LOBO final exam notes PDF

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Inhalt SEPARATE LEGAL ENTITY: LIABILITY OF COMPANY FOR CLAIMS OF OWNER/EMPLOYEE ...................... 3 SEPARATE LEGAL ENTITY: PERSONAL LIABILITY OF OWNERS ................................................................. 4 SEPARATE LEGAL ENTITY: EXISTANCE OF COMPANY WITHOUT DIRECTORS .......................................... 5 SEPARATE LEGAL ENTITY: LIFTING OF CORPORATE VEIL......................................................................... 6 SEPARATE LEGAL ENTITY: LIFTING OF CORPORATE VEIL IN CORPORATE GROUPS ................................ 7 PROMOTERS: CONSIDERATION ............................................................................................................... 8 PROMOTERS: LIABILITY FOR PRE-REGISTRATION CONTRACT ................................................................. 9 PROMOTERS: FIDUCIARY DUTIES (SECRET PROFIT) .............................................................................. 10 CONSTITUTION: CONTRACT BETWEEN COMPANY AND MEMBERS ..................................................... 11 CONSTITUTION: CONTRACT BETWEEN COMPANY AND DIRECTORS .................................................... 12 CONSTITUTION: OBJECT CLAUSE ........................................................................................................... 13 DIRECTORS: CONSIDERATION ............................................................................................................... 14 MEMBERS’ POWERS TO MANAGE COMPANY....................................................................................... 15 COMPANY’S LIABILITY UNDER CONTRACT ............................................................................................ 16 COMPANY’S LIABILITY IN TORT ............................................................................................................. 17 COMPANY’S LIABILITY IN CRIME ........................................................................................................... 18 MEMBERS’ MEETING: ABILITY TO CALL MEETING ................................................................................ 19 MEMBERS’ MEETING: IRREGULARITIES................................................................................................. 20 MEMBERS’ MEETING: REMOVING DIRECTORS ..................................................................................... 21 DIRECTORS: DUTY OF CARE ................................................................................................................... 22 DIRECTORS: DUTY TO AVOID CONFLICT OF INTEREST (e.g. SECRET PROFIT) ....................................... 23 DIRECTORS: RELATED PARTIES TRANSACTION ...................................................................................... 24 DIRECTORS: DUTY TO PREVENT INSOLVENT TRADING ......................................................................... 25 DIRECTORS: DUTY TO ACT FOR PROPER PURPOSE ............................................................................... 26 DIRECTORS: DUTY TO ACT FOR PROPER PURPOSE IN RELATION TO SHARE ISSUE............................... 27 MEMBERS’ REMEDIES: EXPROPRIATION OF SHARES ............................................................................ 28 MEMBERS’ REMEDIES: DERIVATIVE ACTION......................................................................................... 29 MEMBERS’ REMEDIES: OPPRESSION ..................................................................................................... 30 MEMBERS’ RIGHTS: ACCESS TO BOOKS ................................................................................................ 31 CAPITAL MAINTENANCE: SHARE BUY-BACK AND REDUCTION OF CAPITAL ......................................... 32 CAPITAL MAINTENANCE: DIVIDENDS OUT OF DEBT ............................................................................. 33 1

FUNDRAISING: PROPRIETARY COMPANY .............................................................................................. 34 FUNDRAISING: PUBLIC COMPANY......................................................................................................... 35 FUNDRAISING: MISLEADING INFORMATION IN DISCLOSURE DOCUMENTS ........................................ 36 PRIORITY OF CHARGES .......................................................................................................................... 37 EXTERNAL ADMINISTRATION ................................................................................................................ 38 WINDING-UP ......................................................................................................................................... 39 VOIDABLE TRANSACTIONS .................................................................................................................... 40

2

SEPARATE LEGAL ENTITY:LIABILITY OF COMPANY FOR CLAIMS OF OWNER/EMPLOYEE STEPS: 

Apply principle of Separate Legal Entity first



Check any exceptions

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Is liable for injuries of ? Can claim payment of debentures?

LAW:

- SALOMON’S CASE states that a company is a separate legal entity different from its owners or managers. - s119 states that a company is a separate legal entity coming into existence on registration. - s124(1) states that a company has full legal capacity.

APPLICATION:

is a registered company and therefore a separate legal entity different from . As such, has full legal capacity to contract: there is an employment contract between and since is an employee of . The courts do not regard and as one due to the concept of separate legal entity. Since was injured during work, XYZ is liable for these injuries. is a registered company and therefore a separate legal entity different from . As such, has full legal capacity to contract: there is debenture contract between and since holds debentures of . The courts do not regard and as one due to the concept of separate legal entity.

CONCLUSION:

is liable for injuries of . can claim payment of debentures.

RELEVANT CASES: Salomon v Salomon: Salomon owned a boot manufacturing company as a sole trader that he sold to a co. he formed, Salomon & Co Ltd. He was the MD who was issued debentures in the company. He was a large secured creditor in the co. Co. went into liquidation & the liquidator on behalf on unsecured creditors, objected payment of the secured debt arguing that Salomon should indemnify the company for its debts. Consequence of Sep legal entity concept: 1. Distinction between private and company debts 2. Private and company assets 3. A company can contract with its members (making it possible for a person to act with multiple capacities) 4. A company can be liable in Tort to its members.

3

SEPARATE LEGAL ENTITY: PERSONAL LIABILITY OF OWNERS STEPS:  

Apply principle of Separate Legal Entity first Check any exceptions

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Are owners of a company personally liable for debts of the company?

LAW:

- SOLOMON’S CASE states that a company is a separate legal entity different from its owners or managers. - s119 states that a company is a separate legal entity coming into existence on registration. - s124(1) states that a company has full legal capacity.

APPLICATION:

is a registered company and therefore a separate legal entity different from . The courts do not regard and as one due to the concept of separate legal entity.

CONCLUSION:

Creditors cannot hold of personally liable for debts of the company.

4

SEPARATE LEGAL ENTITY: EXISTANCE OF COMPANY WITHOUT DIRECTORS STEPS:  

Apply principle of Separate Legal Entity first Check any exceptions

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Does a company still exist if all of its directors die?

LAW:

- SOLOMON’S CASE states that a company is a separate legal entity different from its owners or managers. - s119 states that a company is a separate legal entity coming into existence on registration. - s124(1) states that a company has full legal capacity.

APPLICATION:

is a registered company and therefore a separate legal entity different from . The courts do not regard and as one due to the concept of separate legal entity.

CONCLUSION:

Even if the directors of a company die, the company remains in existence until it is deregistered since it is a separate legal entity.

RELEVANT CASES: Lee vs Lee Farming: Mr. Lee was a major shareholder of Lee’s Air Farming- insurance for all employees. Mr. Lee was also the chief pilot and was killed in an air crash. Mrs. Lee claimed insurance under policy. Insurance co. denied claim. As the deceased was in a contractual relationship with the co. The co. was not a sham. The deceased was the agent and employee of the co. – one person may have dual capacities. There was no reason to deny the contractual relationship.

5

SEPARATE LEGAL ENTITY: LIFTING OF CORPORATE VEIL STEPS:  

Apply principle of Separate Legal Entity first Check any exceptions: - Avoidance of legal obligation (GILFORD MOTOR LTD v HORNE) - Involvement in director’s breach of duty (GREEN+CLARA v BESTOBELL)

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Can a person create a company to escape liability?

LAW:

- SOLOMON’S CASE states that a company is a separate legal entity. - s119 states that a company is a separate legal entity coming into existence on registration. - s124(1) states that a company has full legal capacity. - The courts enforce the concept of separate legal entity however they are prepared to lift the corporate veil in certain exceptions as in case of avoidance of legal obligation as in GILFORD MOTOR LTD v HORNE.

APPLICATION:

created a new company by registration and sold to the company as a separate legal entity. Since does not own anymore, he/she will default on the contract. However, the courts are prepared to ask why the company was created. created the company to avoid his/her legal obligation (give reasons why he/she would do that). The courts in this case lift the corporate veil and regard and as one.

CONCLUSION:

will still be liable.

Relevant Cases: Gilford Motor V Horne: Horne was the MD of Gilford Motors who as part of his employment contract would not solicit any of the customers of the company during the term of agreement or after he had left the co. for 5 years. When he left he formed a company similar to Gilford Motors to target customers of his former employer. Plaintiff sought injunction to stop Horne from breaching contractual agreement. Courts held that this co. was a mere ‘cloak or sham’ used by Horne to commit breaches of his contractual obligations. Green & Clara Pty Ltd v Bestobell Industries: Mr Green while MD of Bestobell, acquired a shelf co. called Clara Pty Ltd. Mr Green had fiduciary duties to Bestobell and was under obligation not to place himself in a position where is duties with Bestobell should not conflict with his own interests. Clara was the winner of a successful tender for a commercial project against Bestobell and was awarded the contract which it performed.

6

SEPARATE LEGAL ENTITY: LIFTING OF CORPORATE VEIL IN CORPORATE GROUPS STEPS:  

Apply principle of Separate Legal Entity first Check any exceptions: - Agency in Corporate Group (SMITH STONE+KNIGHT v BIRMINGHAM) - Shell company in Corporate Group (BIRD CAMERON CASE)

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Can a court lift the corporate veil in a Corporate Group?

LAW:

- SOLOMON’S CASE states that a company is a separate legal entity. - s119 states that a company is a separate legal entity coming into existence on registration. - s124(1) states that a company has full legal capacity. - WALKER v WIMBORNE CASE sets out that each company in a corporate group is a separate legal entity. - The courts enforce the concept of separate legal entity however they are prepared to lift the corporate veil in certain exceptions as in case of agency in corporate groups as in SMITH STONE+KNIGHT v BIRMINGHAM. The courts look at the actual control the parent company has over its subsidiary. - However, for some courts looking at control is not enough but the company has to be a shell company as in BIRD CAMERON CASE.

APPLICATION:

is a company with full legal capacity and a separate legal entity within the corporate group. To decide if they are prepared to lift the corporate veil, the courts look at the actual control the parent company has over its subsidiary: 1. Are the profits treated as parent’s profits? 2. Are the managers appointed by the parent? 3. Is the parent the head and brain of the subsidiary company? 4. Is the parent in constant control of the subsidiary? 5. Did the parent make the profits by its skill and direction? 6. Is the parent company governing the subsidiary’s business? Furthermore, some courts look for the subsidiary being a shell company: 1. No assets 2. No employees 3. No own business The courts in this case lift the corporate veil and regard and as one.

CONCLUSION:

The courts will be prepared to lift the corporate veil.

Smith Stone & Knight Ltd v Birmingham: SS&K was parent co. of sub co, Birmingham Waste. Local council compulsorily acquired land owned by parent co. on which sub. Co. conducted business. Sub. Couldn’t sue so parent co. did and the council held that parent co. was not entitled to compensation. Could co.s be treated as a separate legal entity? The 6 questions above were established in this case.

7

PROMOTERS: CONSIDERATION STEPS:

 

n/a

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Is a person considered as a promoter of a company?

LAW:

- The term ‘promoter’ is not a term of law and is not defined in the Corporations Act. - As in EMMA SILVER v LEWIS it describes persons involved in setting up a company, even if they are passive beneficiaries as in MANDALAY CASE. - Professionals are not considered promoters as set out in JUBILEE COTTON v LEWIS. Who is a promoter is a question of fact.

APPLICATION:

Check for active involvement: planning the company, preparing registration, arranging for directors, searching finance, arranging lease contracts. Check for passive involvement: benefits from creation of company. Check for exception: mere professionals acting purely in their professional capacity are not considered promoters.

CONCLUSION:

Persons being actively involved in setting up a company or passive beneficiaries are considered promoters.

8

PROMOTERS: LIABILITY FOR PRE-REGISTRATION CONTRACT STEPS:  

Check if person is considered a promoter first Check liability for pre-registration contract

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Is a promoter liable for contracts entered into on behalf of an unregistered company?

LAW:

- Under s131(1) a person who signed a contract on behalf of an unregistered company is liable for this pre-registration contract if the company is not registered or does not ratify the contract by the time agreed in the contract or within reasonable time. Reasonability is a matter of fact looking at the object of the contract. - s131(4) states that if company fails to perform the contract, promoter is still liable. - s132(1) states that promoter can be released by the third party.

APPLICATION:

< A person> signed a contract on behalf of before it was registered so there is a pre-registration contract. Check if company was registered: if not, promoter is liable. Check ratification: if not, promoter is liable. Check reasonable time: if contracts nature is still binding for several months, time is reasonable. If not, promoter is liable.

CONCLUSION:

is liable for pre-registration contracts.

9

PROMOTERS: FIDUCIARY DUTIES (SECRET PROFIT) STEPS:   

Check if person is considered a promoter first Check liability for breach of fiduciary duty (e.g. Secret profit or competing with company) Check disclosure

 

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Has a promoter breached his fiduciary duty?

LAW:

- AEQUITAS v AEFC states that promoters owe a fiduciary duty to the company: they must act honestly, in the best interest of the company and must avoid conflict of interest (until registration). - ERLANGER v NEW SOMBRERO sets out that promoters have to disclose secret profit. - GLUCKSTEIN v BARNES states that full disclosure has to be made to an independent board of directors.

APPLICATION:

is a promoter of and therefore owes a fiduciary duty to . He/she made a secret profit without disclosing it to an independent board of directors therefore he/she breached his/her fiduciary duty.

CONCLUSION:

A promoter is liable for breach of fiduciary duty. Equitable Remedies: compensation, accounting for profit, rescission of contract, injunction, constructive trust (return of property). [Textbook P456]

10

CONSTITUTION: CONTRACT BETWEEN COMPANY AND MEMBERS  

PTY LTD is a proprietary company because it has PTY in its name. LTD is a public company because it has no PTY in its name.

All the sections referred to in the issues are from the Corporations Act (Cth.). ISSUE:

Can prevent termination of service when mentioned in the constitution?

LAW:

- s140(1) states that a company’s constitution is a contract between the company and each member. - The ELEY CASE sets out that the constitution looks at the capacity as a member not as an outsider. The courts ask if the right given in the constitution is a right that comes with the shares.

APPLICATION:

’s constitution mentions as of . is a member of since he/she holds shares in the company, therefore the constitution is a contract between and . The employment is not a right that comes with the shares since rights of shareholders not include employment, there...