Corporation law summary sheet PDF

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full coverage of the lectures weeks 1-4...

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Week 1 Companies -Companies are artificial creations. -Australia has adopted several different legislative approaches to the regulation of companies over the years however, from 15 July 2001, a fully national regulatory scheme was put in place. Constitutional issues regarding companies -Section 51(xx) of the Constitution gives the Commonwealth a limited power to make laws with respect to “foreign corporations and trading or financial corporations formed within the limits of the Commonwealth”, but power to legislate for the registration/incorporation of corporations belongs to the States: New South Wales v Commonwealth (1990). -However, the states can “refer” their powers to the Commonwealth under s51(xxxvii). -From 1901 to the 1950s Each State (colony before federation) had different Acts based on the English Companies Act, and maintained their own administration. -There was no uniformity of legislation or administration. There was no Commonwealth involvement though Cth used s51(xx) to regulate what corporations could do. -Companies wishing to raise funds or conduct business on a national basis were frustrated by the need to meet different requirements in each State. -This lack of legislative and administrative uniformity combined with multiple regulators was also hampering supervision of the share markets and prejudicing investor protection. 1961-1963 Uniform Companies act 1961 -Each other State Act was based on the Companies Act 1958 (Vic), but each State maintained their own administration. -Moves to enact uniform companies legislation to overcome these difficulties began in the 1960s, but uniformity was not achieved until the introduction of the Co-operative Scheme in 1979. 1978-1991 Co-operative scheme -Companies Code 1981: Uniform legislation introduced in each State and administered by State and Commonwealth Commissions. -Established by: The Formal Agreement December 1978. -Administered by: a) political arm: Ministerial Council b) executive arm: National Companies and Securities Commission (Cth) c) day to day: Corporate Affairs Offices (State) -Decisions made by State CACs were not nationally consistent. -Administrative duplication Þ increased costs for business. -The structure of the Ministerial Council impeded legislative reforms. -Accountability - only the NCSC accountable to the Ministerial Council, thus no one minister accountable. -NCSC poorly funded Þ effective national enforcement suffered.

1989 Corporations Act -In 1989, a proposed national scheme was introduced. -The Commonwealth attempted to cover the field of incorporation and regulation of companies. -High Court Challenge: In 1990, the validity of the Corporations Act was successfully challenged in the High Court by the States. The High Court held that the Commonwealth has no power over the incorporation of companies: New South Wales v Commonwealth (1990) 169 CLR 482. -After the High Court decision, a compromise was reached between the States and Commonwealth and the States agreed to adopt the Commonwealth legislation by passing an Application Act, known as the “Corporations Law.” The States were compensated for loss of their CACs. This is known as the Alice Springs agreement. -1 January 1991: Corporations Law: The uniform legislation was nationally administered, enforced and to a large extent reformed by Australian Securities Commission (ASC). Inter-governmental reference agreement -The High Court held that the cross-vesting legislation, under which the State jurisdiction to hear corporate law matters had been conferred on federal courts and vice versa, was unconstitutional as regards the States : Re Wakim; ex parte McNally (1999). -The successful constitutional challenges caused widespread uncertainty for the Australian and the international business community. -Pressure from business led the Commonwealth and the States to reach an intergovernmental reference agreement on 21 December 2000 to resolve these constitutional difficulties. -The inter-governmental reference agreement replaced the Alice Springs Agreement. Corporations Act 2001 (Cth) -Under this agreement, the States passed legislation referring the making and amending of laws in respect of corporations to the Commonwealth. -This legislation was passed by all States and the new scheme commenced on 15 July 2001 when the Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) came into force. -The substance of these statutes is largely the same as that of the former Corporations Law and ASIC Act. -A ‘sunset clause’ provides that the referral will operate for five years, and will then terminate, unless it is extended by the States. -In fact, it has been extended. The Commonwealth has agreed not to amend the Act without prior consultation with the Ministerial Council and, in most cases, obtaining the approval of the Ministers of at least three States. -From its introduction, the provisions of the Corporations Law underwent almost annual reform. -Some of the reforms were substantive, while others were aimed at simplifying the legislation and making sure that it used plain English wherever possible. -The two major reforms programs were the: • Corporations Law Simplification Program; and • Corporate Law Economic Reform Program (CLERP).

ASIC -ASIC’s mission is to achieve maximum credibility for Australian financial and securities markets. This underpins the effectiveness of Australian companies. -The ASIC Act provides that ASIC is itself a body corporate. It is comprised of between three and eight “members” and is headed by a full-time Chair. -ASIC’s main functions are the: regulation and maintenance of corporate information; Investigation and surveillance of company behaviour; enforcement of CA 2001; law reform and education; and consumer financial protection- a new body Australian Financial Complaints Authority (November 2018) . ASIC and international co-operation -ASIC has also signed Memoranda of Understanding with corporate regulators in other countries, including United States, the United Kingdom, New Zealand, Hong Kong, Italy, France, Malaysia, Germany, Indonesia, Thailand, China, Brazil and Canada. -These agreements aim to coordinate enforcement where transactions occur outside Australia, and thereby enhance investor protection. Indigenous Corporations -The Office of the Registrar of Indigenous Corporations is an independent, statutory body enabled by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth). ORIC was set up with the key purpose of supporting and regulating corporations incorporated under CATSI. -Some of the functions of ORIC include advising Indigenous business structures on how to incorporate and providing training in good corporate governance to directors, members and officers of the corporation. Australian Stock Exchange -ASX functions as a market, regulator, clearing house and payments system facilitator. -It oversees compliance with its operating rules, promotes standards of corporate governance among Australia’s listed companies and helps to educate retail investors. -To preserve integrity of financial markets and promote robust oversight, its supervisory role was transferred to ASIC by the Corporations Amendment (Financial Market Supervision) Act 2010 (Cth). Australian Competition & Consumer Commission (ACCC) -The ACCC promotes competition and fair trade in the market place to benefit consumers, businesses and the community. -The ACCC is an independent statutory authority with a chairperson, deputy chairperson, full-time members, and ex officio and associate members. -A Co-operation Agreement was signed by ASIC and the ACCC which provides that the two agencies will refer complaints to the most appropriate agency, exchange information (where that is permitted by law) and, if required, undertake joint responses to problems in the market.

Australian Prudential Regulation Authority (APRA) -APRA is responsible for the prudential supervision of banks, life and general insurance companies and superannuation funds. -APRA is a statutory authority. Its Executive Group of three members appointed by the Treasurer are responsible for determining goals, priorities and strategies. -ASIC has entered into an agreement with APRA which provides for a framework for enforcement and compliance. Cth Director of Public Prosecutions (DPP) -The DPP is responsible for the conduct of prosecutions for offences against the laws of the Commonwealth and for the conduct of criminal confiscation action in relation to such offences. -The office is headed by a Director. -Guidelines have been established between ASIC and the DPP to ensure regular communication, and for ASIC to consult with the DPP before taking any civil enforcement action, where a criminal prosecution may also be available. Financial Reporting Council (FRC) -The Financial Reporting Council is responsible for monitoring the process of setting auditing and accounting standards and for monitoring and assessing the arrangements for auditor independence and audit-related disclosure. -Under s 235A of the ASIC Act, members of the FRC are appointed by the Treasurer and hold office on terms and conditions determined by the Treasurer. -AISC and the FRC have entered into a Memorandum of Understanding to discharge their responsibilities. Takeovers panel -The Takeovers Panel is the primary forum for resolving disputes about a takeover bid until the bid period has ended. -The Panel is a peer review body, with part-time members appointed from the active members of Australia's takeovers and business communities. -The Takeovers Panel may hear and determine applications for unacceptable circumstances made under s 657A(2)(b) of the Corporations Act: Attorney-General (Commonwealth) v Alinta Ltd [2007]. Companies Auditors and Liquidators Disciplinary Board -The Board has the functions and powers conferred on it by or under the Corporations Act 2001 (in particular ss 1292 to 1298) and ASIC Act (in particular ss 203 to 223). -The members of the CALDB are selected from throughout Australia and must be Australian residents. -The Board can, on application from ASIC and after a hearing conducted by a panel, cancel or suspend the registration of, or impose monetary penalties on, an auditor or liquidator who has failed to carry out her or his duties properly, or is otherwise unfit to remain registered.

Parliamentary Joint Committee on Corporations and Financial Services

-This Committee reviews ASIC’s Annual Report and is sometimes asked to consider proposed legislation. -It comprises five Senators and five members from the Commonwealth House of Representatives. -While primary responsibility for ASIC rests with the Treasurer, the Committee provides additional parliamentary supervision. (Cth Dept of) Treasury -The Treasury is a central policy agency, a department of the Commonwealth government, mainly responsible for the collection and spending of Cth (taxpayers’) money. -The Treasury is thus engaged in a range of issues from macroeconomic policy setting, to macroeconomic reform, climate change, social policy, tax policy, international agreements and forums. -The Commonwealth Treasury both advises on and instigates proposals for reform of the Corporations Act.

Week 2 Entities -Non-corporate business structures include: partnerships, unincorporated associations, Incorporated associations, joint ventures, trusts and sole traders/operators. Partnerships -A partnership is a relationship between people who carry on business in common with a view to making a profit. -The “people” can be either individuals, companies or other bodies corporate. -A partnership is essentially a matter of contract. The individual partners enter into a contract (the partnership agreement) as to how they will conduct the partnership business. -Subject to any contrary statutory provisions, the mutual rights and obligations of each partner are governed by this agreement. -A partnership agreement may be: a formal written agreement; partly in writing and partly oral; or may be purely oral or wholly or partly implied from the conduct of the partners. -Each State and Territory has its own legislation governing partnerships. The partnership Acts expressly provide that the pre-existing rules continue to apply except in so far as they are inconsistent with the Partnership Acts. -Forming a partnership does not involve any initial formalities, such as registration, other than the need to obtain an ABN Australian Business Number and there are no ongoing requirements to lodge returns of any kind (although a partnership tax return would be completed). -A partnership is a relationship, it is not a separate legal entity, although, for procedural convenience, Rules of Court allow a partnership to sue or be sued in the partnership or firm name, and is required to lodge a tax return to ascertain each partner’s share of profit or loss. -Section 115 CA 2001 (Cth) allows a partnership to have a maximum of 20 members, but there are exceptions for professional service partnerships, like law and accounting firms: see [Y&X 2.80, L&H 2.350]. -s.5 Partnership Act 1958 (Vic) partnership definition requires there to be: two or more people; carrying on a business in common; and have a view to- intend to- make a profit. Liability in Partnerships -Since the partnership is not a separate legal entity, each partner is personally liable to outside creditors to the full extent of the debt -Each partner is an agent of all the others. In most cases, the act of a partner binds the other partners. They are personally liable to the full extent of their assets –see L&H ch 2.295 -In contrast, a limited partnership: consists of general and limited partners; allows for some partners to have unlimited liability jointly and severally, whilst other “limited partners” are akin to investors in the partnership. Partnership and outsiders -Transactions entered into by one partner which are within the usual scope of the firm’s business will normally bind both the firm and the other partner(s). -The exceptions are:if the partner was acting without authority and the other party knows this; or the other party does not know or believe that he or she is a partner in the business Holding out a person as a partner

-Partners and people who hold themselves out as partners, or who consent or acquiesce to being held out, may be liable in contract or tort if: there is representation that the person is a partner, either by that person or by someone else; credit is given to the firm; and that credit is given in reliance on that representation. Relationship of partners -A fundamental principle of partnership law is that a partnership is a fiduciary relationship based on mutual trust and confidence between partners: Birtchell v Equity Trustees, Executors & Agency Co Ltd (1992). -uberrimae fidae- utmost good faith -As fiduciaries, partners have mutual rights and duties which generally require them to act: in good faith; and for the common good of the partnership. Partnership property -The basic rule is that all property that was originally brought into a partnership, or is acquired by it later, is partnership property. -In the absence of any intention, any property that is bought with partnership money will be deemed to have been bought for the partnership. -Subject to any agreement to the contrary, an outgoing partner will still be liable for all debts and obligations incurred while he or she was a partner, and an incoming partner will only be liable for debts incurred after joining the firm. -Until notice is given, a person is entitled to treat all apparent members of the firm as partners. Termination of the partnership -A partnership is a contractual relationship so, unless the partnership agreement provides otherwise, a partnership will be automatically dissolved if a partner retires, dies or becomes bankrupt. -A partnership may also be dissolved by a court on the application of one or more partners. Partnership priorities -In the absence of agreement, the following priority rules are to be followed in distributing assets: 1. Debts and other external liabilities; 2. Repayment of advances; 3. Repayment of capital; and 4. Any remaining assets are shared in the same proportion as the partners previously shared profits. Non-Profit associations -A not-for-profit (or non-profit) association is a group of two or more people who have agreed to join together to pursue a common lawful purpose of some kind -In contrast to a partnership, a not-for-profit association is not formed for the purpose of trading or carrying on business, and any profits which may result from its activities must be used for the purposes of the association. Incorporated associations

-Many not-for-profit organisations obtain the benefits of incorporation by registering under the associations incorporation legislation in force in each State and Territory. -The members of an incorporated association are protected from any personal liability. -The association may hold its assets and enter into contracts in the name under which it is registered. -Where possible the committee members, as the persons mainly responsible for the operations of an association, have been held personally liable in contract (and in some cases also in tort) for the actions of the association: Bradley Egg Farm Ltd [1943]. -Unless a member’s trade, profession or livelihood was at stake, as in the case of a professional or semi-professional sportsperson, courts have usually refused and may still refuse to accept jurisdiction to hear internal disputes. -In circumstances where an association has no members but has a bank account or property, the intervention of the court would be required for an orderly and appropriate distribution: Master Grocers’ Association of Victoria (1983). -Incorporation by registration under the Associations Incorporations Acts is the most popular method of incorporation for not-for-profit associations. -In contrast to the national regulatory scheme put in place by the Corporations Act, each State and Territory has a separate regulatory regime for incorporated associations. -Although the Association Incorporation Acts are not uniform, the basic features of most of them are similar. Incorporated associations-eligibility issues -An association: must be formed for a lawful, not for profit purpose; subject to some limited exceptions, must not be formed for trading purposes or to secure a pecuniary profit for its members; and must have the minimum number of members (five to seven) required by the statute. Incorporation procedure The steps required are: 1. Members authorise a person to lodge an application for registration; 2. Approve a statement of purposes; 3. Choose a name which complies; and 4. Lodge an application together with the statement of purposes (if required), and rules (if any). Incorporated associations: Consequences of incorporation -Once a certificate of incorporation is granted, an incorporated association is a body corporate and so is a separate legal entity. -In circumstances where an incorporated association breaches the fundamental prohibition against or securing pecuniary profit for its members, the members may lose the protection of limited liability and be personally liable for any debts incurred.

Incorporated associations: Constitutions and management issues

-The constitution of an incorporated association in Victoria is made up of two documents: a statement of purposes which sets out the objects and purposes of the association; and rules to regulate its internal affairs. -An association may adopt its own rules or may choose to rely wholly or partly on the Model Rules. -The Model Rules operate as default rules and, like replaceable rules for companies, apply automatically unless excluded. Incorporated associations: Public officer requirements -The public officer of an association is the point of contact between the association, the government and the community generally and is responsible for ensuring that the association complies with any ongoing regulatory requirements. -An incorporated association must: lodge details of any changes to its name or rules; comply with basic standards requiring it to keep adequate and accurate accounts and financial record...