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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.
Variable & subject to contract
Unanimity subject to contract. Beneficiaries cannot act even by majority unless the deed allows majority.
Yes, subject to contract
Yes subject to trust deed
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  AC 22 (HL) a. Company is not the agent of SH (ordinarily) b. SH can lend to the Co just like anybody else can
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.447 Fletcher Holdings = sole shareholder of Fletcher Forests. Therefore. business and affairs of company must be managed by direction of the BoD. 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 : CM 25 Includes people who were controlling a particular function of the company . collective acts by directors/shareholders to bind company at a valid meeting = act of company. d. Unanimous acts of shareholders = act of company. apparent authority. Lee v Lee’s Air Farming Ltd  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. Special Meridian Global Funds Management Asia Ltd v Securities Commission  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. Re Fletcher Challenge Forests Ltd (2004) 9 NZCLC 263. S129 – if a company wants to enter a major transaction. Three tiers of attribution – 1. Andar Transport Ltd v Brambles Ltd (UK 2004): His company = his employer therefore also partially owed duty of care for his injury. they knew. 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. vicarious liability. Primary rules – found in company constitution and Companies Act 1993. 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.c. that is the company. BoD needs SH approval. then the company may not protect the SH. S128(1) – subject to modification in company’s constitution. Banks have secured debts so they get everything first. Someone should have spoken on behalf of the co – the co did have this obligation. Value of forests which FF wanted to sell was > 50% of assets = major transaction. Three tiers of attribution Primary. But here. estoppel. Corporate personality – statute Companies Act 1993. .the senior manager knew and was closely involved. 2. General rules – principles of agency. Courts are not going to be paternalistic to creditors: if they were not told that it was a company they were contracting with. General. so the company was held to have known and privity was satisfied so there was no limitation of liability.
For most business organisations the advantages outweigh the disadvantages. A shareholder has no liability to the company’s creditors for the company’s obligations. 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). Macaura v Northern Assurance  – Mr M owned some land which had timber. 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. and the land was not owned by him. He took out fire insurance. The company is the one that is insured but the company did not have will. P had given this lease without a guarantee (normal arrangement) – so if the Co didn’t pay. Transferable shares. Policy stated an exclusion for “wilful act or with connivance of insured”. P was clearly dealing with the Co and not D. Here. shareholder is not liable for company obligations by virtue of being a shareholder (might be if they were also an agent). Chen v Butterfield (1996) Defendant was SH in a Co which had taken a lease from plaintiff. Fact specific decision – underlying rationale. Tesco Supermarkets Ltd v Nattrass  AC 153 Supermarket left “Special Price” sign on although goods were at normal price. Consequences of incorporation There are several consequences of incorporation under the CA93. show that the arsonist had some economic interest. so could not ask D to pay. Publicity. Case by case basis. 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. Limited liability Limited liability depends on a combination of two distinct rules: 1. nobody can benefit from their own wrongdoing. D would not be liable. Others are disadvantages: Increased costs associated with complying with various statutory and regulatory requirements. Insurance contract was owned by the company but the arsonist beneficially owned 25% of the shares. HL said M did not own the land so no insurance. Americano’s Ltd v State Insurance Ltd (1999): Contract of fire insurance. Defence would have been available if senior management (directing mind and will) had taken reasonable precautions. Trades Description Act – business owners could be liable unless offence was due to act/omission of another person and due diligence was taken. small Tesco and manager was negligent. S97(1) – unless in the company constitution. Perpetual succession. and so the company is the most popular form of business organisation. The company was unable to pay. His wife also owned 25% and was de facto manager. When there was a fire the insurance co said that he was insured in relation to assets he owned. Holding property. Special rules – situations where neither primary or general rules apply. .3. Here. restaurant was deliberately burned down.
Special and Limited Partnerships If there is a partnership with a certain number of partners. But shareholders remain protected from trade creditors and unsecured. A shareholder has a limited liability to the company.2. › General Partner is responsible for the management of partnership and is liable. ie. 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. Limited liability reduces the need for shareholders to monitor the behaviour of the directors. they are all jointly and severally liable for it. 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. › If a Special Partner would get involved in the management of the business. S97(2) . The General Partner has a fiduciary duty. Liab is ltd to Ltd Partners. Tax advantages.): “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). There is a relationship b/w Co & SH but SH have no legal relationship with the company’s assets. › The Special Partners have limited liability valued up to their contribution. 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. These are specific things LPs can do without losing their limited liability.” Note – many times. Limited Partnerships Act 2008 You have General and Limited Partners. Cos have a separate legal personality: Salomon v Salomon. but the losses do flow through to them. a Ltd Partner can take action against the Gen Partner if the GP does a wrong against the Partnership]. The Partnerships Act – allows for General Partnerships. › Problems: Jurisdictional issues. secured creditors will seek guarantees from the shareholders which diminishes their protection. . they must then be liable as a General Partner and incur liability as such. insolvency. but no management of partnership. This is said to reduce transaction costs and add to efficiency. It is a well-known model internationally. 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. Safe Harbour: Vetoing/approving investment under Act is not being involved in management. Here.
This allows a shareholder to require a lesser return.a person convicted for fraud and forgery incorporated a company using the names of fictitious persons. Secondly. 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 corporate veil was to be lifted. who as a group are less able to bear the risk. 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. Official Assignee v 15 Insoll Avenue Ltd  . The courts have been willing to undertake such action in the following circumstances. 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. Limited liability reduces the need for shareholders to monitor other shareholders to prevent unauthorized dispositions of assets. A tort creditor may not necessarily have any knowledge of the limitation of liability. those opposing limited liability argue that it shifts the risk of failure from shareholders onto unsecured creditors. The company was then used as a structure to defeat the creditors of the convicted person. Thirdly. such as tortious debts. 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. Court was entitled to look beyond the company and recover the proceeds of the fraud from the individuals who had perpetrated the fraud. opponents argue that the standard economic analysis has little or no relevance to close corporations. This is often referred to as "lifting the corporate veil". Re Darby  . 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. on the basis that limited liability shifts the risk back to creditors. in the case of involuntary debts. Subsequent transfers of the shares were made without the knowledge of the children to other persons without following the appropriate legal procedures. 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. Arguments in opposition to limited liability Firstly. 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. Thus in a close corporation monitoring costs are either zero or low with or without limited liability. the economic arguments are less persuasive. Furthermore the tort creditor is not in the position to bargain for a higher return or an increased price. Avoidance of legal obligation . 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. for example insolvent trading. Shares were then issued to the infant children of the convicted persons. which is said to result in a lower transaction cost and a more efficient market.the company was incorporated as a part of a scheme to defraud investors. This has lead to arguments being put forward that there should be unlimited liability for tort debts.
o Chase Corporation sold the property to someone else.2) (1989) In Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Co-operative Ltd (No. Court said in addition to subsidiary characteristics. Held: o Corporate veil would only be lifted in limited circumstances relating to fraud. Short term occupants not compensated for land acquired by Council. sharp practice or criminal activity. o Consideration for the shares was conditional—certain properties owed by other subsidiaries had to be delivered by Chase Corporation to the Savils. they sought to sue D. they did not ask for a guarantee etc = no sham). Cf in Salomon. HELD: P needs to show substantial injustice if the corporate veil is going to be removed.Where a company is incorporated or used to avoid legal obligations of the shareholders the corporate identity of the company will be disregarded. 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. they knew it was a Ltd liab company.e. 2) (1989) the Court was of the view that unconscionability does not exist merely because the transaction or deal is unfair to one party. When the Co defaulted. Gilford Motor Co v Horne  – GM contracted with H including a restraint of trade clause. Smith. Here. SSK was land owner with short term lease to BWC. H stopped working for GM and Mrs H created a company. P gave lease without a personal guarantee. H solicited GM’s customers and brought them to Mrs H’s company. the business was sold to Salomon Ltd whereas here there was no sale. o Just because it was “difficult” or “unfair” was not a basis for lifting it. o These principles were upheld in Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Cooperative Ltd (No. but intend that the transaction take effect other than in that form. BWC carried on business without transfer of asset after being incorporated as subsidiary – agency relationship characteristic. 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. Under capitalization . P knew who they were dealing with (i. Agency Another circumstance in which the courts has lifted the corporate veil is where one company is treated as the agent for another company. Chen v Butterfield (1996) D owned a Co which leased premises from P. Stone & Knight Ltd v Birmingham Corporation  4 All ER 116 (in CM) BWC Ltd wholly owned subsidiary of SSK Ltd. Jones v Lipman  1 WLR 832 "Sham" = the situation where parties enter into a transaction using a particular legal form. and the Savils got a caveat upon the land.
There is a strong case for saying that if it will be so expensive to find out. 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). Often people set up many companies deeply with tangled together businesses and assets – unravelling the books can take lots of time and money. not directors. 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. Court held that company should be treated as same person as D – no corporate veil.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.e. but he only possessed legal title. contracts) (2) If it doesn’t happen. 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. Funds to purchase land went from D and if OA wanted to take the land. In Re Wait Investments Ltd (1997) Company incorporated with $100 capital entered into an agreement to purchase a property for $1. S271(1)(a) . Court says Co holds property as constructive trustee. No reasonable director or manager would have entered into such a large transaction unconditionally without having adequate finance. OA v Sanctuary Propvest Ltd D was SH and Director of SP.Related company could be asked to make $ contribution to liquidation of subsidiary.the extent to which businesses have been combined – strongly factual. and they misused the company formed. 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. had to show taht D was withholding funds from OA. Pooling is a justified qualification. If this is breached. Judicially Official Assignee v 15 Insoll Avenue Ltd  Family owned company purchased land. CA93. 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. the director was held liable. and the bankrupts were beneficiaries.2 or more Cos can be liquidated together to meet the obligations (assets pooled together). After bankruptcy. S271(1)(b) . Courts are generally more cautious.635 million. S272 – criteria guidelines – very broad. the fair thing to do is to combine assets and creditors. Under statute CA93 s 25 Section 25 provides a situation where parliament thought courts should have power to pierce veil. you become personally liable for the debts the company cannot pay. HEB Contractors v Westbrook Development Ltd (2000) 8 NZCLC CM 77 . (1) Co must ensure name is printed on all docs if it is to be party (i. Held as trustee on trust for S trust. S272(2)(d) – compelling . assets vested in OA to realise and make distributions. Hence. they saw it as a company).
one or more shareholders.the Registrar must not reserve a name — (i) the use of which would contravene an enactment (eg flags). nor did it have any $. (ii) that is identical or almost identical to that of another company. is offensive. In the final document. Formation of Companies Registration under Companies Act 1993 S10 – a name. There was a default on W’s part. HEB had not realised that there were 2 companies. 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 . one or more shares. Initial documents had its name.Stanley-Hunt Earthmovers Ltd = Stanley-Hunt Earthmovers(1996) Ltd Vicom NZ Ltd v Vicomm Systems Ltd (1988) – Vicom = Vicomm (iii) that. Law Comm reduced Registrar’s powers. one or more directors Even if sole shareholder dies or sole director resigns. or to a name already reserved. and W said it did not have any assets. 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. S22 . in the opinion of the Registrar. so now. it used a subsidiary’s name which was similar and set up for this sale. 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) .Section 272(1)(a): W was a property development Co with a development project which it put to tender. HELD: the puppet company was effectively running the whole operation – the veil was pierced. company continues in existence. The subsidiary did not own the land.
Companies Act 1993 provides a default constitution. 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 .a notice reserving the name . . Promoters of companies A promoter is a person who undertakes to form a company with reference to a given project. The result is that although you can get on the register.signed consents to be a shareholder . and who takes the necessary steps to accomplish that purpose .signed consents to act as a director .Mandatory – s31 requires consistency with Companies Act Adoption. 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. Flight Centre (NZ) v Registrar of Companies – they wanted the registrar to not register another company (Flight Centre (xyz)). (2) Controls on what the Company can do. Shareholder voting against alteration unsuccessfully entitled to buy out right. must be approved by special resolution of those affected.The form must be signed by each applicant and be accompanied by: . as is likely.Twycross v Grant (1877).Optional – effective only if adopted into constitution s59 power of company to buy own shares .the company’s constitution (if. who sets it going. you will be attacked through those other routes. 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. Alteration.A constitution is not compulsory.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 . Form of application for registration S12 . you cannot trade because when you do. The Securities Act 1978 mostly regulates the obligations because common law and equity is insufficient to control promoters. The registrar could not exercise jurisdiction widely – they would have to wait till the company started to trade to take any action. Promoters usually have special fiduciary duties. (3) Governs decisions made on the behalf of the Co. Constitutions normally contain: (1) Controls on types of business. Constitution of a company Nature and Content S26 .
Effect of the constitution S31(2) – constitution is binding between company and shareholder and between shareholders.only binding on parties who sign .can only be altered by unanimous consent of parties Russell v Northern Bank Development Corporation Ltd  1 WLR 588 (HL): Said such contracting was not contrary to public policy and you do have $ rights. Unclear if this continues on under the new Companies Act 1993. or be under the direction or supervision of the board. 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. Management of the Company Making Decisions for the company Two decision making bodies – shareholders and board of directors. 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. 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 . 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. Tension between the two because of different interests. Brown v British Abrasive Wheel Co Ltd  1 Ch 209.Allen v Gold Reefs of West Africa Ltd  1 Ch 656.Common law required alterations to be made bona fide for the benefit of the company as a whole . Did not say whether they would be willing to grant an injunction. .
or entering into an agreement to give.]] the value of which is more than half the value of the company's assets before the transaction. except for the powers in the Second Schedule of the Act. o s128(3)—subsections 1 and 2 may be modified by the constitution. 31 March 1999) In determining value of assets. need to use market value. net assets figure or gross assets? S129(2B) . Board still remains responsible of the delegated power as if the board itself had delegated the power. 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. subject to the constitution. directing and supervising the management of the business and affairs of the company. 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. or (b) The disposition of. or an agreement to acquire. Same if constitution is drafted in such a manner as to reserve some particular powers to be exclusively exercised by shareholders. If this is done.] S2(1) – special resolution approved by majority of 75% or higher if required by constitution Cudden v Rodley (CA 67/99. whether contingent or not. Problematic – different valuations have different figures. . or an agreement to dispose of. However. assets of the company the value of which is more than half the value of the company's assets before the disposition. 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.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. s128(2)—board has all necessary powers for managing. whether contingent or not. Common law default powers of general meeting: o If the board cannot or will not exercise the power vested in it. s32(1). Also. 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. this is not binding on the directors unless expressly provided for in the constitution. Company must not enter into a “major transaction” unless it is approved by special resolution. 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.Nothing in paragraphs (b) or (c) of the definition of “major transaction” applies by reason only of the company giving. s196(1)—shareholders at a general meeting must appoint an auditor. s109(2)—shareholders may pass a resolution commenting on the management. or (c) one that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities[[. (2)—Shareholders may adopt. assets the value of which is more than half the value of the company's assets before the acquisition. alter or revoke the constitution of the company. s130(2)—Delegation of powers does not absolve the board from responsibility. Can draft provisions to allow shareholders to override directors’ decisions. 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.
110 – allows shareholders to require company to buy their shares. WEL Energy Group Ltd v Hawkins  3 NZLR 374 Ds were told they were going to be removed. 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. 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. but refused to call a SH meeting although they were asked repeatedly. The normal remedy would be to injoin them and ask them to comply with CA. There has to be a source of this implication. did not mean that the parent Co could look at it. Alternative means of protection for shareholders – make themselves shareholders of a holding company for the shares of the business. and nothing in the Act or Constitution allows for this caretaker situation. Buy back in relation to major transaction S106. . Deadlock Deadlock = directors have differing opinions on what should be done. In Utilicorp and Chimaera. 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. because their only powers should be the appointment and removal of directors. The Court removed them – but it is unclear where that power came from. Massey v Wales (2003) [NSW] Equal division alone is not enough for the shareholders to take over the board’s decision making p ower. exceptions or limitations in the CA93 or in the company constitution. Re Fletcher Challenge Forests Ltd (2004) – The Court could not look to the transaction – just because subsidiary was selling >50% of its shares. Shareholders have no power to make management decisions or to control/direct BoD. etc. because it was not a major transaction for the parent company.Hogg v Sheppard 95 sections of land. directors created 95 separate contracts so that none would be major transaction on its own. the board was faced with two sensible options. 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. S128(3) S128(3) – board’s power is subject to any modifications. Court found it to be a major transactions because it was essentially a single sale. Good for minority but not bad decisions. they become caretaker directors in the intermediary period – shareholder meetings require time and notice. S126(2) however imposes director duties when exercising management powers. Would not rule out possibility in extreme deadlock case. But there is no other support for the caretaker principle. then SHs could get s 170 injunction for non-compliance.
(see Cromwell v Sofrana) Solvency: the Co has to be solvent. NZ adopted in Westpac Securities Ltd v Kensington  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. The informality can be lax and don’t have to show ac tive assent. as long as there is unanimous consent (i.Unanimous Assent Rule New Act does not explicitly retain the doctrine of unanimous assent but it is a possibility. all turn their mind to the issue) . there are three groups of shareholders resolutions: 1) Unanimous consent falling under s107. Once insolvent. 2) Resolutions reserved by the act or required to be carried out by shareholders by express provision of constitution (s104). Common law doctrine may still apply This is as small companies don’t usually have formally convened shareholders meetings If the doctrine applies. Meridian Global Funds Management Asia Ltd v Securities Commission  3 NZLR 7 In Meridian. Also excludes common law doctrine. that assent is as binding as a resolution in general meeting would be. 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. 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). 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. there are constraints about what can be done by directors. It is enough to show that trustees have assented. Under Companies Act.e. they can all agree at different times and places. S177(4) . 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). 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. o Permits certain acts set out in s107(1) to (3) to be undertaken by written assent of all shareholders. 3) Resolutions not covered by s107 or 104. The SHs can’t be in any better position mainly due to unanimity. Expressly excludes common law doctrine. Statutory regime more restrictive than common law as assent must be in writing following the procedure in s107. UK Re Duomatic Ltd  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. 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.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 Interest group meetings which affects rights of each interest group (s117(b)). . to deal with: o Company business that is urgent. 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. o s121—may do so at any time. shareholder may bring an action under s172 or make an application to Court to convene a meeting (s123). s121—all other meetings besides AGM are special meetings. o Shareholders should set out the basis on which they possess the voting rights. 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. Must go through directors or Courts. if director fails to call an AGM).g. Courts o s123(2)—shareholders may apply to the Court to convene a meeting. o Request must be in writing. o If company is in the process of liquidation. o Directors have the fiduciary duty when faced with a request to consider and exercise discretion whether to hold the meeting or not. o Court looks at voting rights attaching to shares. Who is entitled to call/convene the meeting? Directors o s120—statutory responsibility to call an AGM. o For a meeting to be valid. a shareholder. o Shareholders may be represented by themselves. 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. not the number of shares. 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. o Shareholders do not have to state the objectives of the meeting. liquidator or creditor may request or convene various types of meetings dealing with aspects of the liquidation process. or there could be an action under s174. by a corporate representative (if shareholder is a corporate) or by proxy (person appointed to attend and vote on behalf of shareholder). and AGM must be held on that day. 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. o Does not have to be signed by shareholders (but should occur). o First Schedule requirements are mandatory and may not be changed by constitution unless permitted by the Act. o If they fail to do so. e. Shareholders have no power to convene a meeting themselves. although they must act in good faith. 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. it must be convened or called correctly and there has to be a quorum—minimum number of shareholders must be present.g. Conduct of Meetings s124—meetings are governed by the First Schedule of the Act.
involving the sale of a substantial parcel of Nathan shares held by Fay Richwhite and Co at a cash consideration of $9. subject to s125(4)—not less than 10 and no more than 30 working days from the date of the meeting. Name of person who is to receive and count the votes where postal votes are permitted —First Schedule clause 7(2). hence a notice would be misleading if a person reading the notice in this manner was not able to discern the important points. Nature of the business to be transacted—First Schedule clause 2(2)(a). o Additional information was not supplied within 14 clear days of the meeting. but left out . Persons who invest in companies today are no longer always expected to be business people versed in commercial affairs. Text of any special resolution. Directors are entitled to receive notices of meetings but have no right to attend and speak at the meetings unless the constitution provides. and literally complied (set out the general nature of business to be considered). If persons determined to be entitled to receive notice have sold their shares between the date of determination and the date of the meeting. Malayan Breweries Ltd v Lion Corporation (1988) Facts: Lion and Nathan proposed to merge. the company is entitled to treat the person on the register as the person entitled to vote—s89(2)(b). hence the contents of the notice must be fair to those persons. b) Give notice to those “entitled to attend”. If board fixes date for determination.20 per share.20 per share to Lion. 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. d) Contents of notice Time and place—First Schedule clause 2(1). Necessary detail: Re Marra Developments (1976) Under today’s conditions. Held: Notice of the meeting was delivered to shareholders within prescribed time (14 days before meeting). Arguments: Malayan Breweries argued that: o Notice of the meeting and information in the notice was misleading. Date also cannot be chosen to prejudice a particular shareholder or group. However. If date is not fixed. 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). Shareholders requested supplementary information about the sale of the shares to Fay Richwhite. Auditors—can receive notice and speak on relevant matters (s207(1)). other shareholders in Nathan were to receive a share swap that had a value of far less than $9. Shareholders whose name is entered on the share register are entitled to attend and receive notice. it is the persons on the share register on that date (s125(3)). people tend to read things in a quick cursory manner. o Notice must state the business of the meeting in sufficient detail for a shareholder to form a reasoned judgment about it. o Information was provided too late to allow shareholders to make an informed decision even though there was literal compliance.
and audio visual commercials allowed—clause 3. total cost to Lion of the merger. Postal voting(clause 7(1)) . 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)). and the fact that Lion’s managing director had an involvement with a “put option” over the Fay Richwhite shares. 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. 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. o Clause 4(3)—where a quorum is not present after the first 30min of a meeting. Vote taken by poll o Votes equal the number of shares owned. o Clause 4(2)—company under its constitution may set its own quorum requirements. it did not accord with equitable requirements of full and fair disclosure. a meeting called at the request of shareholders pursuant to s121(b) is dissolved. if not clause 4(2) applied. defect on dividend. o This includes both proxy and postal votes. o Shareholders who are not entitled to vote cannot constitute part of a quorum even if they are physically present at the meeting. a notice of a meeting is misleading and directors may be restrained from either holding the meeting or acting on the resolutions passed. and was not provided with the notice which in itself proffered inadequate explanation. e. 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. Although prima facie the notice complied with statutory and common law requirements. and at the adjourned meeting. Hence. terms of agreement to purchase. 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. e) Non-compliance with notice requirements: Renders the meeting and any resolutions invalid. o Other forms of meetings are adjourned. and any resolutions passed while the meeting is inquorate will not be binding. why the merger at such cost to Lion was desirable. 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. Court found that the explanatory material was sent too late when it arrived less than 7 clear days before the meeting. 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. and shareholders did not receive adequate notice of the general nature of the business to be discussed at the meeting. S212—shareholders may waive their right to receive notice of meetings in writing. the shareholders and proxies present will constitute a quorum if the required quorum is not present after 30min. o Clause 4(1)—meeting cannot validly proceed without a quorum. Company is not obliged to provide any notice while the waiver is in force. Further explanatory material was not given before the 14 day limit. information required for an informed decision to be made on the proposal.g. and the waiver notice may be withdrawn at any time by written notice. asset backing and proprietary ratios of the large cash payout to Fay Richwhite. However.
o This is the percentage of votes of those shareholders entitled to vote and voting on the questions (does not include shareholders who abstain). e. adoption. o Cannot be abrogated by the constitution. alteration or evocation of company’s constitution and approval of a major transa ction. . Special o S2(1)—a resolution approved by a majority of 75% or higher if required by the constitution. shareholders only have a right to be heard. 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. shareholders must have reasonable opportunity to question/discuss/comment on management of company and may pass resolution relating to management of company. S109(3) – unless provided otherwise in the constitution. o Simple majority is 50% of those voting. o S106(1) specifies matters to be resolved by special resolution. Effectively. such a resolution is not binding on the board. 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.g. By proxy o Shareholders can exercise their vote through a proxy representative —clause 6.
(3)The fact that an act is not. powers. a company has. Re Introductions Ltd  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. and privileges. or would not be. and o (b)for the purposes of paragraph (a). or another rule of law. or the power to do the act or to transfer or take a transfer of the property. 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). or o (c)section 169 (which relates to actions by shareholders of a company against the directors). (ii) where it acts in contravention of another provision in the CA93. Eg. and privileges. But the provision or rule must relate to capacity (eg. both within and outside New Zealand. (iii) the contract may not be in the proper form. Might be unjust for third parties who contract with them.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. 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). S18(1) – statutory estoppels – in certain circumstances. s 151(1). A company will thus lack capacity in only two situations: (i) where it acts in breach of an express restriction in its constitution. any other enactment. full rights. S18 – protects outsiders provided they did not know about the breaches of the constitution. or enter into any transaction. or o (b)section 165 (which relates to derivative actions by directors and shareholders). the right. rights. in the best interests of a company does not affect the capacity of the company to do the act. powers. 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. company cannot raise defect against innocent parties. or privileges of the company only if the provision restricts the capacity of the company or those rights. . 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. (ii) the agents acting on behalf of the company may have lacked authority to bind the company. which provides that a company cannot be a director).— o (a)full capacity to carry on or undertake any business or activity. This type of defect is considered in more detail in section 9 of this outline. (2)The constitution of a company may contain a provision relating to the capacity. 16Capacity and powers (1)Subject to this Act. Few companies would want to adopt such restrictions. do any act. powers. (iv) the agents acting on behalf of the company may have breached their duties to the company. and the general law. There are very few such provisions or rules.
within the purpose ) .(i) the board believed on reasonable grounds that the delegate would exercise the delegated powers properly.e. Can show retrospective authority (eg. 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. Note – actual authority can be given after the event right up until before the trial.with seniority but did not follow the appropriate procedure (what’s listed in the constitution). The fact remains that the rules dealing with substantive regulation are still found at CL within the general rules of agency. S128 – authority to bind company to contract is primarily for the BoD. Apparent authority is where even though there is a substantive or procedural defect.e. reliance) (4) the company had capacity to enter (i.Authority to contract Contract was entered within company’s capacity but the people purpo rting to bind it . and (ii) the board monitored the delegate by means of reasonable methods. and not in the Act. 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. S130(1) – allows board to delegate most of its powers with the board remaining responsible for delegated actions unless S130(2) .aren’t sufficiently senior .aren’t sufficiently delegated (substantive defects) . Also allows those being supervised under the BoD. Northside Developments Pty Ltd v Registrar-General (1990) CM 161 Must establish substantive regularity before presumption of procedural regularity will help. Freeman & Lockyer v Buckhurst Park Properties Ltd  2 QB 480 at 500–510 (CA) per Diplock LJ Actual authority means that there were no defects substantively or procedurally. 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. Informal unanimous approval) because = ratification Estoppel Freeman & Lockyer v Buckhurst Park Properties Ltd  (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). This is done by looking at the relationship between the company and the agent to show that there was proper delegation.
induced L.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.Moneyworld NZ 2000 Ltd v Lee (2005) 8 NZBLC 101. . allowing it to go on albeit premises were inactive = holding out. authorised by company to say this.
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