BLAW20001 Assignment H2B PDF

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Corporate Law Assignment...

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Question 1 Can Swish & Flick issue the new ordinary shares? Companies, both public and proprietary, hold the legal capacity and power to issue shares under S124A (1) (a), with this ability exercisable by the board of directors, within their power over the management of the company’s business granted by S198A (1). Ordinarily, pursuant to S250E (1), shares will carry one vote, however a company may determine the rights and restrictions attaching to shares issued under S245B (1) (b). On this information, Swish & Flick Pty Ltd (S&F) can issue the new shares with additional voting rights. However, some restrictions apply. S&F must ensure that at the conclusion of the share issue, it has no more than 50 non-employee shareholders in order to comply with S113 (1). Furthermore, it must determine whether there will be a variation of class rights, as this would require member approval. A change to the power or enjoyment of rights is not considered a general law variation of class rights, as determined in the Greenhalgh (1946)1 case. Therefore, upon issuing the new shares, existing shareholders would not experience a general law variation of class rights, as their strict legal rights (right to vote) would not have changed. However, there is a deemed variation of class rights under S246C (5), as S&F, a company with one class of shares, will have issued a new class of shares with differing rights (double voting rights) and these rights are assumedly not provided for in the company’s constitution. The necessary actions required by S&F, as a result of this deemed variation are discussed below. Actions S&F must take before it can issue the new shares Where there is a deemed variation of class rights, members are required to approve a share issue. Clause 1 of the company’s constitution sets out a procedure for varying class rights and therefore should be followed, pursuant to S246B (1). The variation of existing member class rights must be approved by the company as a whole, by ordinary resolution (simple majority) before the share issue can take place. Depending on the circumstances of the company and the desires of its members, this resolution is more likely to be passed than if the procedure set out in S246B (2) were followed, which would require multiple, more stringent special resolutions to be passed. However, given the existing shareholders will have diluted voting power, they are unlikely to vote in favour of the issue and the resolution is unlikely to be passed. Therefore, S&F can issue the new shares, however must ensure it complies with nonemployee shareholder limits and seeks member approval by ordinary resolution, pursuant to Clause 1 of the company’s constitution, to approve the ensuing variation of class rights.

1 Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512

Question 2 Can Draco call a general meeting? Under Clause 2 of the company’s constitution, a member may only call a general meeting if more than 25% of members agree. However, this clause is invalid, given none of S249D, S249E or S249F, which govern the calling of members meetings by members, are replaceable rules. Directors must call and arrange to hold a general meeting upon requisition of members holding 5% or more of votes exercisable at the meeting, under S249D (1), with the company bearing the costs of holding the meeting. Similarly, members holding 5% or more votes to be cast at the meeting, may call and arrange to hold a general meeting under S249F (1), although must bear the associated costs. Draco can therefore call a meeting under either of these sections, as he holds well in excess of the 5% of votes required. However, Draco may not be able to call the meeting under general law. S249Q requires that meetings be held for proper purpose, whilst directors’ need not convene a general meeting if that meeting does not have a proper purpose, as decided in NRMA v Parker (1986)2. Use of company capital falls within the sphere of the day-to-day management of the company, responsibility which lies with the directors under S198A (1). In the NRMA v Parker (1986) case, it was determined that members cannot take it upon themselves to make decisions with regards to matters exclusively in the power of directors, and any meeting called for such a purpose would not constitute proper purpose. As Draco is merely a member of S&F and not a director, it is not within his scope of power as a member to discuss and make decisions with regards to the use of capital and therefore would not be able to request the directors convene a meeting under S249D, or convene the meeting himself through S249F, as it would not be for proper purpose. Therefore, Draco will ultimately not be able to call a general meeting of members, for the purpose of discussing the use of company capital to expand into gem and precious stone trading.

2 NRMA Ltd v Parker (1986) 4 ACLC 609...