Company Law Assignment PDF

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Company Law Assignment AGLC referencing
Company Law 2310
UWA
Semester 2 - 2015...

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Part A i.

ii.

iii.

Peggy indirectly enter into contract as there is only one signature. She can act as agent to enter a contract under S126. There is no express authority as Peggy was not informed by company to borrow the money. The money she borrowed to buy pine plantation was for her own holiday retreat and the amount is considered very huge, it is not an ordinary business. There is a clause that directors cannot enter a contract by themselves if it is more than $10000 which means Peggy knew that she cannot enter the contract by herself. Therefore, there is no implied authority too. In Freeman and Lockyer v Buckhurst Park Properties1 shows that there are three requirements have to be met to show that there is ostensible authority. There is no ostensible authority as Peggy has no authority to represent Shoemart because she is not formally appointed as managing director by the board. Third party will not reasonably believe that Peggy can sign the contract as she has no authority and the amount of this contract was very huge. Although Peggy’s name was lodge into ASIC, as director, she doesn’t has any customary authority to enter contract unless expressly given. Therefore, it has not meet S129(2) andS129(3). As a conclusion, there is no binding contract. Outsider can recover damages from agent for breach of warranty of authority. Al entered the contract indirectly as there is only one signature. He may be an agent under S126. There is no express authority as he never told by the board to sign contract. There is no implied authority as he enter the contract as chairperson who has no customary authority to enter into contract. It is similar Hely-Hutchinson v Brayhead Ltd 2. There is no ostensible authority, third party will not reasonably believe that Al Bundy can sign the contract as chairperson which has no customary authority to enter a contract. Although Al’s name was lodged in Asic, as chairperson, he has no customary authority to enter a contract on behalf of Shoemart. Therefore, it has not meet the S129(2)and S129(3) assumptions. As a result, there is no contract binding. Outsider can recover damages from agent for breach of warranty of authority. In this case, company execute contract indirectly as there is only Bud’s signature. Bud act as agent to enter into contract under S126. There is no express authority because Bud never told by board to buy sofa. Buying sofa considered as administrative authority which is included in company secretary’s customary authority. However, the clause any contract for more than $10000 requires the unanimous consent of all directors shows that Bud cannot enter the contract by himself. Therefore, there is no implied authority. As a third party, it is reasonable to believe that Bud can sign the contract as company secretary because buying sofa is administrative authority and third party doesn’t know

1Freeman and Lockyer v Buckhurst Park Properties [1964] 2 QB 480 2 Hely-Hutchinson v Brayhead Ltd [1967] 1 QB 549

about the clause. Therefore, there is ostensible authority. Similar to the case ReMadi Pty Ltd3, Bud’s name was lodged in ASIC which has meet S129(2) that Bud is duly appointed and has customary authority as company secretary and also meet S129(3) as company secretary was held out by company and considered as officer. As a conclusion, the contract with Ickea was bound. It is a direct execution of contract as the agreement need two signature to make the contract binding. In this case, for a document duly executed without seal to be bind, it should meet S129(5) and signed accordance to S127(1). Peggy signed her name and Al’s name as director of Shoemart. This shows that the agreement was assume to be executed by company which was stated in S129(5) and met the requirement of 127(1)(a) of signed by two directors. Shoemart wish to get out of the contract after that. Retrovision can use S128(1) as they can prove there is a binding contract because the contract signed has been bound under S129(5).Even though Peggy forged Al’s signature in the contract, the contract has been agreed by company previously. According to S128(3) the assumption may be made even there is fraudently or forges which is similar to Story v Advance Bank Australia Ltd4 and the court held assumption could be relied on. Therefore, according to the decision made by court, company still entitle to the contract. There is no evidence to prove that Retrovision knew and suspected that assumption was incorrect as the contract look genuinely with two director’s signature, therefore, S128(4) is not incurred in this case. As a result, there is contract binding and Shoemart is entitled to the contract.

iv.

Part B i.

Promoter is someone who is actively involved in formation of a company. There are three duties that promoter is owed to the company. In this case, there is no independent board just like Erlanger v New Sombrero Phosphate Co5, therefore, proceed of disclosure should be completed in general meeting. Al didn’t make disclosure in general meeting. Because there is no disclosure, Al has made a secret profit and there is conflict of interest by selling the business and the building. Al has breach the duty of promoter, company can seek for remedies. Company cannot use rescission because there will be innocent third party right involved such as suppliers. However, company still can use accounts of profit, which is similar to the case Gluckstein v Barnes 6, the court held that company canrecover the secret profit. To get derivative action, Kelly has to meet two requirement under S236(1) and S237. She has meet S236(1) as she is a member. To meet S237, Kelly has to satisfied five criteria under S237(2). In this case, S237(2)(a)has met because Bud and Peggy didn’t have intention to sue Al and told Kelly should not begrudge Al the overpayment. It has S237(2)(b) too because Kelly sue Al for the interest of company. It has met S237(2)(d) as breach of promoter duty is a ‘serious question’ to

3 Re Madi Pty Ltd [1987] 5 ACLC 847 4 Story v Advance Bank Australia Ltd [1993] 31 NSWLR 722 5 Erlanger v New Sombrero Phosphate Co [1878] LR 3 App Cas 1218 6 Gluckstein v Barnes [1900] AC 240

ii.

be tried. For S237(2)(e), if Kelly give 14days notice to company, Al may run away from the responsible, therefore, Kelly can ask permission from court to waives notice. To defend themselves, Peggy and Bud can use S237(3)(c) to prove it is “not in the best interests of co” to sue Al. company is not act in good faith for proper purpose as they didn’t take any action to ask Al to recover the secret profit. In general, there is material personal interest between Peggy, Bud and Al because they are Al’s sister and brother and the shares they have was given by Al. Since Peggy and Bud knew about the problem, they didn’t seek research in this case sees a lawyer, therefore, they cannot prove S237(3) (c)(iii). It cannot be rationally believed that it is in the best interest not to sue Al for recover the secret profit. Therefore, Kelly can prove S237(2)(c) that sue Al is in the best interests of Co for applicant to be granted leave. Since she has satisfied all criteria under S237(2) she can use S242 to recover all fees through company funds. As a result, her application will be succeed and the secret profit recovered will go into company. Kelly will be able to get benefit in the long run as a shareholder. Board of directors under S198A or single director under S249C for constitution can call general meeting. Kelly can use S249D to request board call general meeting as she owns 80% shares. On failure by Board, she can use S249E to call a general meeting and Shoemart has to pay for the cost. A 21days notice have to give to all members and directors. Kelly can change the clause under S136(2) with a special resolution and dismiss Al under S203C RR with ordinary resolution with 21 days notice because she has 80% shares. In this case, after the clause has been deleted, Al cannot use oppression because he cannot prove there is unfairness. He cannot use common law restriction too as he cannot prove there is unfairness and improper purpose. It is totally different to Gambotto v WCP Ltd7, the court held that the alteration was invalid because there is improper purpose. In this case, It is same as the case Shuttleworth v Cox Bros Ltd8 under S140(1)(b), the court held that there is no damages payable and dismissal is valid. If there is a separate employment contract, just like Allen v Gold Reefs of West Africa9, removed director can sue for damages of wrongful dismissal. Al may claimed that the general meeting was lack of quorum under S1322(1)(b)(i) as Peggy didn’t attend the meeting. Under S1322(2) the proceeding will be invalidated unless court is of the irregularity caused “substantial justice”. It is same with Re Pembury Pty Ltd 10. The court held that there was no injustice as the outcome will not be different. Even though Peggy was absent, the resolution still valid.

Part C i.

It is a preregistration contract, Kelly enter into contract with officeworks on behalf of Shoetrade Pty Ltd. However, company’s name has been changed into Shoemart Pty Ltd before incorporation, therefore, Shoetrade Pty Ltd is not registered. In S131(2) where

7Gambotto v WCP Ltd [1995] 16 ACSR 1 8 Shuttleworth v Cox Bros Ltd [1927] 1 Ch 154 9 Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 10 Re Pembury Pty Ltd [1993] 1 Qd R 125

ii.

iii.

iv.

company is not registered or fails to ratify, person who signs liable to pay damages. The example case is Bay v Illawarra Stationery Supplies Pty Ltd11, only the person who signed the contracts liable for the damage. However, it is not Kelly’s fault to enter the contract and the company is using the computer, she can apply to court to defend herself, in this case, court will order company to pay all damages under S131(3). There is a possibility that court will ask Kelly to pay all the damages under S131(4), but it is unlikely to be happened. To change clause, general meeting must pass a special resolution which has to be more than 75% agree with it under S136(2). In this case, Peggy and Bud cannot change the clause as they just have 20% shares. Under S125, breach of objects clause does not make contract invalid and Kelly can seek declaration and perhaps general law injunction. She also may be relied on S232 oppression action or in a suit for breach of directors duties under S181. As a result, there will be a restriction to stop Peggy and Bud from dismiss Kelly as consultant. Under S231(b) a person is a member of company when their name entered on register. Under S1070A Kelly can transfer her share to Elle. They have to transfer the share according to the procedure under S1071D. Under S1071E, company has to make decision within two months. If company refuse to register transfer, Kelly and Elle may apply to court for an order under S1071F(1). The court will order that the transfer be registered if it is satisfied on the application that the refusal or failure was without just cause under S1071F(2). In this case, Peggy and Bud refuse Kelly to transfer the share to Elle as they feel shareholder should be family member which is same as the case Re Winmardun Pty Ltd12. The court held that it is an invalid reason because there is no clause stated that shareholder must be a family member. Kelly can call an extraordinary meeting by herself under S249F as she has more than 5% shares.To change the name and the type of company, it must pass special resolution under S162(3). The resolution will pass as Kelly own 79% shares. Shoemart can change to Limited company under S162(1). Shoemart must lodge an application with ASIC under S163(1) and the application must lodge according to the content under S163(2)(a) and S163(2)(d). Under S163(2)(a)(i), Shoemart can lodge a copy of special resolution that resolves to change the type of the company, specifies the type and the company’s new name. Therefore, when Shoemart change the type of company, it can also change the name straight away. Under S201A(2), public company must have at least three directors and under S204A(2), public company must have at least one company secretary. Therefore, Shoemart have to appoint new director to reach the requirement of S201A(2). Under S165(2)Company must comply with the direction within 2 months after being given everything necessary to change to a public company under S164. If company does not comply with S165(2), ASIC will change the company from proprietary company to public company by altering details of the company’s registration to reflect the company’s new type under S165(3). ASIC must give company a new certificate of

11 Bay v Illawarra Stationery Supplies Pty Ltd [1986] ACLR 429 12 Re Winmardun Pty Ltd [1991] 9 ACLC 238

registration after the company has change the type successfully under S165(5). In second proposal, Kelly can remove director and appoint another person as director instead under S203C RR by giving them 21 days notice. However, Peggy and Bud did not act fraud, there is a breach of provision which amount to a breach of contract under S140(1)(b). Peggy and Bud cannot use injunction but they can ask for damages. Peggy and Bud can use oppression under S232(c) resolution and can prove that there is oppressive, unfairly prejudicial, unfairly discriminatory, against member in that or any other capacity under S232(e) because the proposal is purposely against them and pull them down to position that lower than Kelly and Elle. If court held that there is oppression, court will order company under S233, however court is unlikely to wind up Shoemart if it is operating profitably. They can also use common law restriction as they can prove that Kelly was act unfair and improper purpose. This is similar to the case Gambotto v WCP Ltd, the court held that the alteration was invalid. If there is a separate employment contract, removed director can sue for damages for wrongful dismissal on the separate contract just like Allen v Gold Reefs of West Africa Ltd. As a conclusion, Kelly may remove Peggy and Bud but company has to pay damages. For third proposal, it has to pass special resolution and a special resolution of class under S246B. It will pass special resolution but is unlikely to pass the class special resolution because the constitution will affect minority interest. If member in that class do not all agree to the resolution, member who hold at least 10% shares in that class who are Peggy or Bud can apply to court to have variation set aside on the ground of unfair prejudice under S246D. As a result, it is unlikely to success in passing the resolution to add this constitution. (2410Words)...