FWPL Share Buyback and Capital Reduction

This assignment analyzes the options available to FWPL (Fictional World Productions Limited) for buying back its A-Class shares. It explores two primary methods: a share buyback procedure requiring a special resolution with 75% shareholder approval and a capital reduction, which involves returning money paid by shareholders regarding their shares. The assignment delves into the legal requirements and procedures for both options, referencing relevant Australian legislation like Section 256B (1) of the Corporations Act and Form 2560. It highlights the importance of member consent and shareholder communication throughout the process.

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Cover Sheet
Name of the student
Student ID
Word count

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Contents
Solution 1....................................................................................................................................................3
Issue........................................................................................................................................................3
Applicable law.........................................................................................................................................3
Application of law...................................................................................................................................4
Conclusion...............................................................................................................................................4
Solution 2....................................................................................................................................................4
Issue........................................................................................................................................................4
Applicable law.........................................................................................................................................4
Application of law...................................................................................................................................5
Conclusion...............................................................................................................................................5
Solution 3....................................................................................................................................................5
Issue........................................................................................................................................................5
Applicable law.........................................................................................................................................6
The reduction can be made by two methods:...........................................................................................6
Application of law...................................................................................................................................6
Reference List.............................................................................................................................................8

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Solution 1
Issue
Can Galli grandchildren take any action regarding the non-payment of the dividend?
Applicable law
When the controllers of the company acts in an unfair manner and misuse their position resulting
the violation of their duties then there are various remedies that can be sought by the aggrieved
shareholders and one such remedy is stated in part 2F.1 of the Corporation Act 2001.
Section 234 of the Act list down the people who can apply for oppression orders under section
232 of the Act. The persons include: (Findlaw, 2017)
i. Company shareholders;
ii. Because of selective reduction any person is ceased from the companies register;
iii. A person who is not the shareholder and the application deals with the circumstances
in which he is removed;
iv. Any person who under will or law has been transmitted with shares;
v. Any person who as per ASIC consider to be appropriate after investigation in the
affairs of the company.
Now the remedy under section 232 can be sought only if in the opinion of the court the conduct
of the company affairs OR the act/omission (actual or proposed) by or on behalf of the company
OR any resolution (actual/proposed) by shareholders is: (Bottomley, 2016)
i. Not in the interest of the shareholders;
i. Unfairly prejudicial, oppressive or unfairly discriminatory against the shareholders or
the shareholders in any other capacity.
It is found that when the company is improperly diverting from its business or paying excessive
remuneration or when there improper use of shares or when the person is improperly excluded
from participating in the management or when the information is denied, then, these actions are
considered as an act of oppression.
When it is found that there oppression then an application can be made under section 232 and the
court has wide powers under section 233 of the Act. Some of the powers include:
i. Winding up of company;
ii. Repletion or the modification of the constitution;
iii. To regulate the affairs of the company;

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iv. Reduction in the share capital of the company;
v. Appointment of receiver;
Application of law
The FWPL constitution submit that the dividends can be paid to the A class shareholders.
Dividends are paid to shareholders but, the board decided not gives the dividend because A class
shareholders are lazy and undeserving and retain the funds for the development of the organic
vineyard at Robinvale.
It is submitted that the ‘A class shareholders’ are the authorized people under section 234 to
make an application under section 232. It is submitted that the action of the board of not making
dividends is not in favor of the A class shareholders and will unfairly prejudicial as the
shareholders live on the dividend that is receive by them from the company.
Now, the board has stopped the dividend on the basis that they are lazy and used for a vine
guard.
Thus, the act is contrary to shareholders interest and they are authorized to make an application
under section 232 of the Act.
Conclusion
Thus, the A class shareholders is authorized to make an application under section 232 for
oppression under section 234 of the Act.
Solution 2
Issue
Whether it is feasible for FWPL to carry share buyback under the Corporations Act?
Applicable law
Buy back shares by a company signifies that it is mainly reducing its issued share capital. The
aim is to use the funds for its operational use and not to keep it as superfluous. In this kind of
mechanism the shareholders can make a choice to sell the shares or not but it is necessary that if
the company ability to pay the creditors or of the provisions of the Act are violated then the share
buy backs are not permissible.
The main benefits which can be attained because of buy back of shares include:
i. The surplus funds can be used as a better investment;
ii. The earnings per share is increased;

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iii. The surplus fund are returned to the company;
iv. The instability of the members company register is maintained;
v. The employees plan shares are reduced;
vi. The odd lot holding are reduced thus the registry cots of a listed company is
increased;
Now, buy backs can be done in various forms: (Gates, 2008)
i. Selective buy back – These are the buy backs which are applicable to every kinds of
shares including redeemable preference shares. It is an expensive and time consuming
process but is required when the company intends to initiate an exit or a
rearrangement of shareholdings. In order to opt for selective buy back:
a. In this identical offers are not made to every shareholder;
b. The members must pass a special resolution (75% majority is required). This is
required so that the shareholders can be protected from the change in the control
of the company and to maintain good terms;
c. A notice must be send to shareholders which includes statements of all the
information.
ii. The other kinds of buy back schemes involve Equal access buy back, Employee share
scheme buy-backs, Minimum holding buy-backs, On-market buy-backs,
Application of law
Now, Mario and Nick Galli feels the dissatisfaction of A Class shareholders and thus they intend
to buy out the A Class shareholders at a value to be fixed by an independent expert.
Mario and Nick can buy back the shares so that they can use the funds for better investment and
earnings per share are increased. Thus, it is first necessary that A class shareholders must fit in
for selective buy back process. Then the directors must pass a special resolution with 75% votes
and a notice must be send to A class shareholders of the buy back of their shares.
Conclusion
Thus, Mario and Nick can buy back the procedure by following the procedure.
Solution 3
Issue
How the reduction of capital is done and whose consent is needed?

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Applicable law
Reduction of share capital signifies that when money paid to the company regarding the
members share is returned to the member. Section 256B (1) of the Act submits that the share
capital of the company can be reduced if: (ASIC, 2017)
i. It is reasonable or fair to the members as a whole;
ii. When it does not hamper the company ability to pay its creditors;
iii. Is approved under section 256C of the Act by the members.
The reduction can be made by two methods:
I. Equal – when the shares are ordinary, the equal reduction method can be used
wherein the terms of reduction is equal to the holder’s ordinary shares. In order to
apply equal reduction the procedure requires:
a. Form 2560 must be lodges which are a notification for the reduction in share
capital which includes a notice specifying the meeting wherein the resolution is
intended to be passed and any additional document that is required.
b. Then the notice must be sent;
c. A meeting must be construed wherein the a simple resolution must be passed;
d. The share capital then be reduced;
e. The change of detail must be lodge within 28 days after the reduction in the share
capital;
II. Selective – When the conditions set out in equal reduction is not made then the
reduction is selective. In this the resolution that needs to be passed in the meeting
which can be either special resolution or a resolution by all ordinary members. The
change of detail must be lodge within 14 days after the reduction in the share capital
by lodging form 2205; then the capital must be reduced and the details must be
lodged within 28 days.
Application of law
One of the options that can be avail by FWPL to get rid of the A Class shares is by way of a
reduction of capital.
However, FWPL requires the approval of all the members before doing so and must lodge form
2560 and a notice of the same must be sent. A meeting must be held wherein the simple
resolution should be passed and the details must be changed within 28 days.

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Conclusion
Thus, the company can opt for equal reduction in capital and pay back the money to the
shareholders.

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Reference List
Books/Articles/Journal
Stephen Bottomley (2016) The Constitutional Corporation: Rethinking Corporate Governance,
Routledge.
Online Material
ASIC (2017) Reduction in share capital (online). Available at:
http://asic.gov.au/for-business/running-a-company/shares/reduction-in-share-capital/. (Accessed
on 2nd October 2017)
Find law (2017) shareholder oppression explained (online). Available at:
http://www.findlaw.com.au/articles/4614/shareholder-oppression-explained.aspx. (Accessed on
2nd October 2017)
Gates (2008) Australia: Share Buy-Backs (online). Available at:
http://www.mondaq.com/australia/x/69760/Directors+Officers/Share+BuyBacks. (Accessed on
2nd October 2017)