Corporation Law

Class 2
2019
(PREPARED BY TUTOR DANIEL PAN)

Revision week 4 to 7
(on-line test only)
Shareholders meeting
Shareholders remedies

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 Types of Meeting

• General Meeting
• Must held for proper purpose (s.249Q)
• Annual General Meeting
• Must held once a year for public company (s.250N)
• Extraordinary Meeting
• Meeting of using technology (s.249S)
• Paper Meeting (vote by signature) (s.249A)
• Resolution ： general / special
 Calling the Meeting
• S.249C (RR) / S249CA （ listed,law): a director can call
general meeting
• S.249D : Member can demand the directors to call the
general meeting if
• Members at least 5% voting shares or
• At least 100 members entitled to vote for the matter
• Request must in writing and stating proposed resolutions
(s.249N)
• ** according to law, director must call the meeting within
21days and the meeting must held within 2 months after
the request.
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 Calling the meeting
• S. 249E if the directors fail to commit to the request,
then:
• Members with more then 50% votes in those who request
can call the general meeting at the company’s expenses.
• S.249F : members can call without the need to make
request
• 5% voting rights or 100 members entitle to vote
• At member’s expense
• S.249G: court to call general meeting when its
impractical for member to do so.
• S249 N: member can request inclusion of resolution
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Notice of meeting
• 21 days notice (s.249H) or longer by constitution

• 28 days notice for listed company (s.249HA)

• Written notice must be given to member and directors

(s.249J), to auditor s249K
 Requirement of the Meeting
• Quorum:
• R.R is 2 (s.249T)
• Might set by constitution
• Technology (s.249S)
• Hold meeting at 2 or more venues is possible
• Using technology is possible but need to give reasonable
opportunity for members to participate.
• ** might result in action under s.1322 if substantial injustice incur.
• Proxy:
• S.249X : always has the right to appoint proxy for public company
shareholders (Mandatory provision)
• S.249 X is a RR for proprietary company
• S.249Y: proxy has the same right as members

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 Requirement of the Meeting
• S.249U: the need for the chairperson to hold the
meeting
• Must allow reasonable opportunity to be asked
• Has the power to adjourn meeting
• Has a casting vote s.250E
• S.251A: minutes record should be kept
• Ways of voting on the matter
• By show of hand (s.250J)
• By showing of hand regardless of no. of share held (default)
• By poll (s.250L) : one vote for every share held
• Can be demand by chair
• At least 5 members
• Members with 5% votes
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 1, Procedural irregularity

• Procedural regularity Bell resources Ltd v Turnbridge Ltd

• 21 days notice (s.249H) or longer by constitution
• 28 days notice for listed company (s.249HA)
• Written notice must be given (s.249J)
• Content: information must fully & fairly instruct (Devereaux
Holding’s Case)
• Place, date and time
• Nature of the business
• Detail of proposed resolution
• Procedure to appoint proxy

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Prove of Procedural irregularity
• Prove of Irregularity
• Invalidation of meetings
• S 1322(2): absence of quorum,
• s 1322(3) – failure to give or receive notice;
• s 1322(3AA) – inability to access notice;
• s 1322(3A) – lack of opportunity to participate;
• s 1322(3B) – contravention of voting rights pursuant to s
249D(3).
• Prove of Substantial Injustice
• Procedurally injustice
• Substantially injustice (and problem cant be fixed)
 Member’s right and remedies
• Statutory Derivative Conduct (S.236)

• Action for Oppressive conduct (s.232)

• Winding up order (s.461)

• Statutory injunction (s.1324)

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 Statutory Derivative Conduct
(S.236)
• What is a SDA ?
• A derivative action is base on the legal action which the
company has.
• Legal has taken by members in the name of the
company (on behalf of)
• Compensation paid to the company (member only
received indirectly)
• Action are taken in a personal capacity !!
• But cost might by recovered by court order (s.242)

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 • 4 possible case you might apply for SDA:
• Directors breach of fiduciary duty
• Wrong done to the company
• Third party breach of contract
• Tortuous commit by the third party
• Who may apply ?? - s.236(1)(a)
• Present or former members or officers (not creditors!)

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 • A court order (leave) is required for the grant of SDA (s.237)
• Evidence suggest company will not take proceeding (14 days notice)

• In good faith (Swannson v Pratt)

• In the best interest of the company

• Serious questions to be tried.

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 Oppression
• Action for oppressive conduct (s.232)
• Apply to all types of company
• **Only members can take action
• Must be a present member when the action is taken. (unhappy
shareholders?)
• Unless the membership was unfairly remove by oppressive action
• **Action can be taken even if the member was affected
in the capacity other then a member.
• Action cant be taken if company is under liquidation.
(Webb. Standfield)

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 S232
• S.232:
• if the company
• Affair / Action /Resolution
• 1. Are oppressive: (?) –2. unfairly discriminate to
• Oppressive? (dishonest motive required ?)
• Diversion of business to others/ not act in the best
interest ( Scottish co-operative v. Meyer)
• Improper exclude of management (Hogg v. Dymock)
• **Unfair restriction of dividend (Sandford case)
• Share issue to reduce ownership (kokotovich
construction pty ltd v walling ton)

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 Winding up order
• A winding up order (s.461)
• Who can apply:
• Company /Creditor / Members / Liquidator / ASIC
• S.461(1)(e): when dir unfair to members
• S.461(1)(f): oppressive conduct
• S.461(1)(k): just & equitable
• Deadlock (Re Yenidjie Tabacco Co. Ltd)
• Failure of substratum (re. Tivoli Freeholds)
• Fraud & Misconduct (Re neath Habour Samelting)
• Break down in mutual trust ( Ebrahimi v. Westbourne galleries)
• S.467(4)
• Order will not be granted if there is other better remedy or
unreasonable to apply.
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 Statutory Injunction (s.1324):

• Statutory Injunction (s.1324):

• Apply by
• ASIC or
• Person being affected.
• If contravention of the Corporation Act is likely
• A member can apply under s.1324 which related to
s.180 to s.183 (Mesenberg v cord industrial recruiters)

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 Directors
• Who is a director ?
• S.9 : definition included any persons appointed to position
• Agent and other officer (included company’s sectary)
• ** included defecto director (drysdale’s case)
• Shadow director
• Different type of directors:
• Managing director
• Chairman
• Executive & non-executive
• Nominee directors and alternate directors

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Corporation Law
(PREPARED BY TUTOR DANIEL PAN)

Directors
Directors Duties

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• Directors duty
• S180(1), s180(2)/ s181/s182/s183 (employee)
• s588G
• S191/s194/s195
• S207/s208 (public)

• s203C/s203Db
 Director’s Duty Summary
(Statutory duty)
• First out of the First thing you should do is to justify if the
company is public or Proprietary!!
• S. 180(1)
• Due care and diligence
• Defence: Business Judgement Rule s.180(2)
• S.181
• Exercise power in good faith
• In best interest of the company
• For proper purpose
• S.182
• Misuse of position to gain self-advantage & cause detriment to the
company
• S. 183
• Misuse of information
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 • S. 588G
• Insolvent trading
• S.588H as defence
• S. 191(1)
• Disclose of personal material interest
• S.194 (for Pty) after disclose, can vote
• S.195 (for Public) after disclose, can not vote unless
board of directors pass resolution
• S.208
• Chapter 2 E
• Prohibition of giving financial benefit to related party!!

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Due care and Diligence
s180
• S.180(1): apply to officer
• Must exercise power with due care and skill (Vines)
• Apply to non-executive directors (Daniel v Anderson)
• Issues: whether a reasonable person in the same
position would have done the same thing.
• ASIC v Healey 2011, ASIC v Adler (2002)
• Result of the breach
• Civil penalty under s.1317E (s.206)
• Not a criminal offence under s.184
• Pay company’s damages s.1317H
Standard of Deligence
Defence 1
• S.180(2) BJR
• Apply both under common law and statutory law
s.185(2)
• If the defendant meet all the requirement state under
s.180(2), than it’s a perfect defense under due care
provision
• Criterias of s.180(2):
• Good faith and proper purpose
• Without material interest
• Inform themselves about the subject matters
• Rationally believe its in the best interest of the company
 Defence 2

• Other defense: s189

• S.189 : directors reasonable reliance on information
• Directors must:
• Reasonable reliance with good faith s.189(c)
• Making independent assessment about the subject matter
• Information must be given by
• Professional
• Competent employee
• Directors with authority & board of directors
Defence 3
• Other defense: s190
• If directors has delegate power to an agent under s.198D
• Director has the responsbility under s.190(1)
• However, defence apply under s.190(2)
• If the that is a reasonable ground to trust the delegate
• Make all necessary enquiry
• Delegate is reliable and competent
 Duty to act in the best interest
s181
• S.181: apply to officer
• act in the best interest of the company as a whole (5)
• Exercise power for proper purpose (3)
• Common law equivalent
• Duty to act bona fide and best interest
• Duty to exercise power for proper purpose
• Result of the breach:
• s1317E, s1317H,s1317G
• S184 (intention) – criminal offence
 Best interest?
• What is the best interest?
• For the firm as a whole (Greenhalgh v Ardene Cinema)
• Not employee (park v daily news ltd)
• To individual member when reliance is substantial
(Coleman v. Myer)
• Insolvent: act in the best interest of creditor (Walker v
Wimborne)

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Proper Purpose
• Exercise power for proper purpose
• Do not need to be the substantial purpose
• “but for Test” – whitehorse v. carlton hotel
• Breach even its in good faith
• What is the improper purpose:
• Issues shares to maintain control (majority to minority)
• Restrict share transfer
• Prevent hostile take over
• Entrench the existing BOD
 Corporate Group
• Directors duty to each company separately (walker
v Wimbonre)

• Reasonable director test (Equiticorp Finance v BNZ)

• S.187: exception :
• Constitution authorize and
• In good faith and the best interest of the holding and
• Sub is not insolvent
 When shareholders need to pay
company debts
• S.516 : normally not

• Piercing the corporate veil

• Avoiding legal duty (Gilford motor)
• Holding company for worker underpayment (Fair work
act)
Duty for insolvent trading
s.588
• S.588G: apply to directors
• Only apply to directors
• A debt incur when the company is insolvent
• Voluntary issue / contingent debt issue
• Or the incurrence of the debt cause company’s
insolvency
• S.588E
• Directors is liable when
• He has a reasonable ground to suspect
• Or he should known the existence of insolvency
 Defence
• Defense : S.588H
• (2): reasonable ground to expect solvency
• (3):reasonable reliance on information
• (4):absence from management
• (5):reasonable step to prevent insolvency
• (6) : other good reason
• 2019 New Law : Safe Harbour
• S.588GA : starts to develop course of action to lead to a
better outcome (burden of prove)

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• Civil penalty apply s.1317E
• Liquidator demand compensation s588M
• Creditor demand compensation s588S s588T

• Criminal offence (suspect and fail to prevent) : s.

588G(3)
• 2000 PU or 5 years imprisonment
 Ratification
• Ratification of the breach of the duties
• Only common law duties can be ratified
• Members can ratified the directors breach of duties but not
the statutory duties under corporation act
• Pass ordinary resolution
• Requirement :
• Member must be fully informed
• Full and frank disclosure
• If the breaches are ratified, the company loss:
• The right to rescind external contract
• The right to sue directors for damages
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 • Exception apply:
• Fraud on minority
• Oppressive behavior
• Prejudice creditor
• Affect personal right
• For improper purpose
• Misappropriation for company’s asset

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