Business Law: Pre-registration Contracts, Directors' Duties and Share Expropriation

Running head: BUSINESS LAW
Business law
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Part 1A
Section 136 of the Corporation Act (Amendment of constitution)
Rules in relation to the process in that the company’s constitution can be changed are
given by the Corporation Act 2001 (Cth). Under the CA the constitution has been said to be the
key document that sets the relation of the owners with third party, organization and among the
members. A particular process is there that is required to be complied with to change the
constitution and these changes has been set out in the section 136 of CA1.
Section 136 of the Corporation Act (Process for alteration)
The section 136(2) of CA had stated that the company’s constitution might be modified
through a special resolution2. The section 136(3) of the Corporation Act has further stated that it
might be given by the constitution that no effect will be there of the special resolution until the
requirement that was mentioned in constitution has been complied with regards to its repealing
or modification3. It has been additionally clarified that until the constitution gives denial, the
company will modify and repeal the requirement that has been mentioned under the section
136(3) in case that need is satisfied it4.
The Gambotto v WCP Limited Case
The rights of the majority owners have been limited by the court in the case of Gambotto
v WCP Limited5, to change the constitution with regards to the share expropriation. The judges
in the given case had stated that the constitution's alteration to expropriate the minority’s shares
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

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will only be legal if it has been done for an appropriate reason and it will not be unfair to the
minority owners. The court had further clarified in this given case that the share expropriation
has been permitted in situation where the minority members act in such a manner that is
unfavourable for the organisation or they have been competing with company. The change in the
constitution will not be approved if the company’s directors are getting into this for their
commercial advantage.
Whether the amendment of the company Oh My Private Limited is valid?
The initial requirement is the special resolution to change the constitution under the section 136
of the Corporation Act. The meaning of the special resolution is voting done by the 75% of the
company's owners. In the given case, Huw and Sammy have 90% company’s shares and
therefore they hold the right to pass the special resolution for changing the constitution via the
section 136 of the Corporation Act. Furthermore, no requirement has been provided by the facts
that can prevent the changes of the constitution under the section 136 of the Act. However, the
implementation of the given case Gambotto v WCP Limited is also necessary to evaluate the
legality of the amendment that has been done by Huw and Sammy. It is given by the facts that
the changes is being held with regards to the shares expropriation of those people who hold
lower than 11% shares and in the given case it’s Amaya.
In the given case, the court had stated that the expropriation will only be legal of it has
been done for the proper reason and it will not be unfair to the minority owners. In the given case
it may be said that expropriation has been unfair to Amaya as she is the minority shareholder.
The court had further clarified in this given case that the share expropriation has been permitted
when the members in minority act in such a manner that is unfavourable for the organisation or

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they have been competing with company Amaya is acting as an accountant for the company’s
competitors. Amaya is trying to contact Gracey so that she can take podcasts to some other
organizations. Therefore, it is obvious that Amaya having competition with the organisation and
the constitution's alteration will be therefore legal.
Part 1B
Pre-registration Contracts
The rules that are in relation to the pre-registration contract have been given under the
provisions of the section 131 of the CA 2001. The section 131(1) of this Act states that if an
individual has or wants to form a legal agreement on behalf of the organisation or for its benefit
before the registration, then the organisation has to abide by the contractual terms and is
permitted to gain the benefits of the organisation or an organisation that is reasonably identifiable
with it that helps the contract to ratify6. Within a specific period of time, the ratification must be
done to that the parties in relation with the legal agreement have approved or a prudent time if no
agreement is there.
In addition, it is clarified under the section 131(2) of the Corporation Act 2001 that an
individual is responsible for the compensation that he needs to provide to that party who has
been registered before contract of the organisation do not ratify the legal agreement within the
given time or if it is not incorporated. The amount of the compensation will be that amount
which the organisation would have paid if the legal agreement was ratified by the organisation
and was breached7.
6 Corporation Act 2001 (Cth) s 131(1)
7 Corporation Act 2001 (Cth) s 131(2)