QUEENSLAND CORPORATIONS LAW

FUNDRAISING - BALANCE  adeq inves2r protection v efficient mkts - G‟ly  co‟s wishing 2 raise Fs via issuing secies (Initial Pub Offering – IPO) must prepr DD - Pty co‟s cannot engage in an activity requiring disclosure 2 inves2rs (113(3)) Disclosure Document Procedure - 706  must have DD unless exemptions app - 700(2)(a)  an offer includes inviting appl‟ns - 718  all disclosure docs must b lodged w/ ASIC - 727(1)  prohibits offering secies w/out lodging w/ ASIC - s736 – cannot make unsolicited offers s736. 708  doesn‟t app if:  Discl not reqd ↓ soph/profess inves2r exemp  Offer is 2 licensed secies dealer  Offer is 2 est client by licensed sec dealer Types of Disclosure Documents 1. Prospectus (Standard full disclosure doc) a) G Disclosure Test - 710(1)  discl doc must contain all info inves2rs reasonably req 2 make an in4med decision on:  the rights & liabilities @taching 2 secies; &  the finc position & per4mance of the co - 710(1)  disclosure doc must contain this info:  only 2 extent th@ it is reasonable 4 inves2rs or their profess advisors 2 expect 2 find the info; &  Omittance = breach of s728.  Include m@erial disadvs Fraser v NRMA. b) Short 4m Prospectus - May b used 4 ANY offer - 712(1)  allows co 2 refer 2 m@erial lodged w/ ASIC instead of setting out in prospectus. Reference must ID the doc & in4m inves2rs of right 2 copy - 712(3)  doc referred 2 4ms part of prospectus. c) Continuous Disclosing Entities – List Co’s - 713(2)  reqs disclosure 2 the extent th@ inves2rs need 2 make an in4med assess of the Eff of the offer on the body & the rights & liabs @taching 2 the secies 2. Profile St@ement - 709(2)  co can prepr a profile st@ement in addition 2 prospectus w/ ASIC apprvl - 709(3)  ASIC may approve the use of PS in selected industries - 721(2)  sent 2 inves2rs instead of prospectus - 714  content = identity of issuing body, n@ure & risks involved, details of all amts payable, copy of prosp avail free on request, info reqd by ASIC 3. Offer In4m@ion St@ement - 709(4)  may b used instead of prospectus where amt raised is < $5m when added 2 all amts raised b4e - NO DUE DILIGENCE enquires reqd - 715  content of OIS must: identify body & n@ure of secies, describ the business & wh@ Fs r 2 b used 4, n@ure & risks, amts payable etc. Disclosure Exemptions - 708  no disclosure reqd 4: 1. Small Scale Offerings - 708(1)  no disclosure reqd 4 personal issues where in 12 mths:  the numbr of inves2rs r < 20; &  the Fraised amount is < $2m - 708(2)  personal issue = offer can only b accepted by person 2 whom it was offered & must b made 2 a person who is likely 2 b Ied – i.e. result of previous contact, connection or they make st@ement/action indic@ing their I. - 727(4)  offence 2 not issue discl doc if byond limit 2. Sophistic@ed Inves2rs - Large Offers (708(8)(a))  no discl when min amt payable 4 secies is $500,000 - Wealthy Inves2rs (708(8)(c))  no discl reqd 2 inves2rs w/ gross income over past two years of $250,000 or net assets of $2.5m as deemed by certified accountant. - Experienced Inves2rs (708(10)(a))  no disclosure reqd if made through a finc services licensee.  708(10)(b)  Licensee must b s@isfied on reas grounds th@ the inves2r has previous experience in investing in secies 3. Professional Inves2rs - 9  profess inves2r = finc services licensee, body regul@ed by APRA, trustee of super F 4. Executive O’rs - 708(12)  no DD if offer is made 2 exec O‟r or a reld body or spouse, prnt, child, sibling - 9  exec O‟r = person who takes part in mngmt including Ds 5. Existing Secy Holders - 708(13)  no discl reqd 2 existing SH if an offer under a dividend investment plan or bonus issue 6. Secondary Trading - G‟ly  secondary trading of listed secies do not req a discl doc. - 707  lists instances where discl doc is reqd: a) Sales by Controller - 707(2)  discl reqd where issuer controls the body & the secies rn‟t quoted or r quoted but issue is outside ord course of bus. b) Sale Amounting 2 Indirect Issue - 707(3)  prevents co avoiding disclosure by issuing 2 an inves2r under an exempt 4 purp of on-sale - 704(4)  deemed a purchase 4 purp of on-sale where secies r offered 4 sale w/in 12 mths of issue 7. Takeovers &8. Offers 2 Exempt Bodies. Restrictions on Shr Issues 1. Minimum Subscription - 723(2)  if discl prescribs min no secies must not b issued until th@ amt is raised. - 722  money held on trust until condition s@isfied - 724  if not s@isfied, co must either:  Repay money;  Issue replacement DD 2 chnge terms of offer & give 1 mth 2 w/draw appl‟n;  Issue secies, issue replacement doc & give 1 mth 2 return secies 2. Expir@ion of Disclosure Document - 711(6)  discl doc expires 13 mths after issue - 725(3)  if appl‟n Red after expiry d@e, co must either: (refer 2 s724 above) Advertising Restrictions 1. Advertising Listed Secies 2. 734(5)  permits advertising b4e lodgement of a DD provided st@ement th@ a DD avble. - 734(6)  after lodgement of discl doc, ads must include a st@ement th@:  The offer of secies will b made in or accompanied by a discl doc.  Anyone wishing 2 acquire secies must complete the accoing discl doc. 3. Advertising Unlisted Secies - 734(5)(b)  advertising unlisted secies prior 2 lodgement is limited 2 the folwg info:  Identific@ion of the offer of secies  Th@ a discl doc will b avble on offer of sec‟s  Inves2rs 2 complete an appl‟n 4m 4. Image Advertising - 734(3)  not advertising restrictions if it 4ms a n@ural part of the co‟s advertising on product/service. Misst@ements & Omissions 1. Prohibition on M&D Conduct - 728(1)  prohibits offer of secies if it:  Contains a misleading or deceptive st@ement  Omits info reqd by s710  New circs have arisen - 1041H  prohibits a person engaging in m&d conduct re a notice published in rel@ion 2 a finc product. 2. Liability - 729  Liability imposed on 3 main groups  Person making offer, Ds, underwriters – liable 4 losses cause by any contravention (but due diligence defence &w/drawal of consent)  Experts – liable 4 losses @tributable 2 their st@ements (but w/drawal of consent defence)  Person who contravenes/is involved in contravent of 728 – liable 4 th@ contravention - s728(2)  4ward looking st@ements r m&d where there r no reas grounds 4 making them - 728(3)  contravent of 728 is criminal offence if misst@ement/ omission is m@erially adverse from inves2rs perspective 3. Defences a) Due Diligence (731) - Applies 2 prospectuses only - 731  due dilig defence where a person makes all reas enquiries & blieves on reas grounds th@:  the st@ement was not m&d; &  there was no omission b) Lack of Knowledge (732) - Applies 2 OIS/Profile - 732  defence th@ a person did not know th@ th@ the st@ement was m&d or contained an omission c) G Reliance (733(1)) - 733(1)  no liab where it is proven th@ there was reas reliance on info given by someone else – person relied on must b someone other than agent/ e‟ee d) W/drawal of Consent (733(3)) - 733(3)  Ds, underwriters, experts not liable 4 m&d st@ements if they publy w/drew their consent 2 bing named in the st@ement 4. Remedies - Compo (729)  4 a person who suffers loss or damage bcause of the breach - S2p Order (739(1))  ASIC can make s2p order 2 prevent further issues after holding a hearing of parties - Supplementary/Replacement Doc (719)  reqs lodgement of such doc which must acco subseq offers of secies. LOAN CAPITAL - DEBNTURES *Another way 2 raise capital. Issue a debnture. S9 – a chose in action, an undertaking 2 repay. *Debnture holders r Crors so rank ahead of SH. *Have a right 2 fixed income = I. *Can issue charges 4 secy 4 loans s124(1). Charge/debt governed by K/PLA. *As debnture is secy, must issue DD s727. *Must have debnture register s168(1) & s171 MBRSHIP Mbrship Reqments - 114  co need only have 1 mbr - 113  max of 50 non-e‟ee SH 4 pty co - 140  mbrship cre@es st@ K b/w co & mbr - 231  a person is a mbr if they r a mbr on reg‟n of the co or agree 2 bcome a mbr &r registered Rights/Liabilities – vote, dividends, pay calls by co, contribute 2 debts if wound up, shr in surplus assets. *Can remove Ds &chnge the constitution Shaw v Shaw. Register of Mbrs - 231(b)  person must consent 2 bing a mbr & have name in register–not mbr until this (Maddocks case) - 176  register is PF evidence of info in it  can assume people named in it r mbrs 1. Reqd Particulars & Loc@ion - 168,69  register must include:  names & addresses of mbrs  d@e when mbr was entered  d@es allotments 2ok place & no of shrs involved  names of people who ceased 2 mbrs in last 7 yrs - 172(1)  register of mbrs 2 b kept @ either: registered office, principle place of business, place where it is maintained, place approved by ASIC - 172(2)  must notify ASIC w/in 7 days of establishing or changing place of register 2. Right of Inspection - 173(1)  register may b inspected by anyone - 173(2)  mbrs can inspect free of charge & non-mbrs 4 a fee up 2 prescribd amount - 177(1)  info may not b used 2 contact or send m@erial 2 a registered mbr (comm. purps only) 3. Correction of Register - 175(1)  co or aggrieved person may app 2 Ct 4 correction - 175(2)  Ct may order co 2 correct register & compens@e applicant 4 loss or damage suffered - McLaughlin v Daily Telegraph – held th@ incorrect alter@ion of register there4e ordered rectific@ion &p‟ment 4 lost earnings on dividends. - Bothranch v Monitronix – Ct held Ds shr allotment invalid so register 2 b rectified. - 175(3)  co must lodge correction notice w ASIC 4. Minors as Mbrs - Minors may b SH but K s voidable as can repudi@e till18 or w/in reas time - Steinbrg v Scala  minors may avoid further oblig@ions after repudi@ion but $ paid 4 shrs is irrevocable unless 2tal failure of consider@ion - Homestake Gold  deed 2 t/f shrs 2 minors only binding if minor particip@ed in execut & get bnefit. Disclosure of Is in Shrs 1. Non-Bneficial Ownership (Unlisted Co) - *Also known as nominee mbrs. A mbr may hold shrs as trustee 4 a bneficiary – 2 ↓ tax or conceal their identity. - Mbr‟s disclosure reqments:  1072E  in a pty co must disclose th@ the person holds those shrs 4 another.  1072E  reqs the co 2 register the trustee & not recognise the existence of a trust. 2. Substantial Shrholdings (Listed Co’s) 671B(1)(a)  person who bgins/ceases 2 hold 5% or more of the shrs must disclose 2 co & market the full particulars of their entitlement - 671B(1)(b)  once a mbr has a subst SH, they must disclose 2 the co & mkt any movement of 1% - 5% includes any “relevant I” - shows who controls the co &warn of potential takeovers. Evidence of Mbrship 1. Shr Certific@es (Unlisted Co’s) a) Reqments - 1070C(2)  shr CT is PF evid of the title of a mbr 2 the numbr of shrs specified - 1070C(1)  certific@e must st@e – name of co & jurisd of rego, class of shrs, amt unpaid on shrs - 1071H(2)  no CT reqd where CHESS applies b) Liability 4 Incorrect Certific@e - CT isn‟t K‟ual but merely certific@ion of info contained - Re Bahia & San Fran Rail  co is liable 4 any loss from an error in the CT. Co is es2pped from denying truth of its contents as the CT is PF evidence of title. 2. CHESS (Listed Co’s) - Shrs r electronically t/f & subreg is au2m@ically upd@ed 2 reflect chnge in ownership - 822B  CHESS rules r binding on issuers, participants & the clearing & settlement facility & rules r en4ceable by Ct (822C) - 1070A  oper@ing rules override constitution etc. T/f of Shrs - G‟ly  shrs in a co r assumed 2 b freely t/fable - Shrs give I in co but not proprietary. R a chose in action s1071A. - 1070A  shrs t/fable as prescribd in constit 1. Instrument of T/f - 1071B(2)  prohibits a co from registering a t/f unless a proper instrument has ben delivered 2 the co a) Unlisted Companies - Instrument usually signed by t/4 & t/fee - 1072F(2)  RR th@ Ds rn‟t reqd 2 register a t/f if it & any shr CT has not ben lodged w/ the co‟s registered office - 1072F(1)  t/4 remains holder of shrs & mbr until the t/f is registered & t/fees name is entered in register b) Listed Companies - CHESS allows shrs of listed co‟s 2 b t/f electronically & au2m@ically. Unregistered T/fs - Eff = co recognises seller as the SH until their name is removed from register & replaced by buyer -  seller liable on calls & entitled 2 @tend mtgs & vote (Re Fernlake) - When does Prop Pass?  Prop in shrs passes as soon as gives the signed t/f & CT 2 buyer.  Seller holds shrs on trust 4 buyer – buyer has equitable I (Niord v Adelaide Petroleum)  Seller 2 a/c 2 buyer 4 divs  Buyer can direct seller how 2 vote – if seller disobys, vote valid but breach of K or trust (Fernlake) Restrictions on T/fs - Assumption  SH have a PF right 2 t/f shrs 1. Restriction in Internal Rules a) Constitution - Greenhalgh v Mallard  any restriction in constitution must b clear & unambiguous - Re Smith & Fawcett  where constit doesn‟t req a reason 2 refuse t/f, person challenging must prove Ds acted in bad faith or 4 improper purp - Equiticorp Industries  where constit provides instances where it can refuse 2 t/f, Ct will strictly examine provisions 2 determine if refusal is valid. b) Replaceable Rules - 1072G  RR th@ Ds of pty co‟s may refuse 2 register a t/f 4 any reason - 1072F(3)  RR th@ Ds of listed co‟s can refuse 2 register a t/f if the shrs rn‟t fully paid or the co has a lien over the shrs - 1071E/F  co must give buyern‟tice w/in 2 mths of refusal 2 t/f. Where this doesn‟t occur then co lose right 2 deny t/f Re Swaledale Cleaners. c) W/out Just Cause Remedy - 1071F  buyer may appeal 2 ct th@ refusal was w/out just cause & seek order th@ t/f b registered or make such order it thinks just & equitable - Easier procedure than s175 correction of register d) Oppression Remedy - 232  allows mbrs 2 app 4 a remedy if refusal is oppressive, unfairly prejudicial or discrimina2ry 2. W-up & During Takeovers - 468  cannot t/f shrs on w-up - During takeover, any movement of shrs must b made known. Transmission of Shrs - Arises by oper@ion of law when SH dies, bankrupt etc 1. Transmission on De@h - SH dies w/ a will – execu2r bcomes deceased‟s personal rep – bcomes legal owner though unregist - SH dies w/out will – shrs vest in Pub Trustee & then will vest in Aistra2r, usually the next of kin - 1072E(2)  rep may choose 2 b registered in represent@ive capacity in deceased‟s name - 1071B(5)  allows rep 2 t/f shrs 2 another w/out bing registered mbr - 1072A(1)  RR th@ if shrs were wholly owned by deceased, co will recognise the rep as bing entitled 2 their I in the shrs. - 1072A(2)  if rep gives Ds the info they req, the rep may elect 2 b registered as SH or t/f the shrs. - 1072A(3),(4)  co obliged 2 register/t/f 2. Transmission in Bankruptcy - Bankruptcy Act  where SH declrs bankruptcy, shrs vest in the trustee in bankruptcy. - 1072E(6)  trustee in bankruptcy may b registered as holder of shrs - 1072B(1)  RR th@ if trustee gives Ds info they req, trustee may elect 2 b registered or t/f shrs 2 another person. Liability of Mbrs (Co’s Limited by Shrs) - 516  liability ltd 2 amount unpaid on shrs - 254M(1)  mbr liable on calls on partly paid shrs - 515  on wind up, present & past mbrs liable 2 contribute 2 s@isfy debts  521 – past mbrs not liable if they ceased 2 b a mbr 4 more than a year b4e wind up  520 – past mbrs not liable 4 debts incurred after they ceased 2 b mbrs  522 – only liable if existing SH cant pay debts Cess@ion of Mbrship 1. G Methods - A person may cease 2 b a mbr by  T/f  t/4 ceases 2 b a mbr  Transmission  shrs vest in personal rep or trustee  Compulsory Acquisition  selective reduction etc -  Dissolution  all pern‟s cease 2 b mbrs 2. 4feiture on Non-P’ment of Calls - 198A  RR th@ Ds have pwr 2 make calls - 4feiture allowed as long as it results from non-pmt 3. Co’s Pwr of Lien - Co has a right of lien over partly paid shrs 4 all money called. Co has right 2 sell if money not paid DIVIDENDS - 124(1)(d)  co has express pwr 2 distribute prop among its mbrs - s254T – 2 b paid only from profits P’ment of Dividends 1. Declar@ion - 254U(1)  Ds may declr a dividend payable & fix the amount, time & method of p‟ment - 254U(1)  method of p‟ment may b cash, issue of shrs, grant of option &t/f of assets 2. Incurring a Debt - 254V(1)  co doesn‟t incur a debt by fixing the amount or time 4 p‟ment. Debt arises when time 4 p‟ment arrives. Can revoke decision b4ehand - 254V(2)  if co constitution provides 4 declar@ion of divs, co incurs a debt when div is declrd. 3. Dividend Rights - 254W(1)  shrs in pub co‟s assumed 2 have same div rights unless:  Constitution provides 4 different rights; or  Different rights r provided by special resolution - 254W(2)  RR 4 pty co‟s th@ they may pay divs as they see fit (not necessarily equal) P’ment out of Profits 1. Def of Profits - No st@y Def & Cts reluctant 2 do so @ CL – a m@ter 4 internal mngmt 2 decide - Re Spanish Prospecting  “a comparison bw the st@e of a business @ two specf d@es”. - QB Insurance  “profits determined w/ close regard 2 accounting profession” - Hil2ns Case Cannot pay where co in/vent or p‟ment will make it in/vent. 2. Calcul@ion of Profits a) Profits from Circul@ing Assets - Circul@ing asset profits = profit assoced w/ selling s2ck in trade & there ↑ in value year-2-year - Ammonia Soda v Chambrlain  divs may b paid out of current year profits even if the co had losses in prior years. - Lees Case – if there is an excess of current earnings over current expenses. - Foster v New Trinidad – Need 2 look @ whole of assets b4e declaring. Revalue all of these. If surplus then ok. b) Realised Profits from Fixed Assets - Divs may b paid from profits from sale of co‟s fixed assets - Verner’s case  only  in circul@ing capital r regarded as profits  divs may b distributed even though there is a loss in value of fixed assets. - Australasian Oil Explor@ion  cannot declr a dividend from sale of one asset. Must revalue all fixed assets & pay dividends from any surplus. c) Unrealised Profits from Fixed Assets - Divs may b paid in the 4m of a bonus issue from the revalu@ion of a co‟s fixed assets s254S - Cash Dividends: (a) Westburn Sugar Refineries  unrealised capital profits cannot b distributed as cash div. (b) Dimbula Valley  cash divs can b paid from unrealised capital gains in fixed assets if there r liquid assets avail & valu@ion made in good faith d) Profits from Subsidiaries - Industrial Equity v Blackburn  holding co cannot pay profits out of subsid co profits – as each co is a separ@e legal entity (Salomon Principle) *Also cannot declr div from expected profits. - But: can declr where subsid first distributes a div 2 holding co as this 4ms part of the holding co‟s profit. Remedies 4 Improper Dividend P’ments 1. Unauthorised Reduction of Capital - 256B includes divs paid out of anything except profits. The dividend p‟ment is still valid - 256D  any D involved liable 4 civil penalty 2. In/vent Trading - 588G  occurs when Ds fail 2 prevent the co from incurring debts when there r reas grounds 4 suspecting insolvency - 588G(1A)  co incurs a debt when: (c) A dividend is paid; or (d) If the constit provides 4 declar@ion, when dividend is declrd - 588M  Ds personally liable 2 liq or unsecd Crors 4 loss suffered b/c of insolvency - 1317E  Ds liable 2 civil penalty. 3. Injunction 2 Restrain Dividend P’ment - 1324  SH & Crors have right 2 app 4 an injunction 2 restrain co contravening 254T. 4. Oppression Remedy – SH cannot compel Ds 2 pay dividends even where profit Burland v Earle. But where not paid then argue oppressive s232 San4d v Courier Service. DIRECTORS Ds & O’rs - 9  D is a person apptd 2 the position of D regardless of the name given 2 them.*Regarded as organs ¬ agents. *Cannot b under 18 s201B(1). Must b a n@ural person. Includes: (e) De-fac2 – where a person acts in position of D (Mitmorn v Yasseen – not 4mally apptd but driving 4ce bhind co; Corpor@e Affairs v Drysdale – despite retired still D as continued 2 particip@e in management. (f) Shadow – a person whose instructions r cus2marily followed by Ds. - DFCT v Austin  must exercise 2p level mngmt func - 9  O‟r = D or secretary; person who particip@es in decision making; person who can affect co‟s finc std‟g; Rer, A, liq - 82A  O‟r includes E‟ees & exec O‟rs - Invalidly Apptd – actions still valids201M/204E Types of Ds 1. Managing D - 201J  RR th@ Ds can appoint one or more of themselves 2 position of MD on terms they see fit - 198C  MD can b conferred w/ any pwrs the Ds can exercise &b deleg@ed work. - Shirlaw v Sthn Foundries  MD = person who BoD deleg@es mngmt pwrs of mngmt 2. Chair of Ds - Apptd 2 chair & exercise procedural control over mbrs & Ds mtgs (248E, 249U) &sign minutes (251A(2)) (Kelly v Wolstenholme) - 248G(2)  chairman has casting vote - Colorado Constructions v Pl@us; Kelly v Wolstenholme  chaiman must occupy the chair, any resolution passed w/out = void - ASIC v Whitlam – must act bona fide &honestly. 3. Executive & Non-Executive Ds - Executive Ds = full time apptd 2 carry out day 2 day mngmt under CEO - Non-Exec Ds = part time apptd 2 bring an indep view 2 the board & consider the I of the co as a whole & the Is of SH. (g) Daniels v Anderson – duty owed by non-execs is the same as exec Ds. No lower standard. 4. Altern@e Ds - 201K  RR th@ a D may appt an altern@e 2 per4m some or all of their duties Str@hmore Group v Fraser  altern@e has same rights & duties only when acting as D. Usual D has no pwrs @ this time. (h) 201K(3)  the exercise of pwr by an altern@e is as Effive as if exercised by a D (i) Markwell Bros  altern@es fall w/in Def of D  subject 2 same duties as a D 5. Nominee Ds - Apptd 2 represent the Is of particular SH‟s or Crors (Levin v Clark) 6. Governing Ds – in PTY entrench founder &can give themselves any pwr/have almost complete control until de@h. *Must still act properly Whitehouse v Carl2n Hotlel. Board of Ds 1. Pwrs a) Management - 198A(1)  RR gives the Ds the pwr 2 manage the business of the co - 198A(2)  RR th@ Ds may exercise all pwrs of co except those @ G mtg b) Deleg@ion of Pwrs - 198D  board can deleg@e pwrs 2 committee of Ds, a D, an E‟ee or any other person c) Calling Mtgs - 248C  RR allowing a D 2 call by giving notice individually 2 every other D. - 249C  RR allows D 2 call mtg of mbrs d) Execute Documents (127(1))  co may execute a doc w/out common seal where signed by – 2 Ds; 1 D + co sec 2. Proceedings of the Board a) Ds Mtgs - Ds can exercise their pwr by making decisions & passing resolutions @ Ds mtgs - Petsch v Kennedy  a valid Ds mtgs reqs more than an in4mal mtg of Ds - 248D  permits a valid mtg where Ds rn‟t physically present @ the one place. - Need 2 b chaired s248E(2). b) Resolutions - 248G  RR th@ a Ds resolution must b passed by a majority of votes of Ds entitled 2 vote; chair has casting vote - 248A  RR th@ a resolution of Ds can b passed if all Ds entitled 2 vote sign a doc th@ they r in favour of the resolution. - 248B  sole D may pass by signing record c) Notice of Board Mtgs - 248C  RR permits a Ds mtg 2 b called by a D giving notice individ 2 every D - Petsch v Kennedy. - 2ole v Flexihire  amt of notice must b fair & reas in light of the practices of the co - No notice = mtg invalid (Mitropoulos v Greek Orthodox Church) - No notice reqd where  D not w/in reach of notice given modern means of communic@ion or where constitution sets regular mtg times - Devaruax Holdings v Pelsart Resources – needs 2 contain clear summary of wh@ 2 b dealt w/ so can decided whether 2 @tend. d) Quorum - 248F  RR th@ quorum is 2 unless otherwise decided. Quorum must b present @ all times - Mancini  resolutions invalid w/out quorum - Re Austpl@ Minerals  Ds constituting a quorum must b entitled 2 vote @ board mtgs - 195  if Ds has m@erial I not counted e) Minutes - 251A(1)(b)  proceedings & resolutions of board mtgs must b recorded in co minute book - 251A(6)  minutes PF evid of proceedings 1. GM Cannot Override Board Decisions - Management pwr is very broad – refer s198A - Shaw v Shaw; NRMA v Parker  mbrs cannot override mngmt decisions made by BoD –as pwr is vested in board 2. GM Can R@ify Ultra Vires Board Decisions - R@ific@ion  where BoD acts ultra vires, GM can r@ify by ord resolut  the improper exercise is valid. Apptm’t of Ds 1. Reqments 4 Apptm’t - 201A(1)  pty co – @ least 1 D residing in Aus - 201A(2)  pub co – @ least 3 Ds, 2 residing - 201B(1)  pern‟s < 18 cannot b apptd as Ds - 201D  person must consent in writing 2 bing D - 205B(1)  co must lodge notice w/ ASIC w/in 14 days of apptm‟t - 117(2)(d)  appl‟n 4 rego must set out name, address, DOB of each D. 2. Methods of Apptm’t a) G Mtg - 201G  RR th@ co can appoint a person as D by resolution of GM - 201E  multiple Ds of pub co‟s 2 b apptd by separ@e resolutions otherwise void b) Casual Vacancies - 201H(1)  can appt a D 2 fill casual vacancy – eg make up a quorum (due 2 de@h, illness, resig) - 201H(2),(3)  pty co 2 confirm vacancy w/in 2 mths of apptmt; pub co 2 confirm @ next AGM. c) Sole D/Mbr - 201F  single D/mbr of pty co may appt another D by recording & signing record - 201F(2),(3)  if D bcomes unfit, trustee or personal rep may appoint new D 3. Defective Apptm’ts - 201M, 204E  an act done by a D or secretary is valid even if the apptmt is invalid under CA or constit Disq’n of Pern’s from Managing - Chew v NCSC  purp of disq‟n provs is 2 deter & protect pub from those who may re-offend - Person must b „managing‟ a corpor@ion (206A) & b involved in decision making th@ affects the whole or substant part of the business or financial std‟g - 206A  managing while disq‟d is an offence 1. Disq’n by G Mtg a) Proprietary Co - GM can only remove if empwred by internal rules (otherwise breach of constit = breach s140 st@ K) - 203C  RR th@ SH may remove a D by resolution & appoint another @ GM b) Pub Co 203D(1)  mbrs may remove a D by resolution b4e expir@ion of their term; resolution of no Eff until successor apptd 203D(2),(3)  notice of resolution 2 b given 2 co @ least 2 mths notice b4e mtg; co must give D notice as soon as practicable. - 203D(4),(5)  D can put own case 4ward but need not b circul@ed if defama2ry or >1000 words 2. Au2m@ic Disq’n by Oper@ion of CA a) Convicted Person - 206B(1)  person is au2m@ically disq‟d from managing a corp if the offence: (j) Concerns the making of decisions th@ affects the business/finc std‟g of the co; or (k) Is a contravention of the CA punishable by impris 4 up 2 1 year or other offence of dishonesty punishable by impris up 2 3 mths - 206B(2)  disq‟n is 4 up 2 5 years from release or 5 years from conviction if no imprisonment. 5 yrs 2 b saved 4 worst cases Cullen v Corpor@e Affairs. b) Personal Bankruptcy - 206B(3)  au2m@ically disqualifies a person if they r an undischarged bankrupt 3. Disq’n by Ct Order - Appl‟n 4 removal can only b made by ASIC - 206C,D,E  Ct will look @ pern‟s conduct re mngmt, business or prop & any approp m@ters a) Contravention of Civil Penalty Provision - ASIC may seek 2 disqualify a person from acting as D or managing a corp under s50 ASIC Act - 206C(1)  ct may disqualify a person where it declrs  1317E th@ the person contravened a civil penalty prov. - 206C(2)  Ct will look @ pern‟s conduct re mgnmt, bus or prop of corp & other approp m@ters - ASIC v Adler  look @ seriousness & frequency of contravent; amt of losses, likelihood of similar conduct; mitig@ing fac2rs b) Failed Companies - 206D(1)  Ct may disqualify person 4 up 2 10 years if w/in past 7 years they have ben an O‟r of two or more failed co‟s & the manner in which it was managed was the reason 4 failure. - 206D(2)  corp is regarded as having failed if it is compulsorily wound up due 2 insolvency or it enters vol A & Crors cannot b paid c) Repe@ed Contraventions of CA - 206E  Ct may disqualify if person has @ least twice ben an O‟r of a co th@ has breached the CA & has failed 2 take reas steps 2 prevent contravention 4. Disq’n by ASIC - 206F  ASIC may disqualify a person 4 up 2 5 yrs - 206F(1)(b)  ASIC must serve a „show cause‟ order requiring person 2 show why they ought not b disqual - ASIC may serve notice 2 disqualify where: (l) The person has ben an O‟r of 2 or more co‟s th@ have ben wound up; and (m) Co is unable 2 pay liqs > than 50c in dollar. - Adv  doesn‟t req Ct order – onus is on person in breach 2 show cause. 5. Leave 2 Manage - 206G(1)  disq‟d person may app 2 Ct 4 leave 2 manage (if not disq‟d by ASIC) - 206G(2)  must lodge a notice w ASIC @ least 21 days b4e apping 4 leave. - 206F(5)  ASIC may give permission 2 manage 2 a person it disq‟d. 6. Personal Resign@ion – written notice s203A. 7. By Ds – this isn‟t allowed despite anything in constitution or agreement s203E. Co Secretary - 204A(1)  pty co‟s not reqd 2 have a co secretary. If they have 1, must reside in Aus. - 204A(2)  pub co‟s must have @ least 1 secretary who must live in Aus 1. Apptm’t - 120  first secretary 2 b specified in appl‟n w/ their written consent - 204D  subseq secretary apptd by Ds - 204B(1)  secretary must b @ least 18 years - 204F  secretary holds office on terms & conditions set by BoD 2. Function of Secretary - Aistr@ive Role  secretary regarded as “chief Aistr@ive O‟r” (Panorama Developments) - BoD imposes responsibility 4 preparing financial records & may b liable as an O‟r (DCCA v S2kes) s83. - St@y Responsibilities: (n) 188(1) co having registered office open 2 pub, lodgement of ASIC notices & annual return, keep minutes (failure = crim offence) DIRECTORS’ DUTIES (OVERVIEW) DUTY Good Faith & Proper Purp (fiduciary duty) Avoid Conflicts of I (fiduciary duty) ST@UTE 1. 181 – Good faith 4 proper purp C/L 1. 2. 3. 1. 2. 3. 4. 5. 6. 7. 1. Good faith & bst I of co Exercise pwrs 4 proper purp Retain discretion Contracts w/ co Personal profits from position as D Taking up corpor@e opportunity Bribs/secret profits Misuse of co Fs Misuse of confident co in4m@ion Competing w/ co Cr, skill &diligence 1. 2. 3. 182 – Improp use of position 183 – Improp use of info 191 – Disclose conflicts of I Cr, Skill & Diligence In/vent Trading 588G - prevent insolv trading GOOD FAITH & PRO PER PURP CL – Good Faith & Bst Is of Co - Ds r under a FIDUCIARY DUTY 2 act bona fides &in the bst Is of the co 1. “Good Faith / Bona Fide” 1. 1. 180 – Cr, skill & dilig Bus judge rule Reliance Deleg@ion (o) Subj = D must genuinely blieve they r acting in bst I of co (more than mere honest blief) (p) Obj = the D acts in a way th@ a reasonable D would consider 2 b the bst Is of the co 2. “Bst I of the Co” - Greenlagh v Cinemas  must act I of SH as a collective group - Percival  no duty owed 2 indiv SH except where: (q) There is a close personal rel@ionship involving reliance (Coleman v Myers) (r) The n@ure of the transax involves the Ds having special knowledge (Brunninghausen) - Different SH Classes  Ds must exercise there duty such th@ there is fairness b/w classes (Mills v Mills) a) Nominee Ds - G‟ly – nominee 2 act in bst I of co as a whole over the Is of the appoin2r (Bnnetts v Brd of Fire Cmmnr) - But co constitution may allow the nominee 2 legitim@ely act in I of appointee only (Whitehouse v Carl2n Hotel) b) Co Groups - Wholly owned subsidiaries (187(1))  a D of a wholly owned subsid is deemed 2 act in bst Is of subsid if: (s) The constit authorises the D 2 act as such, (t) D acts in good faith & bst I of the holding co; and (u) The subsid isn‟t in/vent & doesn‟t bcome so - Non Wholly Owned Subsidiaries  must balance the Is of group w/ I of subsidiaries SH‟s: (v) Walker v Wimborne  I of indiv considered separ@ely from group – separ@e legal entity c) E’ees  Ds should not consider the Is of e‟ees ahead of co as a whole (Parke v Daily News) CL – Exercise Pwrs 4 Proper Purp - Ds r under a FIDUCIARY DUTY 2 exercise their pwrs 4 a proper purp. *Improper means conduct inconsistent w/ discharge of duties/oblig@ions Grove v Flavel. Objective test R v Byrnes. 1. “Improper Purp” - Ct will consider two m@ters 4 improper purp (w)Objective purp  the purp 4 which the pwr was granted (x) Subjective purp  the purp which actually motiv@ed the exercise of the pwr. - Breach = where the subjective exercise of the pwr is different 2 the objective purp. - PBS v Wheeler  D liable where knew of improper purp but failed 2 prevent - Mills v Mills  still breach where honest blief th@ actions r in the bst Is of the co as a whole. 2. Egs of Improper Purp a) Improper Shr Issues - Arises where Ds issue shrs 4 reasons other than 2 raise capital: (y) Maintain control (Ngurli v McCann) (z) Manipul@e voting pwr  cre@e or destroy a majority (Howard Smith; Whitehouse) - Multiple Purps  where Ds issue shrs & r motiv@ed by a numbr of purps (aa) App „but 4‟ test  Ds will breach duty where „but 4‟ the improper purp, they would not have acted (Whitehouse v Carl2n Hotel) b) Improperly Defending Takeover Bids - Look @ motives of Ds  Ds act improp where motiv@ed 2 retain control @ the expense of SH‟s - No breach where measures r 2 maximise the value of mbrs shrs or advance commercial Is of the co (Pine Vale Investments v McDonnell) c) Improper Use of Co Fs 4 Re-Election - Ds act improperly where they use co Fs 2 promote re-election (Advance Bank v FAI) d) Improperly Refusing 2 Register T/f - Austn Metrop Life Assur  refusal 2 register a t/f must b made bona fide & in I of co. - 1071F  where refusal is w/out just cause, t/fee may app 2 Ct 4 an order 2 t/f CL – Retain Discretion - Duty = Ds cannot limit the exercise of their future discretions –  they must retain the ability 2 make up their own mind on m@ters & not just concur w/ others - But Ds can agree 2 vote in a particular way if they blieve this 2 b in the Is of the co @ the time the agreement was entered in2 (Thorby v Goldbrg) St@ Duty –Good Faith 4 Prop Purp – s181 - 181(1)  a D or other O‟r of a corp must exercise their pwrs & discharge their duties: (bb) In good faith in the bst Is of the corp & (cc) 4 a proper purp - Wider oper@ion than G law as it includes O‟rs – app same legal principles - Nb: D need not gain a bnefit from their conduct – sufficient th@ conduct was done w/ the aim of getting an adv (ASIC v Adler) - Breach of s181(1) (dd) 181(2)  contravent s181 breaches the provision (ee) 1317E  breach 181 = civil penalty (ff) 184(1)  breach of 181 will @tract crim liability if reckless or intentionally dishonest. CL – AVOID CONFLICTS OF I - Duty 2 avoid conflicts of I = FIDUCIARY DUTY Contracts/Transaxs w/ the Co 1. Fiduciary Duty - Breach of duty 2 avoid conflicts = when Ds enter K‟s w/ the co b/c their personal Is may conflict w/ the co‟s Is. - Duty is strictly applied –  Ds should obtain the bst deal & not further their own Is (gg) Direct = D K‟s personally w/ co (hh) Indirect = D K‟s w/ another co of which he is also a D or SH (SA v Clarke) - Remedy = rescission of K - Co doesn‟t have 2 suffer loss Furs v 2mkeins 2. Disclosure of Is – Taking the Bnefit a) Constitution (ii) May allow a D who has an I in a K 2 take the bnefit if they disclose 2 other Ds & abstain from deciding. b) Proprietary Companies (jj) Disclosure 2 Board o 194  RR allows Ds 2 have a m@erial personal I in contracts w/ the co provided they disclose the n@ure & extent of I @ Ds mtg (kk) Disclosure 2 G Mtg of Mbrs o Contract is voidable @ suit of mbrs c) Pub Companies (ll) Disclosure 2 Board o 191  disclosure of I must b made 2 BoD (mm) Disclosure 2 G Mtg of Mbrs o Contract is voidable + o Ch 2E  Ds & other reld parties must make full disclosure & gain SH apprvl @ GM when entering uncommercial transax (blow) - ASIC v Adler  mere disclosure insufficient if D holds position of pwr & influence over board. 3. Entitlement of Ied D 2 Vote a) Proprietary Companies (nn) 194  RR th@ D may b present & vote if they disclose the n@ure & extent of their I 2 other Ds under 191 (oo) D can retain bnefits of transax & the co cannot avoid transax merely b/c the D has an I b) Pub Companies (pp) 195(1)  a D w/ m@erial personal I is prohibited from voting + cannot b present (qq) 191(2)  prohibitions don‟t app where the I: o arises b/c the D is a mbr of the co & is held in common w/ other mbrs o arises in rel@ion 2 D remuner@ion o rels 2 a K which reqs apprvl of mbrs o has already ben disclosed (rr) 195(2)  prohibitions do not app where the non-Ied Ds have resolved th@ the D should not b d/q (ss) 195(4)  where not enough Ds entitled 2 vote – GM should deal w/ the m@ter (tt) 196(1) – ASIC may declr an Ied D b present & vote where not enough 2 4m quorum & m@ter needs urgent @tention. 4. Chpt 2E – Financial Bnefits 2 Ds - Pub co‟s + controlled entities 2 obtain prior SH apprvl b4e giving finc bnefit 2 Ds & reld parties - 230  D not relieved of their duties merely b/c the transax is authorised by mbrs a) Financial Bnefit - 229(1) – give broad Def 2 finc bnefit – commercial substance prevails over legal 4m - 229(2)  finc bnefit includes: providing finance or prop, buying or selling an asset, leasing an asset, supplying or Ring services, issuing secies or granting an option, taking up/releasing an oblig@ion b) Reld Parties - 228  reld parties include: (uu) Controlling entity of the pub co (vv) Ds of pub co (or controlling entity), spouses, de-fac2s, prnts & children (ww) Entity controlled by a reld party (xx) An entity th@ was a reld party in last 6 mths c) SH Apprvl Needed - 208(1)  pub co must obtain SH apprvl 2 give a D or reld party a finc bnefit - Eff of No Apprvl (yy) 209(1)  failure 2 get SH apprvl doesn‟t affect validity of transax but co guilty of offence (zz) 1317E  contravention of 208 = civil penalty (aaa) 1324  contravent may b s2pped by st@ injunc - No apprvl reqd where: (bbb) 210 – reas finc bnefits given @ arms lengths (ccc) 211 – reas remuner@ion of an O‟r/E‟ee (ddd) 214 – finc bnefits given 2 closely held subsidiary (eee) 215 – non discrimina2ry bnefits - Notice Reqd (fff) 218(1)  co must lodge notice w ASIC convening a mtg & other docs @ least 14 days b4e notifying mbrs (ggg) 221  explana2ry memo must acco notice - Voting (hhh) 224(1)  Ied reld party who would get a finc bnefit cannot vote on the resolution (offence 2 vote but doesn‟t affect validity – 224(6),(8)) Personal Profits from Position of D - Breach of Conflict Duty = where Ds make personal profits from their position w/out consent of mbrs – duty is strictly applied: (iii) Still a breach where co has not made a loss or even bnefited (Regal Hastings) (jjj) Breach even if transax was fair from co‟s point of view - R@ionale = Ds must b seen 2 act in good faith w/ all profits going 2 co r@her than personally. - Remedy = account of profits (kkk) Regal Hastings v Gulliver  liab arises from mere fact of profit bing made irrespective of good intentions. Taking Up a Corpor@e Opportunity No need 2 show loss Green v Bs2bll - Breach of Conflict Duty = Ds taking up a corp opportunity th@ should have gone 2 co (Cook v Deeks) - Remedy = account of profits - Cook v Deaks  H: three Ds breached their duty by diverting a K 2 their newly 4med co when it ought 2 have gone 2 the original co. (lll) Regal Hastings – irrelevant th@ the co could not take the opportunity & co not suffering a loss – Ds still must account (mmm) c/f: Qld Mines v Hudson – as opportunity arose & D disclosed, co not financially able 2, no breach of duty. (nnn) Peso Silver Mines no breach where approached purely as individual ¬ D. Bribs & Other Undisclosed Bnefits - Breach of Conflict Duty = D paid a brib or secret commission in order 2 procure a particular course of action by the co or 2 influence D Bos2n Deep Sea Fishing v Ansell  MD was bing paid secret commissions & bonuses 2 sec K‟s - Furs v 2mkies  breach of duty not dependent on the co suffering any detriment Misuse of Co Fs - Ds have a duty 2: (ooo) Act in the co‟s I wrt the use of co‟s Fs (ppp) Not 2 mix the co‟s Fs w/ their own or th@ of another co (2tex-Adon v Marco) Misuse of Confidential In4m@ion - Breach of Conflict Duty = where Ds use 4 their own bnefit info or prop entrusted 2 them 4 use on bhalf of the co – ie: (qqq) trade secrets & cus2mer lists (4kserve) - Facenda Chicken v Fowler  4mer D/ E‟ee not permitted 2 use confidential info 4 purp of competing w/ th@ E - Wright v Gasweld  look @ 5 indica2rs (Kirby J) (rrr) Whether skill/ef4t expended 2 get info (sss) Whether info is jealously guarded by E (ttt) Whether known 2 E‟ee th@ info is confid (uuu) Whether trade practice suggests info is confide. (vvv) Whether the E is permitted 2 shr info by reason of seniority of their position. Competing w/ Co - G‟ly  fiduciaries rn‟t permitted 2 compete w/ pern‟s 4 whom they act (Hivac’s case – exec D owes a duty of fidelity  cannot compete) - But Ds r permitted 2 sit on rival boards but cannot disclose confidential info of one co 2 rival (Riteway Express v Clay2n) STATUTORY DUTY – AVOID CONFLICTS Improper Use of Position – s182 - 182(1)  a D, secretary, E’ee or other O’r must not improperly use their position 2: (a) Gain an advant 4 themselves/someone else, or (b) Cause detriment 2 the corp 1. “Improperly” - Improperly using the position of O‟r includes: (www) Grove v Flavel  conduct th@ is inconsist w/ the discharge of duties & responsibilities of O‟r (xxx) Byrnes  where O‟rs acted & they knew or ought 2 have known th@ they didn‟t have authority 2. “2 Gain Adv or Cause Detriment” - Chew  accused must blieve th@ the intended result would b either an adv 4 himself or detriment 2 the co, not merely th@ the intended result should ensure. Improper Use of In4m@ion – s183 - 183(1)  a person who obtains info b/c they r or have ben a D, secretary, O’r, E’ee must not improperly use the info 2: (a) gain an advant 4 themselves /someone else; or (b) cause detriment 2 the corp 1. “In4m@ion” - Conflicting auth on whether info must b confident‟l: (yyy) Es-me v Parker  info need not b secret but must b confidential info possessed by co (zzz) McNamara v Flavel  info need not b confidential – breach depends on how info acquired - Use of Info th@ Co is In/vent (aaaa) Grove v Flavel  D rearranged his affairs on knowing co near-in/vent. H: breach of duty as caused detriment 2 other Crors DISCLOSE CONFLICTS OF I Under Constitution & Replaceable Rules - Constitution may contain provisions th@ permit Ds 2 have personal Is in K‟s (esp pty co‟s) - 194  RR th@ Ds of pty co‟s may have a personal I in a K if they disclose the n@ure & extent of the I under s191 @ Ds mtg @ C/L - Ds may avoid breach of fiduciary duty if they make full disclosure 2 the co &have the K r@ified by G mtg - G‟ly  disclosure must b 2 GM: (bbbb) Furs v 2mkies – insufficient 2 disclose 2 BoD as they rn‟t empwred 2 authorise a D 2 disregard the Is of the co & pursue their own Under Corpor@ions Act – s191 - 191(1)  a D who has a m@erial personal I in a m@ter th@ rels 2 the affairs of the co must give notice 2 other Ds unless exempt under 191(2) - 191(2)  D need not disclose I see above. (cccc) Woolworths v Kelly  must disclose I even where other Ds have knowledge of it (Kirby) (dddd) c/f WW v Kelly  do not have 2 4mally disclose I if other Ds already have knowledge - 191(4)  contravention of 191 doesn‟t affect the validity of the transax - 191(1A)  contravention of 191 = offence CARE, SKILL & DILIGENCE CL Duty of Cr, Skill & Diligence 1. Previous Standard - Very lenient reqment of Ds - Re City Equitable (eeee) Standard of cr measured by reference 2 the cr an ord person may exhibit when acting on own bhalf (ffff) No minimum skill level reqd (gggg) Low diligence reqd – don‟t have 2 give continuous @tention 2 co affairs or @tend mtgs - Overend & Gurney = breach only if grossly negligent 2. Modern Standard - AWA case  Ds expected 2 exercise reas cr taking in2 a/c knowl, experience & size of co (hhhh) Duty 2 familiarise self w/ co & how it is run (iiii) Cannot shut eyes 2 corp misconduct (jjjj) Non-exec Ds 2 exhibit same level of cr & skill (kkkk) Level of skill = must b able 2 4m a view as 2 co‟s finc st@e; must b able 2 moni2r mngmt; familiarise self w/ co‟s bus & finc st@us (Sheahan v Verco) (llll) Diligence = must conduct periodic review of co‟s finc st@ements; must make reasonable inquiries 2 keep themselves in4med of oper@ions - Vrisakis v ASC  must @tend board mtgs unless exceptional circs – ie illness or absence from St@e - PBS v Wheeler  MD breached duty by not making inquiries in2 unusual harmful transax - Gamble v Hoffman  breach as Ds did not assess necessity of paying debts owed 2 insolv subsid St@y Duty of Cr, Skill & Diligence – 180(1) - 180(1)  D must exercise their pwr & discharge duties w/ the degree of cr & diligence th@ a reas person would exercise if they: (a) Were a D of a corp in the corps circs; or (b) Occupied the office held by & had the same responsibilities w/in the corp as the D Section imposes objective reasonable person standard (mmmm) ASIC v Adler  look @ wh@ the ordin person w knowl & experience of the D would do in circs if acting on own bhalf (nnnn) AWA case  D who is an expert still has a duty 2 pay @tention 2 co affairs outside ra of expertise - Also imposes subjective test  look @ corps circs such as size, n@ure of bus, st@e of finc affairs - 1317E  breach 180(1) = breach of civil penalty provision (not a criminal offence) DEFENCE - Business Judgment Rule – 180(2) - 180(2)  a D who makes a business judgment will not b liable 4 breach of 180(1) where: (oooo) Judgment was made in good faith & 4 proper purp (pppp) There was no m@erial personal I in the subject m@ter of the judgment (qqqq) They in4med themselves about the subject m@ter 2 extent they reas blieved 2 b approp (rrrr) R@ionally blieved judgment 2 b in bst I of co - 180(3)  business judgment = any decision 2 take orn‟t 2 take action in respect of a m@ter relevant 2 business oper@ions of the corp. - ASIC v Adler  cannot app 2 conflict of I as bus judgment reqs no m@erial personal I DEFENCE - Reliance on Others – 189 - 189  D may rely on info or advice provide by (ssss) E‟ee – whom the D blieves on reas grounds 2 b reliable & competent (tttt) Expert/Professional– where D blieves on reas grounds th@ the m@ter is w/in their ra of competence (uuuu) Another D – w/in the Ds authority (vvvv) Committee of Ds – on which the D did served & m@ter w/in Committee‟s authority - 189(b)  reliance must b in good faith after making an indep assessment of the info taking in2 a/c Ds knowl of corp & complexity of its oper@ions - AWA case  Ds not entitled 2 rely w/out verific@ion from snr mngmt – under a positive duty 2 keep in4med - Duke Group v Pilmer  cannot rely on expert advice if this involves disregarding own knowledge Responsibility 4 Actions of Deleg@es – 190 - 198D  Ds can deleg@e any of their pwrs 2: (a) committee of Ds; (b) another D; (c) an E‟ee; (d) any other person - 190(1)  where Ds deleg@e under 198D, they r responsible 4 the exercise of this pwr by the deleg@e as if the pwr was exercise by them - 190(2)  D avoids liab if they blieve on reas grounds th@ (wwww) the deleg@e would exercise the pwr in con4mity w/ the duties imposed by CA/constit (xxxx) the deleg@ion was made in good faith; & (yyyy) the deleg@e was reliable & competent - Eff = D not liable where deleg@e acts negligently, fraudulently or outside scope of deleg@ion - ASIC v Adler  fac2rs 2 consider whether deleg@ion was reasonable: (zzzz) Whether function deleg@ed is such th@ it may b left 2 such O‟rs (Re City Equitable) (aaaaa) Extent 2 which D is put on inquiry or ought 2 have ben (Re Prop 4ce Consultants) (bbbbb) If there is knowledge of dishonesty or incompetency it is unreas deleg@ion (Biala v Mallina Holdings) (ccccc) Risk & n@ure of transax (PBC v Wheeler) (ddddd) Inquiries made & circs engendering trust (eeeee) Whether position is exec or non-exec PREVENT INSOLVENT TRADING Duties 2 Crors 1. Duty Not 2 Prejudice Crors’ Is - Ds have fiduciary duty 2 act in bst I of co‟s Crors (Walker v Wimborne) but not an indiv duty 2 Crors (Spies v R) - Nicholson v Permakraft  Ds 2 take Crors I in2 a/c if co is in/vent or solvency is doubtful - Kinsella  SH of in/vent co cannot r@ify breaches of Ds duties 2 Crors 2. Duty Not 2 Improperly use Info (refer s183 above) 3. Duty of Cr Ds owe duty 2 Crors (Hil2n v Hil2n Intl) 4. Right of Crors 2 Bring Legal Action - Crors cannot instig@e civil actions against Ds – they have indirect rights - The liq may take action against Ds & any amount recovered is avble 4 distribution Duty 2 Prevent In/vent Trading – 588G 1. The Duty - 588G(1)  Ds have a duty 2 prevent the co from incurring a debt when there r reasonable grounds 4 suspecting: The co 2 b in/vent or Would bcome in/vent as a result of the transax - Reasonable Grounds 4 Suspecting (fffff) Metro Fire Systems v Miller  objective test judged by standard approp 2 a D of ord competence – actual st@e of mind irrelevant a) When is a Debt Incurred? - 588G(1A)  a debt is incurred when: Action of Co… Debt Incurred When… Paying a div Dividend is paid, or if constit provides – on declar@ion Shr capital reduction Shr buy back Redeeming redeemable prefnc shrs Issuing redeemable prefnc shrs Financially assisting a person 2 acquire shrs in itself or holding co Enter uncommercial transax per s588FB Reduction takes Eff Buyback agreement entered in2 When co exercises option On issue When agreement entered in2 or if no agreement, when assistance provided When transax entered in2 - Roma Industries v Coad  time debt is incurred will vary b/w cases depending on terms of agreement - Leigh Mardon v Wawn  co incurs debt when it does something which renders it liable 4 a debt b) When is a Co In/vent? i) Rebuttable Presumptions of Insolvency - 588E(3)  Presump of Continuing Insolvency (ggggg) If it can b proved th@ co was in/vent during 12 mths ending on rel@ing back day (when w-up filed) – presumed co remained insolved - 588E(4)  Presump where Co has Failed 2 Keep Adequ@e Financial Records (hhhhh) Doesn‟t app 2 minor contraventions – 588E(5) (iiiii) Doesn‟t app if contravention is by someone other than D – 588E(6) (jjjjj) Kenna & Brown  co presumed 2 b in/vent b/c finc records were falsified ii) Other Grounds of Insolvency - 95A(1)  person s/vent when they cant pay debts when due & payable - 95A(2)  person who isn‟t s/vent is in/vent - This is a cash flow test - Metro Fire Systems  must consider whole of co‟s finc resources & time extended 2 pay Crors - Re Timb@ec  mere temp lack of liquid ≠ insolvency 2. Defences - 588H  4 altern@ive defences 4 Ds 2 588G a) Reasonable Grounds 2 Expect Solvency 588H(2)  defence th@ D had reas grounds 2 expect co was s/vent @ time of incurring debt Eg: expect external financing support from Crors 2urprint Int’l  no defence if no inquiries made Metro Fire Systems – cannot base on mere hope/optimisim. Deleg@ion & Reliance on Others 588H(3)  applies where the D deleg@es the moni2ring of the co‟s financial position But @ time of incurring a debt, D must: (kkkkk) Have reas grounds 2 blieve the person 2 b competent & reliable regarding the co‟s solvency &they were fulfilling their responsibility; & (lllll) Expected th@ the co was s/vent @ the time & would remain s/vent even if it incurred the debt c) Absence from Management - 588H(4)  absence due 2 illness or some good reason when co incurs debt - 2urprint Int’l  merely not particip@ing in managing is no defence d) All Reas Steps 2 Prevent Debt bing Incurred - 588H(5)  D must prove they 2ok all reas steps 2 prevent co from incurring debt - 588H(6)  Ct will have regard 2: (a) any action D 2ok w/ view 2 appointing Aistra2r; (b) when the action was taken; (c) result of action - Byron v Sthn Star  exec D could not avoid liab by telling MD th@ he didn‟t agree w co incurring debts - St@ewide 2bacco – should actually resign if unable 2 prevent. 3. Liability & Remedies 4 Breach - Remedies = compo; civil penalty (1317G); disqual from mngmt (206C); crim offence if incurring debt was dishonest a) Compo - 588J,K  compo may b made by civil penalty orders & as part of proceedings 4 crim offence - 588M(1)  liq may seek compo from D - 588M(3)  unsec Cror may initi@e compo claim - 588J,K,M  amt recoverable is limited 2 loss/ damage suffered by Crors re debts wholly or partly unsecd. - Amt recovered is payable 2 co &then distributed 2 the unsecd &then secd Crors REMEDIES & PENALTIES FOR BREACH Co’s Remedies - Co is proper Pl against D where there is a breach 1. Compo/Damages - Breach of duty  can get CL damages & equitable compo 4 breach of FD Tavis2ck v Saulsman. - Object = put the co in the same position it would have ben in had the breach not occurred - All Ds r jointly & severally liable  can sue 1 or several Ds 4 full amount of damages - Exemplary damages avail if D conduct is conscious, delibr@e & dishonest (Digital Pulse v Harris) - 3rd Party – involved in contravention = liability Green v Bs2bll - 1317H  breach of civil penalty may give ↑ 2 compo 2. Account of Profits - Arises in breach of conflict of I where D makes undisclosed profit (compo inadeq – no loss) - Regal Hastings  Ds had 2 disgorge profits even though co suffered no loss - 1317H(2)  civil penalty prov allow recovery of profit 3. Rescission of Contract - Arises where D has an undisclosed K w/ co –  co can rescind 2 get out of unfavourable K. - Kinsela  lease granted by in/vent co 2 Ds was voidable @ suit of co. - No rescission where  parties cannot b res2red 2 orig position; outsiders have acquired rights in subject m@ter; rescission not w/in reas time. 4. Constructive Trust & Return of Prop - Where D acquires co prop in breach of duty, co may get declar@ion th@ D holds the prop 4 them on constructive trust O’Brien v Walker. If gone 2 3rd party who knew obtained in breach then recoverable Barnes v Addy Civil Penalty Provisions - CP‟s ordered 4 misconduct th@ falls short of criminal 1. Civil Penalty Provisions - 1317E (mmmmm) Ds Duties = cr & diligence (180) good faith (181); improperly using position/info (182,183) (nnnnn) In/vent Trading = 588G(2) - 79  CP‟s also app 2 those involved in contravention – ie aided, counselled, induced, conspired etc. (ooooo) ASIC v Adler  must have actual knowl of contravention – includes wilful blindness/ignorance - 1317E(1)  Ct must make a declar@ of contravent - 1317J(1)  ASIC may instig@e CP proceedings s50 ASIC Act 2. Types of Orders a) Pecuniary Penalty Orders - 1317G(1)  pecuniary penalty may b imposed up 2 $200K if contravent is serious or m@erially prejudices corp‟s ability 2 pay Crors - ASIC v Donovan  Ct will consider: (ppppp) amt involved, any ef4t made 2 repay misapprop money, any acts of dishonesty or expressions of contrition, prev, character, prob of further breaches b) Disq’n Order (refer above) c) Compo Orders - 1317H  Ct may order D 2 compens@e the co 4 any damage suffered ↓ civil penalty order - 1317J  appl‟n by corpor@ion or ASIC - 1317S  D may b relieved from liab if Ct s@isfied th@ they acted honestly & ought b excused Criminal Penalties - 184  breach of duty = criminal offence if D was reckless or intentionally dishonest - 1317P  crim proceedings may start despite CP made - 1311  person guilty of an offence if they do something prohibited by CA or fail 2 do something reqd of them by CA EXONERATION Exoner@ion by G Mtg 1. G Pwr of R@ific@ion - Ds may b excused from liab if after disclosing GM r@ifies their actions (Bam4d v Bam4d) - Where there is a conflict on I – full disclosure 2 GM & their apprvl = exoner@ (Regal Hastings) 2. Limits on R@ific@ion – Cannot Where: - Co is in/vent/nearly in/vent (Kinsela); fraud on minority; if oppressive conduct (Hannes v MJH) Exoner@ion by the Co - CL  co may provide in constit th@ Ds r exempt from neglig but honest acts & omissions (Re City Equitable) - 199A(2)  co must not indemnify an O‟r against liab owed 2 co ↓ CP order or 2 someone else Exoner@ion by the Ct - 1318(1)  O‟r may b relieved from liab 4 breach of duty or negligence in civil proceedings if: (qqqqq) it appears th@ they acted honestly; and (rrrrr) ought fairly b excused (wholly or partially) - 1317S  Ct has pwr 2 grant relief from liab under a civil penalty provision b) - 199A(3)  where Ct grants relief 2 O‟r, they may b indemnified 4 legal costs under constit ASIC v Adler  merely bcause r person doesn‟t act dishonestly doesn‟t mean they should get relief. MEMBERS’ REMEDIES St@y Rights - Inspect the Books (sssss) 247A  only if person acting in good faith & 4 proper purp + may make copies (ttttt) Garina v Action Holdings – not 2 plan takeover - Correct the Register (see mbrship – 175) - Challenge Vari@ion of Class Rights (uuuuu) 246D  mbrs may app 2 set aside if done by 10% & vari@ion would prej affected class Personal Action (St@y Remedies) 1. Oppression Remedy – 232 a) Reqments - 232  Ct can make an oppression order if the conduct of the co‟s affairs is: (vvvvv) Contrary 2 Is of mbrs as a whole; or (wwwww) Oppressive, unfairly prejudicial 2 or unfairly discrimina2ry against a mbrs - 232(b)  remedy may b sought where the act has not yet occurred - 232(b)  remedy may b sought against omissions – ie persistent refusal 2 pay divs; refusal 2 register t/f b) Who May App? - 234  an appl‟n may b brought by: (xxxxx) Mbr of the co – equitable I insufficient Niord v Adelaide Petroleum (yyyyy) Mbrs removed from the register bcause of selective reduction Re M Dalley (zzzzz) Past mbrs if the appl‟n rels 2 circumst in which they were mbrs (aaaaaa) A person 2 whom a shr has ben transmitted (bbbbbb) A person ASIC deems appropri@e - Re Spargos Mining  mbr can claim remedy even though they were not a mbr @ the time oppression 2ok place c) Meaning of Oppressive & Unfair - Originally interpreted narrowly – “burdensome, harsh & wrongful conduct” (Scottish Coop Wholesaler) - Now  includes unfair discrimin@ion or prejudice (cccccc) Wayde v NSWRL  objective test of unfairness – ie where no reas D would act th@ way (dddddd) Morgan v 45 Flers Ave  look @ elements as whole (eeeeee) Re Jeffrey  not oppressive just b/c Ds pursue policies th@ minority disagrees w/ d) Egs of Oppression - Diversion of Corpor@e Opportunity (Cook v Deeks) (ffffff) Fexu2 v Bosnjak Holdings – H: oppressive 2 divert corp opp 2 D th@ blonged 2 co - Shrs Issued 4 Improper Purp (gggggg) Hannes v MJH – opp conduct 4 Ds 2 issue shrs 4 improp purp & then r@ify as maj SH - Failure 2 Act in I of Co (hhhhhh) Jenkins v Enterprise Gold Mine  oppressive 4 Ds 2 pursue course of conduct designed 2 further own Is @ expense of minority - Diversion of Profits  reas expect@ion th@ profits will b divided according 2 no of shrs held (iiiiii) San4d’s case  oppressive 2 pay low divs & high fees 2 Ds, esp after co circs improve - Exclusion from Management (family business) (jjjjjj) Fexu2 v Bosnjak – where an expect@ion of mngmt exists, may b oppressive 2 exclude e) Main Remedies 4 Oppressive Conduct - Shr Buy Back (kkkkkk) Order 4 majority 2 buy back minority‟s shrs Federovitch v St Aubins. - Apptm‟t of Rer  2 investig@e co transax (Jenkins v Enterprise Gold Mines) - Disq‟n from Management (Re Harmer) - W-up - New Board b constituted Re Spargos Mining 2. St@y Injunction – 1324 - 1321(1)  Ct has discretion 2 grant an injunction restraining a person from acting in breach of CA a) Who May App - Only ASIC or a person whose Is have ben affected by the conduct can app 4 injunction - Do Mbrs have Std‟g? (llllll) Broken Hill v Resources  person must have an I th@ goes byond th@ of pub  yes (mmmmmm) Airpeak v Jetstream  SH‟s & Crors have std‟g 2 restrain breaches of Ds duty 3. W-up Orders – 461(1) - Drastic & last resort remedy: a) Ds Act in Own Bst Is (461(1)(e)) - W-up where Ds have acted in own bst Is r@her than Is of mbrs as a whole - Re Cumbrland Holdings  aplies where board acts unanimously or majority acts in own bst I b) Oppressive & Unfair Conduct (461(1)(f),(g)) - Koko2vich Constructions  issuing shrs 2 detriment was oppressive & approp 4 w-up as serious risk of such future conduct c) Just & Equitable Grounds (461(1)(k)) - Breakdown of Mutual Trust & Confidence: (nnnnnn) Ebrahimi  one partner @tempted 2 freeze out another from management - Deadlock – 2 extent th@ co cannot function (oooooo) Re Yenidje 2bacco  SH could not communic@e - Fraud, Misconduct or Oppression (pppppp) Loch v Blackwood  Ds refused info regarding co affairs 2 minority SH - Failure of Substr@um (qqqqqq) Where co ceases 2 carry on the business 4 which it was 4med (Re Tivoli Freeholds) 4. Procedural Irregularities - Procedural irregularities rn‟t invalid unless they cannot b remedied by order of the Ct - 1322(2)  Ct has pwr 2 declr proceedings invalid - 1322(1)  egs = lack of quorum, deficiency of notice or time - Balance: real prej of mbr v prejudice against co: (rrrrrr) Bll Resources v Turnbridge  resolution 2 ↓ no of Ds was invalid irregularity as it deprived SH of Famental right 2 determine mngmt (ssssss) Re Compaction Systems  injustice must b real & not insubstantial - 1322(6)  Ct may valid@e proceedings if the irregularity is procedural & parties acted honestly Personal Action (G Law Remedies) 1. Rule in Foss v Harbottle - Rule = minority SH cannot bring actions against majority SH on bhalf of a co b/c of the oper@ion of the internal management & proper plaintiff rules. 2. Exception – Fraud on the Minority - Minority SH may en4ce PERSONAL rights against co - Majority cannot r@ify fraud on minority - Fraud = an abuse of pwr whereby the majority use their voting pwr 2 gain an unfair adv @ the expense of the minority Egs of Fraud on Minority Expropri@ion of Shrs  majority use voting pwr 2 exprop shrs by altering constitution (tttttt) Gambot2  can only appropri@e shrs where 4 a proper purp & fair in all circs (uuuuuu) 414  compuls acquisit pwr enables 90% 2 acquire 10% ii) Expropri@ion of co prop (Menier v Hoopers Telegraph Works) iii) Majority r@ify breach of Ds duty in bad faith (Ngurli v McCann) iv) Refusal 2 allow vote Pender v Lushing2n v) Failure 2 give notice of mtg Est@his v Greek Othodox Community. 3. Remedies - Injunction | declar@ion | damages/equitable compo | account of profits | rescission of K. Deriv@ive Action *Adv – do not have 2 pay costs. *Disadv – need Ct leave &co gets award not individual. 1. C/L Deriv@ive Action - Rule in Foss v Harbottle -see above - Person cannot bring deriv@ive action where Ds conduct was r@ified in GM or capable of bing r@ified 2. St@y Deriv@ion Action – Pt 2F.1A - Allows a SH 2 bring an action on bhalf of a co 4 a wrong done 2 it a) Who May Bring SDA? - 236(1)  a mbr, 4mer mbr or person entitled 2 b registered as a mbr, present & 4mer Ds &O‟rs of the co b) Leave of Ct Reqd Re Over2n Holdings & 236(1)(b) - 237(2)  Ct will grant leave where: (vvvvvv) It is probable th@ the co will not bring proceedings (wwwwww) The applicant is acting in good faith (xxxxxx) It is in the co‟s bst I th@ the applicant b granted leave (yyyyyy) There is a serious question 2 b tried (zzzzzz) 14 days notice was given b4e making appl‟n - 237(3)  rebuttable presumption th@ leave isn‟t in the co‟s bst I where the Ds: (aaaaaaa) Made the decision in good faith (bbbbbbb) Did not have a m@erial personal I (ccccccc) In4med themselves of subject m@ter 2 extent they reas blieved 2 b approp (ddddddd) R@ionally blieved decision was in the co‟s bst int - Swansson v Pr@t  good faith reqment includes: (eeeeeee) Applicant honestly blieving a good cause of action existed & co had reas prospect of success (fffffff) Applicant must not b seeking 2 bring the deriv@ive action 4 a coll@eral bnefit. c) R@ific@ion - GM cannot r@ify st@y breaches - 239(1)  r@ific@ion doesn‟t prevent a person from bringing proceedings on bhalf of the co MEMBERS MEETINGS Types of Mtgs 1. Annual G Mtg (AGM) - 250N  pub co must hold its first AGM w/in 18 mths of rego + then once every yr w/in 5mnth of end of financial year (pty co‟s not obliged) - 250N(2A)  default in holding AGM = strict liab - 250R  business of AGM 2 include: consid of ann finc report; election of Ds; apptmt of audi2r etc - 250S  chairman must allow mbrs as a whole 2 ask questions or make comments re mngmt 2. Extraordinary G Mtg (EGM) a) Mtgs Called by Ds - 249C  RR permits any D 2 call mtg - 249R,Q  mtg held 4 proper purp &@ proper time/place b) Mtgs called by Mbrs - 249D  mbrs who hold 5% of vote or @ least 100 voting mbrs may instruct Ds 2 call EGM – must st@e resolution & b w/in 21 days - 249E  if Ds fail 2 call w/in 21 days, mbrs holding >50% vote of all mbrs who made request may convene EGM - 249F  mbrs w/ >5% of votes may call GM w/out asking Ds 2 convene – SH bar cost - 249Q  EGM must b 4 proper purp - Humes v Unity APA  improper if mtg is 2 harass the co & its Ds but not merely b/c the resolution is likely 2 b defe@ed c) Mtg by Ct Order - 249G  any D or mbr may app 4 Ct 2 call mtg where impracticable 2 do so any other way – ie lack of quorum (Re 2tex-Adon) Notice of Mtgs - 249H  21 days notice must b given 2 mbrs - 249HA  listed co must give 28 days notice - 203D  2 mths notice of resolution 2 remove D - 249J  written notice 2 indiv mbrs entitled 2 vote - 249L  content 2 incl place, time & d@e, tech used, G bus, special resolutions, proxy details - 249N  mbrs w > 5% or @ least 100 mbrs may give notice of resolution th@ they props - 1322  failure 2 give notice = procedural irreg but not invalid unless substantial injustice - Chequepoint Secies  misleading notice may mean mtg restrained or resolutions overturned Proceedings @ Mtgs - Use of Technology (249S)  co may use tech @ 2 or more venues using any technology th@ gives the mbrs as a whole a reas opportunity 2 particip@e - Quorum (248F, 249T) - Chairing Mtgs (249U) - Voting (250E)  voting by show of hands (each mbr has 1 vote) or poll (1 vote per shr) (ggggggg) 250J  RR th@ resolution must b by show of hands first unless poll demanded (hhhhhhh) 250K  poll may b demanded on any resolution except rel@ing 2 chair or adjournment (iiiiiii) 250L  poll may b demanded by @ least 5 mbrs entitled 2 vote, SH w >5% holding or chair - Proxies (249X)  mbr entitled 2 vote may appt proxy 2 @tend & vote 4 mbr & may specify amount of votes the proxy may exercise (jjjjjjj) 249Y  proxy has right 2 speak, vote in accordance w apptmt on show of hands/poll - Resolutions (kkkkkkk) Ordinary  req maj SH present & voting (lllllll) Special  req notice of intention 2 props resolute & st@e the resolution (249L) – must b passed by @ least 75% of mbrs s9 (mmmmmmm) Circul@ing (249A)  pty co may pass resolut w/out holding GM if all mbrs agree in writing - Minutes (251A)  co must keep minute books 2 record proceedings &resolutions @ mtgs - Procedural Irregularities (see mbrs remedies) a) i) RECEIVERSHIP (nnnnnnn) O‟r under s82A. 1. Rer & Manager - 9  Rer manager has the pwr 2 manage the corp in addition 2 taking possession of charged prop Who May b a Rer - 418(1)(d)  G‟ly only a registered liq - 418(3)  authorised trustee co‟s may act as Rers though not registered as liqs - 418(1)  excludes certain people from Ring: (ooooooo) a mortgagee of any prop of the co (ppppppp) an O‟r or audi2r of the co (qqqqqqq) an O‟r of any corp th@ th@ is a m/ee of the co (rrrrrrr) an O‟r of a reld co Methods of Apptm’t *Difference btween priv@ely apptd &Ct apptd. Priv@e = 2 res2re prosperity of co, Ct = 2 preserve assets of co Duffy v Supercentre 1. By Secd Crors - Conditions necessary 4 apptm‟t r usually provided 4 in the debnture trust deed - Debnture holders have pwr 2 appt Rer when: (sssssss) Co defaults; If co is oper@ing @ a loss; Decreased capital; Secy is put @ risk; co is insolv - 448A  the Rer, m/ee in possess, the corp or any Cror may seek a declar@ion th@ the appmt was valid - 419(3)  Ct may grant relief 2 Rers from bings sued 4 defective apptm‟t (must have reas blief th@ apptmt was proper) 2. By Ct a) Appl’n by ASIC - 1323(1)(h)  ASIC may app 2 the Ct 4 the appmt of a Rer where an investig@ion is bing carried out or where a prosecution or civil proceeding has ben instituted against a person 4 breach of CA - R@ionale = freeze prop of a person where there is an investig@ion bing carried out by ASIC - ASC v Aust-Home Investments  pwrs of Rer limited 2 preventing co from dealing w prop. b) Where it is Just & Convenient - Ct has inherent jurisdiction 2 appoint Rer pursuant 2 Sup Ct Act - Will appoint if secd prop is in jeopardy - Bond Brewing Holdings v NAB  Ct has no pwr 2 appoint a Rer @ suit of unsecd Cror where co did not consent + other remedies avble Eff of Apptm’t - Apptmt doesn‟t affect legal personality of the co - Apptm‟t G‟ly crystallises FCs - Affects Ds pwrs of management – replaced largely by Rer. - But Ds still retain pwr 2 initi@e leg procs (Deangrove v CBA) – ie challenge validity of apptm‟t or claim against a debnture holder. Pwrs of a Rer - Pwrs derived from charges ↓ which they r apptd - Ct apptd Rers have pwrs from Ct - 420(2)  specf pwrs of Rers: (ttttttt) Enter poss & take control of prop (uuuuuuu) Lease, hire or dispose of prop (vvvvvvv) Borrow money on secy of prop (wwwwwww) Carry on any business of prop (xxxxxxx) Make appl‟n 4 w-up 1. Pwr 2 Sell Assets Secd by Prior Charge - 420B(1)  managing controller may app 2 Ct 2 sell prop despite the existence of a prior charge - Will only make order if s@isfied th@ the sale is in bst Is of co & Crors &will not unreasonably prejudice rights of prior chargee. - 420B(2),(3)  Rer must have pwr 2 sell & @tempt 2 get consent of prior charge holder 2. Pwr 2 Obtain In4m@ion - 429  14 days after Rern‟tifies co of apptmt, Ds must submit a report 2 controller of co affairs. - 430  Re may req report 2 b submitted 2 him by other pern‟s – present & 4mer O‟rs, promoters, present & 4mer E‟ees - 431  Rer can @ any time inspect the books Duties of Rers 1. C/L Duties a) Good Faith (Downsview Nominees) b) Sale of Secd Assets - Pendlebury v Colonial  must take reas steps 2 ascertain value of prop & advertise 2 prospective buyers - 4syth v Blundell  sale price must not b @ gross undervalue 2. St@y Duties a) Reasonable Cr in Selling Secd Assets (420A) - 420A  Rers have duty 2 take all reas cr 2 sell prop @ not less than mkt value or bst price reas obtainable - 424  where in doubt, co can app 2 Ct 4 direction - DCT v Bst & Less  ct will not make comm.ercial decisions b) Notific@ion of Apptm’t - 427(2)  Rer must notify co & ASIC w/in 14 days - 428  pub docs 2 st@e th@ Rer has ben apptd c) Financial Records - 421  Rers must maintain a separ@e bank a/c 4 each corp & pay all money in2 it w/in 3 days of receipt d) Reports on Co Affairs - 421A  2 prepr report about co affairs w/in 2 mths of apptmt. Must b lodged &advertised as avble 4 inspection e) Report Breaches of Duty 2 ASIC - 422  duty 2 report m@ters 2 ASIC where: (yyyyyyy) Co‟s present or 4mer O‟rs have ben guilty of offence; or (zzzzzzz) A person who 2ok part in 4m@ion, promotion, A or wind up has misapprop prop, breached duty etc Liabilities of Rers 1. On Contracts - CL  Rern‟t personally liable 2 3rd party on K - 419(1)  Rers liable 4 certain debts incurred  only debts 4 services rendered, goods purchased or prop hired/leased 2. 4 Breach of Duty - Rers = O‟rs  liable under O‟r‟s duties 180-183 - 597  Ct may examine conduct of Rer on appl‟n by ASIC/liq - 423(1)  if Rer has not faithfully per4med – Ct or ASIC may take action as it thinks fit - 423(2)  where Rer is guilty of neglect or omission the Ct may make order 4 Rer 2 make good any loss the co sustained Term’n of Rership - G‟ly  termin@ed when objective of apptmt fulfilled – ie secd debt discharged; debts paid - 434B  liq may app 4 an order th@ Rer cease 2 act or retain control of all/part of prop - 434B(2)  Ct 2 make order if objectives 4 which Rer was apptd were achieved as far as reas prac - Rer may b removed by debnture holder but not co - 434A  if ct s@isfied th@ Rer is guilty of misconduct it may give an order th@ they cease 2 act as Rer - 418A  Rer may b removed when apptmt invalid Eff of Liqion - 420C(1)  Rer of a corp th@ is bing wound up may do wh@ever is necess if apprvl of liq is obtained - Gosling v Gaskell  if co in liquid after Rer apptd – Rers posit as agent ceases & Rer bcomes personally liable 4 debts incurred. - Merc Crs v @kins  apptmt doesn‟t affect Rer - Re Landmark Corp  Rer may execise pwr of sale of charged assets despite w-up VOLUNTARY ADMINISTRATION Apptm’t 1. By Ds - 436A  majority of co Ds may appt AD if they blieve co is in/vent or is likely 2 b @ some future time - 436A(2)  once w-up commenced, cannot appt - Wagner v Intl Health Promotions  if BoD doesn‟t resolve th@ co insolv/likely 2 b – apptmt is invalid 2. By Liq - 436B(1)  liq may appt Aistra2r where he blieves co is in/vent or is likely 2 bcome in/vent - 436B(2)  may appt himself w/ leave of Ct. 3. By Chargee - 436C(1)  chargee who is entitled 2 en4ce a charge over the whole or substantially the whole of the co‟s prop may appoint a Rer. - 436C(2)  right of apptmt ceases once w-up commences 4. Notice - 450A(1)  Aist must lodge notice w ASIC w/in 1 day of apptmt & publish in n@ional paper w/in 3 days - 450A(2)  where apptmt is by chargee – must give notice of apptmt 2 co as soon as practicable - 450A(3)  Aist must give notice 2 chargees The Aistra2r 1. Who May b Apptd? - Must b registered & indep of O‟rs, Crors & audi2rs (Smarter Way v D’Aloia) - 448C  if connected, A disq‟d w/out ct leave - 448A  Aistra2r must consent 2 apptm‟t - Nambucca Investments v Star  Aistra2r must act in I of Cror who apptd him + all Crors 2. Investig@ion of Co - 438A  as soon as practicable, Aistra2r is 2 investig@e the finc position & circs of the co - Hagenvale v Depela  b/c of short time limit, investig need not b as extensive as a liq‟s investig - Must 4m an opinion as 2 bst course – altern@ives = deed of arrangement, end A, wind up (438A(b)) - 438B  Ds must provide st@ement of co‟s bus, prop & finc st@us w/in 7 days – if not = offence 3. Aor’s Pwrs - 437B  Aor = agent of co - 437A = G pwrs  (a) take control of co‟s business, prop & affairs; (b) carry, termin@e or dispose of co bus or prop; (c) per4m any function th@ the co/O‟rs could previously per4m. - 442A = Additional pwrs  (a) remove D from office; (b) appt a person as D; (c) do anything in co‟s name on its bhalf or anything necessary - 442B  where FC has crystallised, may deal w/ prop as if it were still flo@ing - 442C  G‟ly cannot dispose of any prop the subject of a charge otherwise prejudice Crors - 442C(2)  but can dispose if in ord course of bus, w/ consent of chargee, or w/ leave of Ct - Brash Holdings can sell prop w/out convening GM. - Ausn Liquor v Terranora can termin@e co E‟ees 4. Liabilities & Indemnity a) Personal Liability - 443A(1)  Aistra2r is personally liable 4 all debts incurred in course of A 4 services rendered, goods bought or prop leased/used - R@ionale = liab necessary 2 encourage TP‟s 2 trade b) Right of Indemnity - 443D  entitled 2 indemnity out of co‟s prop 4 debts incurred & remuner@ion - 443E  right of indemnity has priorty over all the co‟s unsecd debts & FCs but no priorty over fixed charges or crystallised FCs - 443F  right of indemnity = lien on co‟s prop - 449E  entitled 2 remun fixed by resolut of Crors 5. Removal/Replacement of Aistra2r - G‟ly (449A)  apptmt cannot b revoked - Exception (449B)  Ct can remove & appt another on appl‟n of ASIC or Cror only if it would make 4 the btter conduct of the A. Not enough 2 just show subst/majority Crors want removal Network Exchnge v MIG Crors Mtgs 1. Mtg 2 Decide Co’s Future - 439A(1)  Aistra2r must convene a mtg of co Crors w/in convening period (usually 21 days from bginning of A – 439A(5)(b)) - 439A(6)  Ct may extend convening period. - 439A(2)  mtg 2 b held w/in 5 days of end of convening period - 439A(3)  written notice 2 b given 2 as many Crors as reasonably practicable - 439B  mtg may b adjourned but not 4 >60 days - 435C(3)(e)  if resolution on future not passed w/in 60 days, A ends & control reverts 2 Ds. a) Cror Options (439C)  Crors 2 choose from three altern@ives: (aaaaaaaa) execute a deed of arrangement (bbbbbbbb) end the V A & return control 2 Ds (cccccccc) order the co b wound up Eff of A - 437A  while co is under A, its bus, prop & affairs come under control of Aistra2r –  Aistra2r assumes pwrs of the co - 437B  as Aistra2r is an agent, can bind co - 437C  O‟rs lose their right 2 exercise pwrs but Aistra2r may allow them 2 particip@e in mngmt - 437D  prop can only b dealt w/ by Aistra2r or w/ their written consent - 450E  all pub docs must have „Aistra2r apptd‟ set out Mora2rium on Claims 1. Purp - During A  co is protected from actions th@ may b taken against it by individual Cror 2. Eff of Mora2rium a) Stay of Proceedings (440D)  from time of apptmt, civil proceeding cannot b brought against the co or in rel@ion 2 its prop b) W-up Restricted (440A)  co cannot b wound up voluntarily except under 446A c) Charges Unen4ceable (440B)  during A, charges over co prop cannot b en4ced w/out consent or leave d) Owners/lessors Cannot Recover Prop (440C)  owners or lessors of prop cannot take possession or recover w/out consent or leave e) Guaran2r Ds (440J)  Crors prevented from en4cing a guarantee against a D , spouse or rel@ive wrt a liab of the co 3. Exceptions 2 Mora2rium Provisions a) Charge over Whole of Co’s Prop - 441A  where a secd Cror holds a charge over the whole or substantially the whole of the prop – may en4ce w/in a decision period (10 bus days) b) Secd Cror takes Poss b4e A - 441B  where a charge is en4ced by a Rer who has entered possess of the prop b4e the Aistra2r was apptd, the charge is en4ceable c) En4cement of Rights by Owners b4e A - 441F  the en4cement of rights commenced b4e the bginning of the A by the owner or lessor of prop used by the co can continue after the Aistra2r has ben apptd. d) Perishable Goods (441C)  Cror holding secy over perishable goods may en4ce a charge despite the apptm‟t of an Aistra2r Deed of Co Arrangement 1. Terms of Deed - 435A  main object A = maximise chances of in/vent co continuing - 444A(2)  if co‟s Crors resolve th@ co execute a deed – must 1st appoint Aistra2r of deed (AD) 2. Execution by Crors & Co - 444B(2)  co must execute instrument th@ sets out terms of deed w/in 21 days after mtg - (5) – Aistra2r must also execute deed - Failure 2 execute (446A(1))  deemed 2 have entered Crors vol w-up + AD bcomes liq 3. Eff of Deed - 444C(1)  where Crors resolve 2 execute DCA, Crors r bound by deed even b4e executed a) Unsecd Crors  444D(1) – DCA binds all Crors w/ respect 2 claims arising on or b4e d@e in deed b) Secd Crors  444D(2) – may realise or deal w secy unless Cror agreed 2 b bound or Ct limits rights of Cror (under 444F) c) Owners/lessors  444D(3) – may en4ce rights wrt prop unless agree 2 b bound or Ct restricts d) Prevention w-up  444E(1) – Crors & others bound DCA prevented from: (1) proceeding w an appl‟n 4 w-up; (2) bginning action against co or prop; (3) en4cing Ct order against co e) Co & its O’rs  444G – DCA is binding on co, O‟rs, mbrs & AD 4. Vari@ion & Term’n of Deed a) Vari@ion  445A – mtg of Crors may pass res 2 vary DCA if adequ@e notice of res - 445B  Crors may app 2 Ct 2 cancel var b) Term’n (445C)  2 possible situ@ions - Ct orders (445D)  ct may order term‟n if:  Info given 2 AD/Crors re finc pos M/D;  Omission from report was m@erial; or  Deed cannot b given Eff w/out injustice - Crors resolution (445E)  445F(1)  must b convened by Aistra2r of deed + if Crors whose claims 10% request it 5. Invalid@ion of Deed - 445G  Ct may declr DCA void ifit was entered in2 in contravention of CA (AD, mbr, Cror, ASIC) - (3)  may valid@e despite contravention if leg sub complied w + no substantial injustice would result Transition from A 2 Wind Up - 446A  where Crors pass resolution th@ co b w-up, co deemed 2 enter Cror‟s vol w-up - (2)  AD is apptd liq - 482  Ct may halt w-up on appl‟n of co, liq or Cror if co is s/vent Pwrs of the Ct - 447A  ct has pwr 2 make orders appropri@e - Order sought by co, Cror, AD, ASIC - Australasian Memory v Brien  wide pwr on ct 2 make order 2 remedy irregularities or order w-up - 447C  may declr whether AD appointmt is valid - 447E  ct may make order it thinks just IF s@isfied th@ AD conducted A prejudicially - 1322(4)  G pwr = valid@e any act th@ contravenes CA (if no substantial injustice) WIND UP & LIQUIDATIONS Compulsory W-up in Insolvency - 459A  Ct may order an insolv co 2 b wound up in insolv on applic of Cror or person in 459P - 459B  allows ct 2 order w-ip in insolv in other circs – under 232 oppression; appl‟n of ASIC 1. Crors Appl’n 4 W-Up - 459P(1)(b)  Cror may app 4 w-up in insolv - Cror = person still owed a debt @ the d@e of appl‟n 4 w-up (Re William Hockley Ltd) - Contingent & Prospective Crors may app:  Conting – Cror owed debt w/ pmt due on occurrence of some future event (Comm Dvlpmt v Engwirda)  Prospective – Cror owed a debt th@ is due but not immed payable - 459P(2)  leave of Ct reqd by conting/ prospective Crors, Ds, ASIC & contribu2ries - 459P(3)  leave granted if PF evid of insolvency a) Procedure 4 W-up - Notice = w-up must b advertised & gazetted - Filing 4 W-up (459T)  applicant may serve single applic@n 2 w-up 2 or more co‟s in insolv if joint deb2rs - Time Limit (459R)  applic 2 b determined w/in 6 mths of filing otherwise dismissed - W-up is discretionary even if co in/vent 2. When does Insolvency Arise? - Indicia = cheques dishonoured; unpaid & overdue debts; uns@isfied judgments; cess@ion of trading Melbase Corp v Segenhoe – CF test Sandell Porter  temp lack of liquid ≠ insolvency b) i) - Presumption: Non-Compliance w/ St@ Demand 459C(2)(a)  co presumed 2 b in/vent if it fails 2 comply w/ st@ demand 459E  debt must b @ least st@ min of $2000 459F  co deemed 2 not comply  insolv if demand not s@isfied @ end of 21 days Demand must b personally served & come 2 notice of person (post ok: in 2 days – Howship Holdings v Leslie) Setting Aside St@y Demand 459G  co can app 2 have st@ demand set aside – must b made w/in 21 days of service Defect (459J)  co may seek 2 set aside if demand contains a defect  Defect (9) = irregularity; misst@ement of amt; misdescription of debt; misdescript of entity  No defect b/c co disputes amt owing  Chippendale Printing – actual solvency ≠ defect  2pfelt – defective if I r@e not st@ed  Delta Bta – where demand refers 2 multiple debts, will b defective if it fails 2 specify indiv amts - Genuine Dispute Regarding Amount Claimed (459H)  John Holland Constructions  reqs more than mere assertion th@ debt isn‟t owed  Spencer Constructions  must b a real & not spurious dispute Compulsory W-up on Other Grounds 1. Who has Std’g? - 462(2)  co; Crors; contribu2ries; liquid under vol w-up; ASIC or APRA a) - Co 462(2)(a)  permits co 2 have itself compulsorily w-up Re Woulfe & Son  must b approved by ordinary resolution of GM Adv over vol w-up = vol w-up reqs special resolution Disadv over vol w-up = cheaper; no hearing reqd; mbrs appt liq; ↑ supervisory pwrs b) - a) - Circs of Case – Section 95A 95A(2)  person insolv where they cannot pay all their debts when due & payable Crors 462(2)(b)  Cror may app 4 compuls w-up on other grounds than insolv (but usually rely on insolv) 459B  Ct may order co 2 b wound up in insolvency anyhow 2. Other Grounds 4 W-up (461(1)) - (a) Co has resolved 2 b wound up by special resol - (b) Co doesn‟t commence bus w/in 1 year or incorp or suspends its business 4 1 year  Re Metro Rwy  not where majority oppose the appl‟n & inactivity can b explained - (c) The co has no mbrs - (d) Co has acted in own Is r@her than Is of mbrs in a manner th@ is unfair or unjust Re Cumbrland; Re William Brooks - (e) Affairs r bing conducted in oppressive manner Ko2vish Constructions - (g) ASIC reports it ought 2 b wound up b/c it cannot pay its debts or in pub I 2 wind up - (h) Ct feels it just & equitable 2 do so CIC Insur v Hannan  no prospect of new Ds bing apptd & holding co in/vent. *Where breakdown in mutual trust/confidence/deadlock etc Lawrence v Lawrick Mo2rs; Ebrahami case; - (j) Failure of Substr@um – co acting entirely outside G intention/ordinary business – just/equitable ground Re Tivoli Freeholds V W-up 1. Mbrs’ V W-up - Only avble where co is S/VENT - 491  mbrs vol w-up initi@ed by spec resolut - 495  liq apptd by mbrs in GM - 494(1)  Ds must make a written declar@ion of solvency b4e w-up can proceed – 2 b lodged w ASIC 2. Crors’ V W-up - Only avble where co is IN/VENT - 496(5)  permits Crors 2 appoint liq a) No Declar@ion of Solvency (497) - 497  if mbrs seek vol w-up but no declar@ion of solvency, liqion proceeds as Crors volunt w-up. - 497  co is reqd 2 convene a mtg of Crors where the mbrs resolution 4 vol w-up is propsd - 499  both the co & Crors have right 2 nomin@e a liq – Crors choice prevails. b) Co is found 2 b In/vent (496) - 496  if mbrs appoint a liq who finds co 2 b in/vent, liq may elect 2 convene a Crors mtg (or app 4 w-up in insolvency, appt Aist) - 496(6)  if a Crors mtg is called, liqion proceeds as Crors V w-up Eff of W-up 1. Eff on Crors - 513A  compuls w-up commences on day the order 4 w-up was made - 513B  volunt w-up commences @ time of passing the resolution 4 w-up - Eff of comm‟ent of w-up:  468(1)  any disposition of co prop is void except by liq or w/ Ct permission  468(4), 500(1)  Crors cannot en4ce any judgment obtained since comm‟ent of w-up  471B, 500(2)  no leg procs can b brought against co w/out leave of Ct  471C  secd Crors rights 2 deal w/ secd assets rn‟t affected. 2. Eff on Co - Co prevented from carrying on its business except 4 purp of w-up – co still exists as legal entity - 468  prop still blongs 2 it but ↓ pwr 2 deal w/ it - 541  all pub docs 2 have words „in liqion‟ 471A  in compuls w-up, Ds lose the pwr 2 mng co affairs – pwr t/fred 2 liq 468(1)  mbrs lose right 2 t/f shrs 471B  mbr w/ leave may bring an action in name of co after w-up commenced HDT Special Vehicles  co cannot resolve 2 chnge name after w-up commenced 3. Eff on E’ees - Re G Rolling S2ck  compuls w-up, pub@ion of liq isn‟tice of dismissal of e‟ees - Re M@thews Bros  volunt w-up isn‟t necessarily notice of dismissal - Re English Joint S2ck Band  dismissal may b waived by liq 4. Eff on Rers - Rer may b apptd despite co in liqion - Visbord v FCT  w-up restrict Rer‟s pwr 2 carry on business by revoking auth 2 carry on bus as co agent - Ability 2 retain & sell secd assets not affect by w-up Apptm’t of Liqs 1. Method of Apptm’t - Compuls W-up (472)  official liq is apptd by the Ct when it makes an order 4 w-up - Mbrs Vol W-up (495)  liq is apptd by GM – must obtain liqs consent in writing - Crors Vol W-up  depends on how liqion arose:  Under No Declar@ of Insolvency (497)  mbrs & Crors 2 props liquid @ respective mtgs but Crors choice prevails (499)  Where Co is In/vent (496)  Crors mtg may appoint new liq (496(5)) or if no liq apptd, existing liq remains (496(8)) 2. Who May b Apptd - Compuls W-up (532(8))  Ct apptd liq must b registered w ASIC as official liq - Volunt W-up  liq G‟ly must b registered - Volunt W-up of Pty Co (532(4))  liq need not b registered Pern’s Disq’d from bing Liqs 1. St@y Grounds 4 Disq’n - 532(2)  the folwg from liqing w/out leave:  Pern‟s who owe > $5K or reld co  Crors who r owed > $5K or reld co  O‟rs/audi2r of the co & their assoces (doesn‟t app 2 O‟rs of pty co‟s under mbrs vol w-up) - Re Capital Mngmt Secies  must b entirely indpdnt - 532(7)  in/vent person cannot b a liq - 1282  person disqual from managing co‟s cannot w-up 2. Removal by Ct - 503  Ct may remove liq where cause is shown – must b 4 G adv - Re Biposo – removed as considered 2o close 2 Crors Pwrs of Liq - 471A  liq replaces BoD & assumes all pwrs - St@y Pwrs (477)  main pwrs include:  Carry on business of co  Pay any class of Crors in full  Bring/defend legal actions in name of co  Sell/dispose of prop - St@ pwrs exercisable w/out apprvl of Ct/Crors - 477(2A)  apprvl where liq wants 2 compromise debt due 2 co of > $20K - 479, 511  liqs can app 2 Ct 4 directions, but no comm. decisions can b made (Re GB N@han) - 477(3), 1300  liq has a right 2 inspect books & liq can make copies - D’claimer (568)  liq may d‟claim prop  Purp = 2 relieve the co of a burdensome asset (Re Middle Harbour) & assist in liqion w/out undue delay (Re Notingham Gen Cemetery)  568(1)  Prop th@ may b d‟claimed = land, shrs, unsaleable prop, unprofitable K‟s  568B(2)  Ct may set aside d‟claimer if it would prejudice pern‟s who have an I in prop if th@ is grossly disprop 2 prejudice suffered by Crors  568D  Eff of D‟claimer = termin@es the co‟s rights & liabs in respect of d‟claimed prop Duties of Liqs 1. G Duties a) Liq is O’r of co  s.t. duties of: (a) cr & skill; (b) act in good faith 4 proper purp.  Pace v Antlers  breach of duty of cr/skill 2 bring co out of liqion as soon as it bcame s/vent  Re Partridge  gen duties = take poss, protect assets, have disputes adjud‟d, realise assets, app proceeds b) Liq is O’r of Ct  has additional pub responsibility 2 investing past activities (Re Allebart) 2. Specf Duties - Proper A  must open separ@e a/c 2 deposit co Fs (CCA v Harvey) & maintain proper records (531) - Acquaintance w/ Co Affairs  liq must acquaint self using co records, O‟rs & e‟ees - Collect & Preserve Assets (474,77) take personal cus2dy & preserve until realised. - Realise Assets (477)  duty 2 get bst possible price - Distribute any surplus among contribu2ries - Report Breaches of Law 2 ASIC (533(1)) 3. Remedies 4 Breach of Duty - Civil Penalty Provisions – as liq is an O‟r of co s.t. disq‟n; pecuniary penalty; compo order Recovery of Assets 1. Dispositions after Bginning of W-up - 468(1)  dispositions made after comm‟ent of w-up r VOID - 468(2)  disposals made b a liq or Aistra2r r exempt Antecedent Transax – B4e W-up - Anteced transax may b avoided if entered in2 w/in specified time prior 2 rel@ion back d@e (RBD) - 9  RBD = day on which appl‟n 4 w-up filed  Test 1  Wh@ type of Transax is it? a) Unfair Prefnc (go 2 Test 2) - Appl‟n  p‟ments made 2 Crors - 588FA  unfair pref = where the transax b/w co & Cror results in the Cror Ring more than they would if liqion proceeded. - Look @ purp of transax  if purp is 2 exting a debt it is an unfair prefnc - Airservices Aus v Ferrier  consider objective purp of whole transax b) Uncommercial Transax (go 2 Test 2) - Appl‟n  co giving away assets prior 2 liqion or incurring liabilities w/out adequ@e compo - 588FB  uncommercial transax = where a reas person in co‟s circs would not have entered transax having regard 2 co‟s circs c) Unfair Loans (go 2 Test 3) - 588FD  the co is the subject of an unfair loan where the I on the loan or charges in rel@ion 2 it r ex2rtion@e d) Unreasonable D Reld Transax (go 2 Test 3) - Appl‟n = bonuses paid 2 Ds - 588FDA  unreas D reld transax is one th@  Involves a pmt, disposit of prop or issue of secies  2 a D or assoce 4 their bnefit; &  Reas person in co‟s circs would not enter transax  Test 2  Is the Transax an In/vent Transax? - Insolv Transax = 588FC  a transax entered when co was in/vent or bcame in/vent as a result  If the co during 12 mnths ending RBD the co was in/vent throughout the period  If the co failed 2 keep & retain adequ@e financial records  contravening 286 - IF NOT  may b voidable but lesser time period  Test 3  Is the Transax Voidable? - 588FE  transax voidable depending on time period  (2) Unfair prefnc = voidable if entered in2 w/in 6 mths ending RBD or b/w RBD & bginning of w-up  (3) Uncommercial transax = voidable if entered in2 w/in 2 years ending on RBD  (5) In/vent transax = voidable if entered in2 w/in 10 years prior 2 RBD if co party 2 transax  (6) Unfair loans = voidable whenever – do not req th@ transax is in/vent  (6A) Unreas D reld transax = voidable if entered in2 w/in 4 years ending RBD – oes not have 2 b an in/vent transax - 588FF  liq may app 2 Ct 4 various orders – person 2 repay money; t/f prop; release a debt incurred, declaring an agreement void. - 588FG  Ct must not make an order prejudicing the right of a person if proved th@ the person bcame a party in good faith & had no reas grounds 2 expect insolvency 3. Invalid FCs - 588FJ(1)  where co is on verge of insolvency & grants a FC in favour of Crors 2 remove assets from liq w/in 6 mths of RBD = void transax 4. Liq’s Action Against Ds - 533  breach of Ds duty 2 b reported 2 ASIC - CL  liq may bring action 4 compo against Ds 4 breach of fid duty (Walker v Wimborne) - 598  liq may seek Ct order 2 recover assets or comp 4 losses suffered 4 breach of duty - 588G  D may b personally liable 4 failing 2 prevent co incurring debt when in/vent Divn of Assets - If co s/vent  Crors + mbrs 2 shr in assets - If co in/vent  only Crors 2 shr in assets 1. Crors must Prove Debts - Crors must prove debts their entitlement 2 liq  If sufficient Fs – Crors entitled 2 full rep‟ment  If insuffic Fs – Crors paid a proportion of debts 2. Priorty on P’ment of Debts - G‟ly  all provable debts rank equally  entitled 2 shr proportion@ely (pari passu rule) - But secd Crors  need not prove a debt & wait 4 p‟ment w/ unsecd Crors - 556  expenses assoced w/ liqion have priorty over unsecd Crors – eg cost of recovering & realising prop; remuner@ion of liq - Liq has a lien over prop 4 cost of obtaining assets &4 remuner@ion 3. Divn of Surplus Assets - 488(2)  compuls w-up the liq isn‟t entitled 2 distribute surplus w/out leave of Ct - Mbrs entitled 2 shr in surplus assets after all other Crors & deferred debts paid in full Dereg’n 1. V Dereg’n - 601AA  Co, D or mbr, or liq may app 2 ASIC 4 vol dereg if: all mbrs agree, co isn‟t carrying on a bus, co assets worth < $1000, co has no outst liabs & co isn‟t party 2 any leg procs 2. ASIC Initi@ed Dereg’n - 601AB  ASIC may dereg a co if – its annual return is @ least 6 mths l@e, co affairs r fully wound up & liqs return is 6 mths l@e; co doesn‟t have sufficient money 4 Ct order 3. Dereg’n Folwg W-up - 601AD  co ceases 2 exist on dereg & all prop vests in ASIC which has all pwrs as owner & takes existing I or claim - 601AE  ASIC may deal w/ assets as it sees fit INSIDER TRADING - 2. Def: Insider trading occurs where a person trades in shares or other financial products while in possession of price sensitive information not generally available. Diamond v Oreamuno (1969) 248 -“When officers and directors abuse their position in order to gain personal profits, the effect may be to cast a cloud on the corporations name, injure stockholder relations and undermine public regard for the corporations securities” Chief Judge Fuld. What is inside information? -„Inside information‟ is defined in s 1042A as meaning information that: - Is not generally available; and - If it were generally available a reasonable person would expect it to have a material effect on the price or value of particular division 3 financial products. 1. The offence of trading: s1043A (1) e.g. (D), the accountant brother, buys shares through his company, so does (B)‟s wife. Or any other person who buys as a result of the information = trading 2. The offence of procuring s1043A (1). According to s1042F, procure means: „f a person incites, induces, or encourages an act or omission by another person, the first mentioned person is taken to procure the act or omission by the other person‟. e.g. (C) overhears (A) and sends an email to his accountant brother, (D), saying the company is a good buy = procuring. R v Firn: conviction of procuring another person to purchase shares was quashed by NSWCA because the information was generally available (even though case was in PNG) 3. Section 1043A(2): tipping off (directly or indirectly, communicate the information or cause the information to be communicated to another person. e.g. (A) whispers to (B) “I shouldn’t be telling you this yet, but we are going to merge with another company” = tipping off, granted that there is no enticing, inducing or encouraging of an act or omission by another person. To establish a breach of s1043A(2), it is not necessary to prove that there was an association or arrangement between the insider and the tippee with a view to dealing in the particular financial product. *Could also be breach director‟s duties: misuse of information, 183, and improper use of position, 182 Improper use of position: R v Cook: chair f the board improperly used his position to gain an advantage for himself. Without authority, he transferred $199 000 from the companies account to himself in his wife’s account. ASIC v Adler Improper use of Information: Marson Pty Ltd v Pressbank Who is an insider? - A person is an insider for the provisions of 1043A if: - The person possesses „inside information’ (not generally available) R v Fins 1042A; and - The insider knows or ought reasonably to know that the matters specified in the s 1042A definition of inside information are satisfied in relation to the information. - Despite the use of the word „insider‟ the s1043A prohibitions do not focus on weather the person has a connection with a company R v Rivkin: The operation of the insider trading prohibition in s 1043A is illustrated in this case. Rivkin was held to be an insider because he possessed information that was not generally available i.e. the information was the confidential sale of the business. Remedies for Breach of Director’s Duties:  Damages for compensation  Account of profits  Rescission of contract  Return of property Penalties: Penalties can be hefty – disqualification; $220,000 fine or 5 years gaol, or both s 1311 INSIDER TRADING Definition - Trading whilst in the possession of information that is material to the price of the securities that are traded, which is not publicly available and not merely the product of the analysis of publicly available information – S 1042A - Purchase or sale of shares by a person who has confidential information – Coleman v Myers Prohibition S 1043A – A person who possesses inside information and knows or ought reasonable to know that it is not generally available to the public and will have a material effect on price, must not: 1. trade on that information S 1043A(1) 2. procure another to trade S 1043A(1) - if a person incites, induces, or encourages an act or omission by another person, the first mentioned person is taken to procure the act or omission; or 3. tip off another S 1043A(2) – directly or indirectly, communicate information, or cause the information to be comm to another person. Contravention – failure to comply with the insider trading requirements is an offence – S 1311(1) - R v Rivkin – bought shares after receiving info from CEO of target; 9 mnths jail and $30K fine - R v Vizard – traded on info from confidential email; not charged as previous act required higher burden of proof. - Firn’s Case – procuring conviction quashed as information announced in a court o/s was considered generally available. Penalties – disqualification; $200,000 fine or 5 yrs gaol, or both. Defences – S 1043M WHAT IS CORP LAW? Hansmann & Kraakman Provisions that typical corp statute devotes to defining corp form comprise legal core of corp law that is shared by every jurisd 3 sources of prob‟s in co – conflict b/w managers + s‟holders; conflict b/w s‟holders; conflict b/w s‟holders + co‟s other constituencies Min‟ing these AY prob‟s makes corp form more practicable Internat integration of corp law nec to take place as eco activity cont‟s to become more global in scope Exigencies of commercial activity/org present prob‟s that are approx‟ly same in developed mkt eco‟s all around world PRINC F(N)’S OF CORP LAW 1. Provide bus enterprises w‟ a legal form that possesses (5) By making this form widely avail + user-friendly, corp law enables entrep‟s to transact easily thru medium of corp entity, + ∴lowers cost of bus K‟ing 2. AY Prob‟s All major jurisd‟s have multiply 2nd‟ary/partial corp law statutes 2nd‟ary statutes = special statutes for special classes of firms Partial corp law statutes = sep‟ly defined statutory entities that have/permitted to have some but not all of (5) Overall objective of corp law (in increasing order of specificity): Serve I‟s of soc as a whole Advance aggregate welfare of firm‟s s‟holders/e‟ees/S‟ers/customers w‟out undue sacrifice - + if poss w‟ benefit – to TP‟s Assure corp serves best I‟s of its s‟holders Max fin ret‟s to s‟holders Max mkt price of corp shares CR‟ors/e‟ees/customers only consent to deal w‟ a corp if expect to be better off themselves as a result ∴Corp has dir I in making sure that corp transactions are beneficial to all parties concerned ∴This view can be reconciled w‟ more narrow approaches 5 CORE  ’ISTICS OF BUS CORP Legal Personality I.e. Firm is a K‟ing party distinct from various indiv‟s who own/manage it / who are S‟ers/customers Firm fund‟ly serves as nexus of K‟s – a single K‟ing party that coords activities of S‟ers of inputs + of consumers of g+s Core element = “separate patrimony” = ability to own assets distinct from property of others, that firm is free to use/sell/pledge to CR‟ors Ability to pledge assets to CR‟ors = “Affirmative Asset Partitioning” 2 distinct rules of law: As security for firm‟s debts, CR‟ors of firm have a claim on the firm‟s assets prior to claims of personal CR‟ors of firm‟s owners Rule of “liq prot” – s‟holders can‟t w‟draw share of firm assets @ will nor can personal CR‟ors of indiv s‟holder foreclose on their share of firm assets Having both these rules = “strong form” legal personality “Weak form” legal personality (e.g. in p‟ships) – having priority rule, not liq rule When coupled w‟ ltd liab, strong form legal personality isolates value of firm from personal fin affairs of firm‟s owners suff‟ly to permit firms shares to be freely traded Both aspects of strong form could not be replicated using contractual means (privity)  only 1 of (5) that couldn‟t Ltd Liab CR‟ors ltd to making claims against assets that are property of firm → no further claims against personal A‟s of s‟holders/managers S‟holders indiv assets reserved exclusively for their personal CR‟ors A.k.a. “defensive asset partitioning” Legal personality + ltd liab set up default regime where s‟holders‟ personal assets pledged as security to personal CR‟ors, while co assets reserved for co CR‟ors Helps facilitate delegated mgmt By shifting bus risk to CR‟ors, CR‟ors become monitors of the firm‟s managers – may be better than s‟holders if share ownership widely dispersed Transferable Shares Permits firm to conduct bus uninterruptedly as identity of its owners ∆‟s, thus avoiding complications arising from member withdrawal But “fully transferable” not nec‟ily = “freely tradeable” Relies on liq prot‟ion + ltd liab – if didn‟t have either of these, then firm would = its s‟holders, + as such CR rating of firm would ∆ every time ownership would ∆. Hence value of shares would be difficult for investors to judge, leading to ↓ I in the shares + ∴↓ transferability Delegated mgmt under board struc Permits centralization of mgmt nec to coord productive activity Notifies TP‟s as to who in firm has auth to make binding agreements 4 basic features of the board: Sep from op‟al managers of co Nature of sep depends on whether board has 1 or 2 tiers 2 tier: Top corp officers occupy board‟s 2 nd – subordinate – tier, but generally absent from 1st – supervisory tier, which is, @ v least, nominally indep from firm‟s hired officers 1 tier – hired officers may be members board itself Formally divides all decisions that do not req s‟holder approval into those that req approval by board, + those that can be made by firm‟s hired officers This facilitates a sep b/w initiation/execution of bus decisions (hired officers) + monitoring/ratification of decisions (board This sep = check on quality of dec-making by hired officers Formally distinct from s‟holders This sep ↓ costs of dec-making by avoiding need to consult all s‟holders for all decisions Also provides check on opportunistic behaviour by controlling s‟holders Board elected - @ least in subst part – by s‟holders Helps assure board remains responsiveness to I of s‟holders Board ord‟ly has multiple members Facilitates mutual monitoring + checks idiosyncratic dec-making Investor ownership 2 key elements in ownership of firm: Right to control firm Right to rec firm‟s net earnings In investor-owned firms, both elements tied to investment of capital Default rules of corp law generally designed for investor ownership In virtually all eco‟ically imp jurisd‟s, is a basic statute that provides for formation of firms w‟ all of these  ‟istix, @ least as a default (5) have strongly complementary qualities for many firms – together, make corp uniquely attractive for organizing productive activity (5) gen tensions + tradeoffs re: AY law These are common in many jurisd‟s K‟ing efficiencies accompany 5 features of corp form UNDERSTANDING ENRON Coffee Problem w‟ viewing Enron as indication of sys‟ic CG failure is that its core facts unique Enron‟s CG struc unique – other public co‟s haven‟t authorise CFO run indep entity that enters into billions dollars risky + volatile trading transactions w‟ own co, nor have allowed senior officers profit from such self-dealing transactions w‟out broad supervision/comprehension of profits, nor have incorp‟ed 1000‟s of subsid‟s + emp‟ed them in complex-web of off-bal sheet p‟ships Pace of Enron growth > development of risk mgmt sys‟s + culture of trad fin firms ∴ From this POV, Enron proves little can be app‟ed to CG in general But from another POV, Enron does give ample e of sys‟ic CG failure Most CG failures have not generally disturbed overall mkt, but Enron did + created new investor D for transparency in CG Further, was mkt‟s discovery that can‟t rely pro gatekeepers whom mkt long trusted to filer, verify + asses fin info ∴ Enron can be seen as demo of gatekeeper failure, + Q ∴ becomes how can rectify this failure Gatekeepers  Reputational intermediaries who provide verification + certification services to investors. These services consist of verifying co‟s fin statements, evaluating CR worthiness of firm, assessing co‟s bus + fin prospects vs. rivals, or appraising fairness of specific transactions Lawyers also gatekeepers when lend pro reputations to transaction, but can be seen more as transaction engineer ∴ Ess‟ly, pro gatekeeper assesses/vouches for co‟s own statement about self/specific transaction This duplication nec as mkt recog‟s that gatekeeper has ↓ incentive to lies vs. co + ∴ regards gatekeepers assurance more credible Even though gatekeeper paid by co, credibility stems from fact that is pledging reputational capital that has built over many years, + as such would be unlikely to sacrifice such for sake of single client This is logic though, but rec‟ly pro gatekeepers have been guilty of fraud REASONS WHY GATEKEEPERS LET MANAGERS COMMIT FRAUD ∆’ING STATUS OF GATEKEEPERS General erosion of quality of fin reporting in late 90s – earnings restatements ↑ ∴ Gatekeepers‟ quality of work ↓ Ratio of analyst‟s buy:sell recommendations ↑ from 6:1 ‟91  100:1 ‟00 → ↓ indep + objectivity of analysts, wanting to keep clients happy EXPLAINING GATEKEEPER FAILURE None of gatekeepers that should have detected Enron‟s collapse did so until right b4 end ∴ True common theme of Enron failure – collective failure of gatekeepers 2 reasons why: General Deterrence Theory Eco‟ic During „90s, ↓ in exp‟ed liab costs to gatekeepers from acquiescence by gatekeepers re: aggressive a/c‟ing policies, + ↑ benefits of acquiescence Benefits of acquiescence – retained as CONS + auditing Follow-on effect – as CONS, can easily be fired, so in such a situ strong incentive to acquiesce Bubble Theory Psychological Mkt in „90s had euphoria in which gatekeepers became temp‟ily irrelevant Stock prices ↑ ↑ ↑, + gatekeepers seen as nuisance, as co‟s can attract s‟holders w‟out them Only when times are tough is when investors are cautious + skeptical, + need reassurances from gatekeepers Other reasons why: ↑ Incentive for s-t stock price max Why: ↑ in stock options for exec‟s, so they had ↑ desire to ↑ s-t stock price ∴ These exec‟s did everything could to ↑ s-t price, + get gatekeepers look other way Absence of comp Big 5 Auditing firms – no comp for them ∴ Small mkt, so implicit collusion developed easily – each firm could adopt policy of acquiescence w‟out being attached by “holier-than-thou” rival P/A Prob‟s Prob in auditing firms that indiv PR may be dom‟ed by large client in such a way detrimental to auditing firm When CONS‟ing started, each PR had strong r‟ship w‟ CONS‟ing division working w‟ their major client ∴ ↓ Internal indep IMPLICATIONS OF GATEKEEPER FAILURE Models for Reform If deterrence theory correct – need legal reform If bubble theory correct – prob self-correcting once bubble bursts But 1 area where reform ess, but mkt cannot self-correct Enron shows that have a “rule-based” sys of a/c‟ing – asks gatekeepers only to certify issuer‟s compliance w‟ wide range of rules, w‟out req‟ing auditor to take resp for overall accuracy of issuer‟s statement of fin pos ∴ Been calls for a shift to princ-based sys of ac/‟ing, + this must come thru regulation + reform of a/c‟ing/fin princ‟s How to do this: Read auditors‟ req‟ment to ensure that co‟s fin statements “fairly present” fin pos to mean that fin statement must provide nec disclosure for understanding issuer‟s overall fin pos Lessons for Lawyers As auditors went from 1 service  many + as such lost control of auditing f(n), same could happen for lawyers Auditing firms had subst internal control mech‟s that still didn‟t work for them, but law firms don‟t even have that CORP GOVERNANCE Best explanation have is from ASX CG Council‟s Princ’s of Good CG + Best Practice Recommendations: CG = sys by which co‟s are dir‟ed + managed; it influences how the obj‟ives of the co are set + achieved, how risk is monitored + assessed, + how perf is optimised CG used to describe rules + practices which create checks + incentives which are put in place w‟in a co to align I‟s of mgmt w‟ I‟s of s‟holders/other stakeholders Large org‟s, these I‟s may diverge due to sep of ownership + control, + diff I‟s of managers + s‟holders ∴Checks + incentives aim to ensure board a/c‟able to stakeholders, + that mgmt a/c‟able to board Generally ∴ it is concerned w‟ how corp‟s dir‟ed + controlled, + ac/‟ability/control mech‟s to which they are subjected , Must always be remembered though that CG is concerned w‟ how corp entities governed – NOT way bus‟s w‟in those entities are managed  CG = where co is going; mgmt = getting the co there As governing of corp usually done by BoD, ∴follows that focus of CG usually on role + f(n) of BoD BoD‟s f(n)‟s fall into 2 distinct + sep cat‟s: Supervisory Strategic Sep of these f(n)‟s led to several recommended CG practices, incl‟ing: Sep of roles of chair + CEO Appt of indep dir‟ors Use of board committees Preamble of OECD Princ’s of CG states why CG is imp global issue: Good CG should provide proper incentives for board + mgmt to pursue obj‟ives that are in the I‟s of the co + its s‟holders, + should facilitate eff‟ive monitoring Presence of eff‟ive CG sys, w‟in indiv co + across eco as a whole, helps to provide degree of confidence that is nec for proper f(n)‟ing of a market eco As a result, cost of capital is lower + firms are encouraged to use resources more eff‟ly, thereby underpinning growth ASX CG Council Princ’s of Good CG + Best Practice Recommendations: Good GC struc‟s encourage co‟s to create value (thru entrepreneurism, innovation, development + exploration) + provide a/c‟ability + control sys‟s commensurate w‟ risks involved 1 of main reasons why we need GCG practices in place is because of the prob‟s that arise thru the sep of ownership + control in co‟s – so-called “AY prob‟s” AY Prob‟s – Prob‟s that arise from fact that owners of the assets of the co (i.e. the s‟holders) don‟t control those assets – the managers do Hence there is a temptation on part of managers to act with assets that are not theirs in their own best I‟s – this is where the prob‟s arise 2 aspects of CG: Legal regulation Core of CG Law imposes min CG req‟ments thru: id duties CA Deals w‟ wide range of CG issues, incl‟ing: Dir‟ors duties S‟holders‟ meeting/right‟s/rem‟s Continuous + periodic disclosure ob‟s Req‟ment for + regulation of auditors Regulation of takeovers Req‟ments which have legisl‟ive recog + force of law, such as ASX LR‟s + a/c‟ing/auditing standards Self-regulation Comprised of CG best practice codes E.g. ASX CGC‟s Princ‟s of Good CG + Best Practice Recommendations Such codes are not mandatory LEGAL REGULATION ASPECT OF CG ASX LISTING RULES ELEMENT: Listed co’s must disclose in AR’s extent to which they have followed best practice recommendations in POGCGABPR – ASX LR 4.10.3 This incl‟s an ob to explain to investors why an alt approach has been adopted where there has been departure from BPR‟s  the “if not, why not?” approach This approach puts emphasis on disclosure, not compliance w‟ prescribed practices, which allows for ↑ flex + adaptation to ∆‟s as CG princ‟s evolve SELF-REGULATION ASPECT OF CG Comes from 10 ess CG princ‟s, as set out in ASX GCG‟s Princ‟s of GCG + Best Practice Recommendations 1ST PRINC OF GOOD CG ELEMENT: Lay solid foundations for mgmt + oversight WHAT THIS INVOLVES ELEMENT: Recog’ing + publishing respective roles + resp’s of board + mgmt – Princ 1 2ND PRINC OF GOOD CG ELEMENT: Struc board to add value WHAT THIS INVOLVES ELEMENT: Have a board of eff’ive composition, size + commitments to adeq’ly discharge its resp’s + duties – Princ 2 3RD PRINC OF GOOD CG ELEMENT: Promote ethical + resp dec-making WHAT THIS INVOLVES ELEMENT: Actively promoting ethical + resp dec-making – Princ 3 4TH PRINC OF GOOD GC ELEMENT: Safeguard integrity in fin reporting WHAT THIS INVOLVES ELEMENT: Having a struc to indep’ly verify + safeguard integrity of co’s fin reporting – Princ 4 5TH PRINC OF GCG ELEMENT: Make timely + bal’ed disclosure WHAT THIS INVOLVES ELEMENT: Promoting timely + bal’ed disclosure of all material matters re: the co – Princ 5 6TH PRINC OF GCG ELEMENT: Respect rights of s’holders WHAT THIS INVOLVES ELEMENT: Respecting rights of s’holders + facilitating eff exercise of those rights – Princ 6 7TH PRINC OF GCG ELEMENT: Recog + manage risk WHAT THIS INVOLVES ELEMENT: Est’ing a sound sys of risk oversight + mgmt + internal control – Princ 7 8TH PRINC OF GCG ELEMENT: Enc enhance perf WHAT THIS INVOLVES ELEMENT: Fairly reviewing + actively enc’ing enhanced board + mgmt eff’iveness – Princ 8 9TH PRINC OF GCG ELEMENT: Remunerate fairly + resp’ly – Princ 9 WHAT THIS INVOLVES ELEMENT: Ensuring that the level + composition of remuneration is suff + r’able + that its r’ship to corp + indiv perf is defined – Princ 9 10TH PRINC OF GCG ELEMENT: Recog legit I’s of stakeholders WHAT THIS INVOLVES ELEMENT: Recog’ing legal + other ob’s to all legit stakeholders – Princ 10