsiders S18(1)(a) – company cannot bring action against third parties for breach of constitution Extra-constitutional agreements Nothing in statute prevents extra-constitutional agreements between shareholder and company or between shareholders but note . Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 209. Effect of the constitution S31(2) – constitution is binding between company and shareholder and between shareholders.Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656. Management of the Company Making Decisions for the company Two decision making bodies – shareholders and board of directors. enforceable as statutory rights. Shareholders cannot vote to overturn bona fide decisions of the directors (this is codified in s128 of the Act)—Breckland Group Holdings v London and Suffolk Property General Statutory Rule: o s128(1)—business and affairs of the company must be managed by. Did not say whether they would be willing to grant an injunction.can only be altered by unanimous consent of parties Russell v Northern Bank Development Corporation Ltd [1992] 1 WLR 588 (HL): Said such contracting was not contrary to public policy and you do have $ rights.only binding on parties who sign . Tension between the two because of different interests.Common law required alterations to be made bona fide for the benefit of the company as a whole . Enforcement by shareholders S171 – bring action for breach of duty owed by company to him as a shareholder S164 – apply for injunction to restrain company/directors from breaching constitution S170. . Note there are two tests for deciding majority power can change the constitution (a) is it for the good of the Co (Cf Directors’ duties) – reluctant to override power of majority SHs (b) Competing test – unfairness – rarely these changes affect actual business – the real question is to ask whether the change oppresses minorities. 172 – apply for order requiring company/directors to comply with constitution S174 – apply to HC for remedies for oppressive/unfairly discriminatory/unfairly prejudicial conduct to shareholders S31(2) – implies but does not expressly support action between shareholders. or be under the direction or supervision of the board. Unclear if this continues on under the new Companies Act 1993.

Company must not enter into a “major transaction” unless it is approved by special resolution. alter or revoke the constitution of the company. or an agreement to acquire. o s128(3)—subsections 1 and 2 may be modified by the constitution. shareholders who vote in favour of binding the directors may be deemed to be directors with the ensuing statutory duties in relation to the particular act. or (c) one that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities[[. whether contingent or not. 31 March 1999) In determining value of assets.] S2(1) – special resolution approved by majority of 75% or higher if required by constitution Cudden v Rodley (CA 67/99. or an agreement to dispose of. assets of the company the value of which is more than half the value of the company's assets before the disposition. a … charge secured over assets of the company the value of which is more than half the value of the company's assets for the purpose of securing the repayment of money or the performance of an obligation.  Can draft provisions to allow shareholders to override directors’ decisions.  If this is done. (2)—Shareholders may adopt.  If this happens the s/holders voting in favour of the resolution will be deemed directors under s125(2) & stat duties may apply o s130 (delegation of powers)—Board of directors may delegate powers. whether contingent or not. Also. including contingent liabilities. o s109(1)—Management Review  Shareholders in a shareholders’ meeting are allowed a reasonable opportunity to question or comment on the management of the company. s32(1). Common law default powers of general meeting: o If the board cannot or will not exercise the power vested in it. directing and supervising the management of the business and affairs of the company.  s130(2)—Delegation of powers does not absolve the board from responsibility. assets the value of which is more than half the value of the company's assets before the acquisition. Board still remains responsible of the delegated power as if the board itself had delegated the power. Problematic – different valuations have different figures. . need to use market value. s196(1)—shareholders at a general meeting must appoint an auditor. or (b) The disposition of. except for the powers in the Second Schedule of the Act.K Switchback Railways o Exceptions to the board’s power Major transactions S129 – cannot enter into any major transactions/contingent unless approved by special resolution S129(2) defines major transactions (a) The acquisition of.  s109(2)—shareholders may pass a resolution commenting on the management.Nothing in paragraphs (b) or (c) of the definition of “major transaction” applies by reason only of the company giving. However. subject to the constitution. o s36(2) (constitution may negate the right of a shareholder to vote on a resolution for the alteration of the constitution) does not negate this right.  Same if constitution is drafted in such a manner as to reserve some particular powers to be exclusively exercised by shareholders. this is not binding on the directors unless expressly provided for in the constitution. net assets figure or gross assets? S129(2B) .    s128(2)—board has all necessary powers for managing. or entering into an agreement to give. the general meeting may do so where:  Deadlock on the board—Barron v Potter  An effective quorum cannot be obtained—Foster v Foster  Directors are disqualified from voting—Grant v U.]] the value of which is more than half the value of the company's assets before the transaction.

Caretaker directors Utilicorp NZ Inc v Power New Zealand Ltd (1997) When majority shareholders choose to use their power to remove the Board and signals to board a proposal calling a meeting to remove them. 110 – allows shareholders to require company to buy their shares. the board was faced with two sensible options. exceptions or limitations in the CA93 or in the company constitution. The Court removed them – but it is unclear where that power came from. they become caretaker directors in the intermediary period – shareholder meetings require time and notice. Deadlock Deadlock = directors have differing opinions on what should be done.Hogg v Sheppard 95 sections of land. S128(3) S128(3) – board’s power is subject to any modifications. and nothing in the Act or Constitution allows for this caretaker situation. Would not rule out possibility in extreme deadlock case. because it was not a major transaction for the parent company. Re Fletcher Challenge Forests Ltd (2004) – The Court could not look to the transaction – just because subsidiary was selling >50% of its shares. Massey v Wales (2003) [NSW] Equal division alone is not enough for the shareholders to take over the board’s decision making p ower. etc. did not mean that the parent Co could look at it. Shareholders have no power to make management decisions or to control/direct BoD. Might be prohibited if it can be shown that the directors were proceeding with a decision out of spite or for some other improper purpose. If D’s actions are a Major Transaction. Buy back in relation to major transaction S106. The normal remedy would be to injoin them and ask them to comply with CA. Court found it to be a major transactions because it was essentially a single sale. There has to be a source of this implication. but refused to call a SH meeting although they were asked repeatedly. S126(2) however imposes director duties when exercising management powers. then SHs could get s 170 injunction for non-compliance. In Utilicorp and Chimaera. . Alternative means of protection for shareholders – make themselves shareholders of a holding company for the shares of the business. Central Avoin Holdings v Palmerston North City Council: there were a series of contracts (staged contracts) separated in time – these were not seen as a MT. directors created 95 separate contracts so that none would be major transaction on its own. How can this decision be reconciled with Automatic Self-Cleansing? This decision generated a lot of criticism because it was seen as inconsistent with Automatic Self-Cleansing. But there is no other support for the caretaker principle. because their only powers should be the appointment and removal of directors. WEL Energy Group Ltd v Hawkins [2001] 3 NZLR 374 Ds were told they were going to be removed. Good for minority but not bad decisions.

It is enough to show that trustees have assented.e.  s104—powers reserved to shareholder by the Act or constitution can be assented to by shareholders in two ways: a) Valid meeting of shareholders—an AGM as per s120 or a special meeting as per s121. as long as there is unanimous consent (i. Once insolvent. 3) Resolutions not covered by s107 or 104.  Common law doctrine may still apply  This is as small companies don’t usually have formally convened shareholders meetings  If the doctrine applies. there are constraints about what can be done by directors. Under Companies Act.  Procedure under s122 may be more liberal than common law doctrine as it only requires assent by 75% of shareholders entitled to vote (not unanimous).  Statutory regime more restrictive than common law as assent must be in writing following the procedure in s107. 2) Resolutions reserved by the act or required to be carried out by shareholders by express provision of constitution (s104). that assent is as binding as a resolution in general meeting would be. Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 In Meridian. enough if the legal owner of the shares assents Doctrine of unanimous consent under the 1993 Act  s107—express provision for a formal type of unanimous consent. (see Cromwell v Sofrana)  Solvency: the Co has to be solvent. S177(4) .Unanimous Assent Rule New Act does not explicitly retain the doctrine of unanimous assent but it is a possibility. this was seen as a primary rule of attribution which was implied by Co law: the unanimous decision of all SHs in a solvent Co about anything the Co has the power to do is the decision of the Co.  Expressly excludes common law doctrine. b) A resolution in lieu of a meeting per s122 —requires written assent by 75% of shareholders entitled to vote (parallels s362 in old Act). ANZ Executors & Trustee Co Ltd v Qintex Australia Ltd (1990) 2 ACSR 676 Is it enough to show that the assent is that of the beneficial owner rather than the trustee? This is an important unsettled issue. all turn their mind to the issue) . they can all agree at different times and places.  Also excludes common law doctrine. The informality can be lax and don’t have to show ac tive assent. UK Re Duomatic Ltd [1969] 2 Ch 365 The Duomatic principle – where it can be shown that all shareholders assent to some matter which a general meeting of the company could carry into effect. The SHs can’t be in any better position mainly due to unanimity. there are three groups of shareholders resolutions: 1) Unanimous consent falling under s107.Nothing in this section limits or affects any rule of law relating to the ratification or approval by the shareholders or any other person of any act or omission of a director or the board of a company. o Permits certain acts set out in s107(1) to (3) to be undertaken by written assent of all shareholders. NZ adopted in Westpac Securities Ltd v Kensington [1994] 2 NZLR 555 (CA) The qualifications to unanimous assent are:  You need to show SH unanimity  All SHs have to have understood what they are assenting to in their capacity as SHs – and they must know their assent is required.

liquidator or creditor may request or convene various types of meetings dealing with aspects of the liquidation process.  Courts o s123(2)—shareholders may apply to the Court to convene a meeting. o Court looks at voting rights attaching to shares. o Shareholders should set out the basis on which they possess the voting rights.  s121(b)—shareholders who hold shares with not less than 5% of voting rights may make a written request to the board to convene a meeting. o Interest group meetings which affects rights of each interest group (s117(b)). Must go through directors or Courts. Notice of Meetings Persons who call a meeting must: a) Fix the date  S120—board must set the date of an AGM. s122 appears to follow the reasoning in Westpac—emphasis has shifted to shareholders with the right to vote. Conduct of Meetings  s124—meetings are governed by the First Schedule of the Act. to deal with: o Company business that is urgent. o Shareholders may be represented by themselves. o Request must be in writing. by a corporate representative (if shareholder is a corporate) or by proxy (person appointed to attend and vote on behalf of shareholder). e.g.  Shareholders have no power to convene a meeting themselves.g. o Shareholders do not have to state the objectives of the meeting. o Directors have the fiduciary duty when faced with a request to consider and exercise discretion whether to hold the meeting or not. . o Shareholders are entitled to pursue their own interests in requesting a meeting and do not have to act in the interests of the company as a whole. and AGM must be held on that day. not the number of shares. o s121—may do so at any time. it must be convened or called correctly and there has to be a quorum—minimum number of shareholders must be present. although they must act in good faith. o First Schedule requirements are mandatory and may not be changed by constitution unless permitted by the Act.  Special meetings may be called at any time and cannot be changed without the consent of all shareholders entitled to attend unless provided by the Constitution. Who is entitled to call/convene the meeting?  Directors o s120—statutory responsibility to call an AGM. shareholder may bring an action under s172 or make an application to Court to convene a meeting (s123). o If company is in the process of liquidation. Shareholder Meetings  s120—every company must hold an AGM (Annual general meeting) each calendar year no later than 6 months after balance date and no later than 15 months after previous meeting.  s121—all other meetings besides AGM are special meetings. o Grounds set out in s123(1): a) Impractical under Act of constitution to call a meeting—In re South British Insurance Co Ltd b) It is in the company interests that the meeting be held (e. a shareholder. or there could be an action under s174. o If they fail to do so. o For a meeting to be valid. o Does not have to be signed by shareholders (but should occur). if director fails to call an AGM).

 Text of any special resolution. o Additional information was not supplied within 14 clear days of the meeting.  However. Necessary detail: Re Marra Developments (1976)  Under today’s conditions. other shareholders in Nathan were to receive a share swap that had a value of far less than $9.  If persons determined to be entitled to receive notice have sold their shares between the date of determination and the date of the meeting. subject to s125(4)—not less than 10 and no more than 30 working days from the date of the meeting.  If date is not fixed.  Directors are entitled to receive notices of meetings but have no right to attend and speak at the meetings unless the constitution provides. hence a notice would be misleading if a person reading the notice in this manner was not able to discern the important points. b) Give notice to those “entitled to attend”. and literally complied (set out the general nature of business to be considered). it is those shareholders on the register at the close of the day preceding the day on which the notice is given—s125(3)(b). the company is entitled to treat the person on the register as the person entitled to vote—s89(2)(b). o Notice must state the business of the meeting in sufficient detail for a shareholder to form a reasoned judgment about it. but left out . Arguments:  Malayan Breweries argued that: o Notice of the meeting and information in the notice was misleading. people tend to read things in a quick cursory manner. it is the persons on the share register on that date (s125(3)). o Information was provided too late to allow shareholders to make an informed decision even though there was literal compliance.  Name of person who is to receive and count the votes where postal votes are permitted —First Schedule clause 7(2). Held:  Notice of the meeting was delivered to shareholders within prescribed time (14 days before meeting). d) Contents of notice  Time and place—First Schedule clause 2(1).  Nature of the business to be transacted—First Schedule clause 2(2)(a).20 per share to Lion.  Shareholders whose name is entered on the share register are entitled to attend and receive notice.  If board fixes date for determination. Date also cannot be chosen to prejudice a particular shareholder or group.20 per share. involving the sale of a substantial parcel of Nathan shares held by Fay Richwhite and Co at a cash consideration of $9.  Shareholders requested supplementary information about the sale of the shares to Fay Richwhite.  Persons who invest in companies today are no longer always expected to be business people versed in commercial affairs. Malayan Breweries Ltd v Lion Corporation (1988) Facts:  Lion and Nathan proposed to merge. c) To whom must notice of meetings be given  Every shareholder entitled to attend must be sent a written notice not less than 10 working days before—clause 2(1) of First Schedule. hence the contents of the notice must be fair to those persons.  Auditors—can receive notice and speak on relevant matters (s207(1)).

o Subject to clause 2(3) that any irregularity in the notice may be waived if all shareholders entitled to attend and vote do so without raising the irregularity. Directors Interests  It is the duty of a director to disclose his interest to a general meeting —Tiessen v Henderson  Where directors do not comply with this duty. and at the adjourned meeting.g. e. e) Non-compliance with notice requirements:  Renders the meeting and any resolutions invalid. terms of agreement to purchase. Hence. it did not accord with equitable requirements of full and fair disclosure. Further explanatory material was not given before the 14 day limit.  Postal voting(clause 7(1)) . Voting in a meeting: clause 5  Vote taken by voice or show of hands o One vote per shareholder regardless of the number of shares owned by the shareholder. the shareholders and proxies present will constitute a quorum if the required quorum is not present after 30min. o This includes both proxy and postal votes. and was not provided with the notice which in itself proffered inadequate explanation. and audio visual commercials allowed—clause 3. o Other forms of meetings are adjourned. o Clause 4(1)—meeting cannot validly proceed without a quorum. o Shareholders who are not entitled to vote cannot constitute part of a quorum even if they are physically present at the meeting.    information required for an informed decision to be made on the proposal. o Clause 4(2)—company under its constitution may set its own quorum requirements. and any resolutions passed while the meeting is inquorate will not be binding. defect on dividend. and the fact that Lion’s managing director had an involvement with a “put option” over the Fay Richwhite shares. Shareholders are entitled to adequate time to consider all the material and decide whether to attend the meeting in person or by proxy and reflect on how they should vote. and shareholders did not receive adequate notice of the general nature of the business to be discussed at the meeting. if not clause 4(2) applied. o Quorum is calculated on basis of voting power instead of number of shareholders present — at least 50% of voting power must be present to constitute a quorum. a meeting called at the request of shareholders pursuant to s121(b) is dissolved.  Matters not specified in the notice cannot be dealt with by the meeting —Efstathis v The Greek Orthodox Community of St George Method of holding meetings: First Schedule Clause 3  Meeting of shareholders held by required quorum of shareholders at the place and time stated in the notice. a notice of a meeting is misleading and directors may be restrained from either holding the meeting or acting on the resolutions passed. why the merger at such cost to Lion was desirable. Company is not obliged to provide any notice while the waiver is in force. total cost to Lion of the merger.  Vote taken by poll o Votes equal the number of shares owned.  S212—shareholders may waive their right to receive notice of meetings in writing. o Clause 4(3)—where a quorum is not present after the first 30min of a meeting. accidental omission to give notice or a shareholder’s failure to receive notice will not invalidate the meeting unless otherwise provided by the constitution (clause 2(3A)).  However. Court found that the explanatory material was sent too late when it arrived less than 7 clear days before the meeting. asset backing and proprietary ratios of the large cash payout to Fay Richwhite. and the waiver notice may be withdrawn at any time by written notice. Although prima facie the notice complied with statutory and common law requirements.

alteration or evocation of company’s constitution and approval of a major transa ction. shareholders must have reasonable opportunity to question/discuss/comment on management of company and may pass resolution relating to management of company. o S106(1) specifies matters to be resolved by special resolution. Type of Resolutions  Ordinary o S105(2)—a resolution approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question. o Simple majority is 50% of those voting.g. o This is the percentage of votes of those shareholders entitled to vote and voting on the questions (does not include shareholders who abstain). .  Shareholder Proposals (clause 9): o A shareholder may give written notice to the board of a matter the shareholder proposes to raise for discussion on resolution at the next shareholders’ meeting Distributions S60(1)(b) – all shareholders consent to non-equal share buy baack S76(1)(a) – all shareholders consent to giving of assistance Management review S109 – in a shareholder’s meeting. adoption. By proxy o Shareholders can exercise their vote through a proxy representative —clause 6. shareholders only have a right to be heard.  Special o S2(1)—a resolution approved by a majority of 75% or higher if required by the constitution. S109(3) – unless provided otherwise in the constitution. o Cannot be abrogated by the constitution. such a resolution is not binding on the board. e. Effectively.

and privileges. powers. (2)The constitution of a company may contain a provision relating to the capacity. both within and outside New Zealand. rights. a company has.Contracts by Companies Four main ways in which a contract may be defective: (i) the company may have lacked the capacity to enter into the contract. S18(1) – statutory estoppels – in certain circumstances. Company Capacity Ultra vires doctrine at common law – companies are artificial legal persons who can only pursue the intended objective of their existence (usually what is in their constitution). company cannot raise defect against innocent parties. Might be unjust for third parties who contract with them. or o (c)section 169 (which relates to actions by shareholders of a company against the directors). do any act. (ii) the agents acting on behalf of the company may have lacked authority to bind the company. or the power to do the act or to transfer or take a transfer of the property. (iv) the agents acting on behalf of the company may have breached their duties to the company. or o (d)section 170 (which relates to actions by shareholders to require the directors of a company to take actionunder the constitution or this Act). (2)Subsection (1) does not limit— o (a)section 164 (which relates to injunctions to restrain conduct by a company that would contravene its constitution). This type of defect is considered in more detail in section 9 of this outline. or enter into any transaction. or privileges of the company only if the provision restricts the capacity of the company or those rights. (ii) where it acts in contravention of another provision in the CA93. s 151(1). any other enactment. (iii) the contract may not be in the proper form. But the provision or rule must relate to capacity (eg. or o (b)section 165 (which relates to derivative actions by directors and shareholders).— o (a)full capacity to carry on or undertake any business or activity. . or another rule of law. and o (b)for the purposes of paragraph (a). and privileges. 16Capacity and powers  (1)Subject to this Act. which provides that a company cannot be a director). There are very few such provisions or rules. 17Validity of actions  (1)No act of a company and no transfer of property to or by a company is invalid merely because the company did not have the capacity. Re Introductions Ltd [1970] Ch 199 – human resource company accepted a contract to operate a pig farm was ultra vires and hence contract was made outside the commpany’s capacity. powers. (3)The fact that an act is not. or would not be. the right. A company will thus lack capacity in only two situations: (i) where it acts in breach of an express restriction in its constitution. and the general law. Eg. S19 – not deemed to know content of constitution merely because it is in the NZ register and available for inspection at the company’s office. in the best interests of a company does not affect the capacity of the company to do the act. S18 – protects outsiders provided they did not know about the breaches of the constitution. Few companies would want to adopt such restrictions. full rights. powers.

aren’t sufficiently senior . Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480 at 500–510 (CA) per Diplock LJ Actual authority means that there were no defects substantively or procedurally. and (ii) the board monitored the delegate by means of reasonable methods.aren’t sufficiently delegated (substantive defects) . Note – actual authority can be given after the event right up until before the trial.(i) the board believed on reasonable grounds that the delegate would exercise the delegated powers properly.e. or matters relating to the contract (so that it can be traced back to someone who had power to make the delegation if they wished) (3) the P was “induced” by this representation (i. This is done by looking at the relationship between the company and the agent to show that there was proper delegation. The fact remains that the rules dealing with substantive regulation are still found at CL within the general rules of agency. it will bind because of certain other elements that have been proved S158 – Acts of a person as a director are valid even though person’s appointment was defective or not qualified for appointment. within the purpose ) . and not in the Act. Northside Developments Pty Ltd v Registrar-General (1990) CM 161 Must establish substantive regularity before presumption of procedural regularity will help.with seniority but did not follow the appropriate procedure (what’s listed in the constitution). reliance) (4) the company had capacity to enter (i. Informal unanimous approval) because = ratification Estoppel Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] (CA) per Diplock LJ We need to show 4 conditions to entitle P to enforce a K against a Co if the K was entered into by an agent who had no actual authority to do so (to show apparent authority): (1) a representation that the agent had authority to enter into the K (of this kind) was made to the P (2) it was made by a person who had actual authority in relation to either: manage the business of Co (director).e. Authority of agents Usual – what agents are usually able to do – assessed by fact specific or based on industry norms Usual actual – expected that they had authority and they did s18(1)(c) Usual apparent – expected that they had authority and they did not s18(1)(d)  no defence whatsoever to having actual authority Onus of proving a contract is always on the plaintiff – need to show that dealt with someone who had actual/apparent authority. Can show retrospective authority (eg. S128 – authority to bind company to contract is primarily for the BoD.Authority to contract Contract was entered within company’s capacity but the people purpo rting to bind it . Apparent authority is where even though there is a substantive or procedural defect. Also allows those being supervised under the BoD. S130(1) – allows board to delegate most of its powers with the board remaining responsible for delegated actions unless S130(2) .

. induced L.Moneyworld NZ 2000 Ltd v Lee (2005) 8 NZBLC 101. authorised by company to say this. allowing it to go on albeit premises were inactive = holding out.638 Went into M’s office and dealt with someone who appeared to be sufficiently senior – business card. Company bore risk because they allowed this to happen – unforged business cards.