Week 6 notes - Corporations PDF

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lecture slides' notes, academic year 2018. Enough to score you a Credit at least, a Distinction if you study these notes hard, but not a HD, unless you do reading notes as well....

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Week 6 -

Appointment and removal of directors The detail concerning company meetings, particularly voting, resolutions, notice and quorum.

Statutory assumptions S128(1) – person who has dealings with company is entitled to make certain assumptions in relation to those dealings. The assumptions are listed in s129. “A person cannot rely on the assumptions if s128(4) applies.” The statutory assumptions are: - Independent of each other - Available to any person having dealings with the company - Apply regardless of whether the person actually makes the assumption. Section 129(3) – assumption about apparent authority A person may assume that anyone who is held out by the company to be an officer or agent of the company: (a) Has been duly appointed; and (b) Has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company. -

The assumption is really a statutory restatement of the common-law doctrine of apparent authority.

Public information S129(2) – assumption about authority of director/company secretary - “If it appears, from information provided by a company to ASIC which is then publicly available, that a person is a director of a company, then a person can assume that the director has been duly appointed and has the authority to exercise the powers and perform the duties customarily exercised or performed by a director of a similar company.” - Every company is required to lodge with ASIC a notice of the personal details of each director and company secretary (205B) - In addition chapter @N requires every company to lodge an annual return with ASIC, containing details regarding each director and company secretary. Entering contracts 129(5) – assumption about document executed without a seal s129(6) – assumption about document executed with a seal NB – Brick and Pipe case.

129(4) – assumptions about performance of duties by agents of the corporation - ‘a person can assume that officers and agents of the company properly perform their duties to the company.’ S129(1) – assumption about compliance with the corporate constitution - a person having dealings with a company may assume that the company’s constitution if any, and any replaceable rules with apply to the company, have been complied with. Fraud or forgery S128(3) - A third party is still entitled to make the assumptions in s129 even if the corporate agent has acted fraudulently or has forged a document.

CASE – Northside Developments Facts: - One of the three Northside director’s (S) son was company secretary but never validly appointed. S’s son purported to engage in mortgage on behalf of the company, secured the loan by a mortgagee over Northside’s land. Secure of mortgage had no benefit for Northside. The money was let to a company operated by S’s son. The bank knew this and did not oppose. They attached it in a seal for signature. •

BUT the loan by Barclays was not to Northside, but to another company operated by Sturgess Snr that had nothing at all to do with Northside. They affixed Northside’s common seal to the mortgage and each of them signed the documents as director and company secretary of Northside. Northside’s constitution required that any use of the seal must be approved by all of the directors, and that any use of the seal must

be attested by a director and countersigned by the company secretary or another director. Court held: - Execution of mortgage was invalid because the loan was secured for an unrelated company and there was no benefit to Northside. -

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When the other company defaulted on the loan, Barclays exercised its power of sale under the mortgage and sold the land to a third party. Northside sought damages. The case was decided by reference to the common law principles relating to agency. The High Court held that the execution of the mortgage was invalid. All five judges agreed that Barclays had been ‘put on inquiry’ because the loan conferred no benefit on Northside, and yet the mortgage was purportedly executed by Northside to secure the debt of an unrelated company.

Mason CJ held that: [T]o hold that a person dealing with a company is put upon inquiry when that company enters into a transaction which appears to be unrelated to the purposes of its business and from which it appears to gain no benefit is, in my opinion, to strike a fair balance between the competing interests. Note s 129(1) - assumption about compliance with the corporate constitution would also apply to this case

How to approach a problem concerning corporate contracting? • In determining whether a company should be bound to a contract, start by considering whether the company has entered the contract directly – see s 127. • If not then ask if the agent (usually a director or senior employee) has express actual authority to enter the contract. • If not, then ask if the agent has implied actual authority to enter the contract; • If not, and the circumstances appear to indicate apparent authority, start with the statutory assumptions as these require the same questions to be answered as the common law on apparent authority. • Make sure you also see if any other statutory assumptions apply, for if they do the company will be bound.

Corporate Governance - CG is the system of rules, practices and processes by which a company is directed and controlled. - It is about processes of governance and decision making with a company. In corporate law it raises issues of directors’ duties. - In a broader sense, CG involved balancing the interests of a company’s many stakeholders – such as shareholders, customers, suppliers, financiers, government and community. Regulation Corporate Governance Hard and soft law - Corporations Act: directors duties, regulation of meetings, division of power. ASX. Good governance principles and recommendations - Apply to public co’s listed on the stock exchange - Under ASX listing rule 4.10, listed entities are required to make disclosure in their annual reports of the extent to which they do or do not follow the guidelines. -

Governance codes of conduct and guideline prepared by professional associates, AU institution of Company Directors (AU shareholders’ Assoc; Investment and Financial Services Assoc) and companies.

Types of directors: 

Executive/Non-ex directors i. Executive director: employment contract with the company, also appointed in a separate relationship as the director. The ‘managing director or CEO.’ CFO on the board COO (chief operating officer, like a deputy managing director) on the board Chief legal councillor also on the board ii.

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Non-executive director: not part of the managerial team of the company, brought in because they have particular skills, e.g. retired CEOs. They are not involved in day-to-day management, not on the board, but are involved in policy-making and decisions.

Independent Directors i. Sub-category of non-executive directors (on board??) ii. No existing employment relationship with the company iii. Not directly part of the management team

Recommendation 2.4 A majority of the board of a listed entity should be independent directors Recommendation 2.5

The chair of the board of a listed entity should be an independent director, and should not be the same person as the CEO of the company. 

Chairperson

Box 2.1 Relationships affecting independent status *refer to notes. ‘When determining the independent status of a director the board should consider whether the director...’

Division of power The precise division of power between the board and the general meeting is determined by looking first at the company’s constitution Under replaceable rule... S198A RR: (1) Business of company is to be managed by or under director of the directors (2) Directors may exercise all powers of the company except any powers that this act or the company except any powers that this act or the company’s constitution (if any) requires the company to exercise in general meeting. Effect of division - In law, each group is sovereign within their area of power, generally neither group can interfere with or direct the other how to exercise their powers. - This means members cannot order or seek to influence directors in their decisions on how to manage a company, and the directors cannot interfere with the decision making of the members. - This rule is strict and can lead to tensions between shareholders and directors, particularly where there are diff view s on how a company should be managed, shareholders have a significant financial interest in the company, their ... Members’ powers in GM Members’ powers to make decisions under Corp Act:  Adopting or amending consti s136  Changing the company’s name or type s157/162  Appointing directors S201G RR 201H  Remove a director S203E  Approving variation of the rights attaching to shares 246B Also, they can make decisions related to share capital:  share capital reductions and buy backs256C, 257C  financial assistance transactions 260B

KEY POINTS

Types of company meetings AGM: A public company must hold an AGM at least once every calendar yar and within 5 months of the end of its financial year – s 250N(2) No other types of meetings are required to be held. However general meetings other than AGM can be called where there is business to be dealt with. An informal process exists – where all members sign a document and pass the resolution. (Legislation??) Directors’ convening meetings: Members have 2 statutory rights to convene meetings.  At their own expense by members with at least 5% of the votes that can be cast at a GM – s 249F  The meeting must be held for a proper purpose and any resolution must be in an area that members have powers. 

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Members with at least 5% of the votes that may be cast at a meeting who are entitled to vote at the meeting can requisition directors to call a meeting by members – s249D Directors must call meeting within 21 days for a date within 2 months from the requisition.

Notice of meeting:  S249H: the board must generally give members 21 days notice of a meeting  S249J: the notice must be given to each member individually and to each director  S249L: notice of meeting must specify: i. The place/date/time and any tech to be used ii. General nature of meeting business iii. Whether a special resolution is posed and its text iv. Proxy rights of members Running the meeting:  S249T RR – at least two members must be present during the whole meeting for there to be a quorum - A person attending in more than one capacity (as shareholder and also as proxy holder) is only counted once  S249U RR – directors must elect a chair person  S250S – at an AGM the chairperson must allow reasonable time for members (as a whole) to ask qn or make comments on mgmt. of company.

Voting at member meetings:  S.250H – Voting is not compulsory and shareholders need not cast any or all their votes.  S.250J(2) RR – Voting on a show of hands unless a poll is demanded.

Proxies  S.249Y(1) – A proxy enjoys the same rights as member to speak, vote and join in demanding a poll.  S.250(1) and (2) – The company must receive the proxy appointment instrument at least 48 hours before meeting (time can be shortened) Voting Proxies S250BB provides that:  If a member directors how a proxy is to be voted and the proxy is the chairperson – the chairperson must vote the share on a poll and in the manner directed  If the proxy is not the chairperson there is no obligation upon proxy to vote on a poll but if they do vote – they must do as directed.  An undirected proxy can still be given and this carries full discretion on whether and how to vote. Cases on shareholder resolutions Three cases at the turn of the 20th century:  Automatic self-cleaning filter syndicate co Ltd V Cuninghame 1906  Gramophone & Typewriter Ltd v Stanley  Quin & Axtens Ltd V Salmon Types of behaviour that is proscribed Shareholders cannot:  Usurp the directors power  Interfere with company bus  Impose their will on board  Control exercise of directors power  Direct the board  Transact company bus  Exercise power of directors  Determine maters of mgmt.  Manage company's businesses or,  Express opinion about how director’s power should be exercised. ACCR Case – first instance: 1. Directors prepare report on greenhouse gas activity; or 2. Shareholder’s concern about absence of report on greenhouse gas activity; or 3. Amendment to constitution requiring annual report on greenhouse gas activity Statutory recognition of advisory resolutions: - S250R

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S109.

ACCR – on appeal: - General meeting speaks only via resolutions - A resolution is an act of the company - There must be some source of authority for a meeting to pass a resolution – statute or constitution - No other source of authority at common law or ‘plenary’ - An advisory resolution is an expression of opinion and therefore not an act.

REVISION QUESTIONS: CLASS RIGHTS: 1. What if Gambotto and alteration of class rights comes up on a question? - Go to statute first, then Gambotto, then deal with class rights. 2. Do they always come up together (Gambotto and Class rights)? - NO, although often they will come together, but it is possible they don't come up together. 3. What is your starting point if class rights come up? - Are the shares divided in classes? What are rights attached to the shares? - Variation of shares – legal and procedural variation. 4. What is the effect if a provision in the constitution is not complied with? - Always look at the constitution first, for variation of class rights, 246C and see if there is a ?

CORPORATE CONTRACTING: 1. -

How to tackle a question on corporate contracting? Is the company entering directly, if yes, nothing. IF no – look at agency situation. In agency – express/implied authority, then statutory assumptions – will include apparent authority.

2. Apparent authority and the cross-over with acquiescence? - EXPRESS AND IMPLIED: Whether they have written/verbal authority from board to enter into certain arrangement OR if they have implied authority to do so. The focus of this enquiry is on relationship between company (represented by board) and the agent (can be employee, director or officer). - APPARENT AUTORITY:

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Must look at section 129(3). This is NOT the relationship between company and agent, but the third party. This concerns the relationship between company and a third party. In order for apparent authority to be made out – there has to be representation that the third party has authority to enter into contracts of a particular kind, on behalf of the company. Such as if the third party has access to corporate EFTPOS machine, corporate stationary, etc. Holding out ??

3. In what circumstances (other than agency) does section 129 operation? - Statutory presumptions of corporate constitution being complied with. - Documents have been entered into. 4. What is the test for knowledge required under s128(4)? - Actual knowledge or actual suspicion that assumptions are incorrect.

SHARES: 1. 2. 3. 4.

Diff categories of shares? What are preference shares? What are redeemable preference shares? What are pre-emption rights?

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DO NOT FORGET CONSEQUENCES AND REMEDIES!! Cite relevant cases from readings!!...