Business Law: Alteration of Constitution, Contracts before Registration, and Directors' Duties

Running head: BUSINESS LAW
Business law
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1BUSINESS LAW
Answer 1A
Alteration of constitution
The provisions related to the way in which the constitution of a company can be altered
are provided through the Corporation Act 2001 (Cth). The constitution is the main document
which sets out the relationship of the members with the company, third parties and between
members. There is a specific procedure to be followed for altering the constitution which has
been provided under s 136 of the Act1.
Procedure for alteration
It has been provided through s 136(2) of the Act that the constitution of a company may
be repealed or modified through passing a special resolution2. It has been further stated by s
136(3) of the CA that it may be provided through the constitution that there would be no effect of
a special resolution unless a requirement which has been specified in the constitution in relation
to its modification or repealing has been met3. Under s 136(4) it has been further clarified that
unless a contradiction is provided by the constitution the organization would be able to repeal
and modify the requirement mentioned in s 136(3) if the requirement has been itself satisfied4.
Limitations on alteration
However, in the case of Gambotto v WCP Limited5, the courts had limited the right of the
majority shareholders to alter the constitution in relation to expropriation of shares. It was stated
by the court in this case that the alteration of the constitution to expropriate shares of the
1 Corporation Act 2001 (Cth) s 136
2 Corporation Act 2001 (Cth) s 136(2)
3 Corporation Act 2001 (Cth) s 136(3)
4 Corporation Act 2001 (Cth) s 136(4)
5 [1995] HCA 12

2BUSINESS LAW
minority would be valid only if it is done for a proper purpose and it would not be oppressive to
minority shareholders. In this case it was further clarified by the court that expropriation of share
is allowed when the minority share holding act in a way which is detrimental for the company or
the minority is competing with the organization. The alteration would not be allowed if the
directors are doing it to take commercial advantage for themselves.
The validity of alteration done by Sammy and Huw
The first requirement for alteration of a constitution under s 136 is that it requires a
special resolution. Special resolution means voting by 75% of the shareholders of the company.
In this case Sammy and Huw hold 90% of the shares in the company and thus have the capacity
of passing a special resolution to alter the constitution under s 136(2). In addition there is no
requirement which is provided through the facts which could prevent the alteration of
constitution under s 136(3) and 136(4). Thus the alteration is valid under the CA. However the
application of Gambotto v WCP Limited is also required to analyze the validity of the alteration
done by Sammy and Huw. It has been provided through the facts that the alteration is being done
in relation to the expropriation of shares of those who have less than 11% holding and in this
case it is Amaya.
The court stated in this case that expropriation would only be valid if it is done for a
proper purpose and it would not be oppressive to minority shareholders. In this case it can be
stated that it is oppressive to Amaya who is a minority share holder. However, the court further
clarified that fact that expropriation of share is allowed when the minority share holding act in a
way which is detrimental for the company or the minority is competing with the organization. In
the present situation it is provided that Amaya is also acting as the accountant for the competitors