Company Law: Pre-emptive Clause, Share Capital Reduction, Insolvent Trading, Director's Obligations, and Fundraising Methods

Company Law

Table of Contents
MAIN BODY...................................................................................................................................3
TASK ..............................................................................................................................................3
1. In a company constitution there is a pre-emptive clause. Can you explain the purpose of
this clause, what type of companies it applies to and why it was introduced? .....................3
Why do companies sometimes want to reduce their share capital and how can they do it?.......3
2. A creditor, ASIC or a liquidator, can take legal action against a director for insolvent
trading. Where it can be shown a company failed to keep adequate financial records for a
period, the company will generally be presumed to have been insolvent throughout that
period...........................................................................................................................................4
If your company is insolvent, do not permit it to incur further debt. Unless it is possible to
restructure, refinance or obtain equity funding to recapitalise the company, your options are to
appoint a liquidator or voluntary administrator..........................................................................4
The role of a liquidator in liquidation are:- ...........................................................................4
Directors’ obligations.............................................................................................................5
3.Chua is not happy about the actions taken by Gabriel and Serena and wishes to know if he
can take any action against the company....................................................................................6
He is also not happy that he did not receive notice of the meeting of the Board of directors
where he was removed as a director. Can he do anything about it?...........................................6
Answer4.....................................................................................................................................7
REFERENCES................................................................................................................................9

MAIN BODY
TASK
 1. In a company constitution there is a pre-emptive clause. Can you explain the purpose of
this clause, what type of companies it applies to and why it was introduced?
The Australian Company law provides comprehensive legislation to incorporate and conduct
the activities effectively. In order to run a company, the company is required to constitute a
clause called pre emptive clause. The Corporation Act of 2001 empowers various rights and
obligation to the shareholder and directors of the company. The pre emptive clause allows
certain rights to the shareholders in order to protect their ownership interest in the company. The
main objectives of the pre emptive clause is to give certain percentage of shares to the
shareholders to increase their value in the company1. According to section 254D of the
Corporation Act, 2001, this is the statutory right that are generally used for joint venture and
shareholder agreement. It has to be include in the Article of Association of the company. The
board of director are required to give consent to add this provision under Article of Association.
The pre emptive clause is added into an agreement to own the interest of the shareholders. It is
generally made joint venture agreement to conferred the right and enforce the defines rights and
obligation.
The pre emptive clause is made to establish equitable interest in the joint ventures property
of to conferred a contractual right . In the case of Quantile v. Connell, the Australian Court held
that any party breach the pre emptive clause of the agreement will be liable to issue an injunction
to restrict the seller from exercising that agreement and to enforce such rights.Why do companies sometimes want to reduce their share capital and how can they do it?
The company reduce their share capital for the purpose of decreasing the companies
shareholder's equity . According to section 256 B(1) if the Corporation Act of 2001, the company
reduces their share capital and the procedure is defined under said provision to make it fair and
reasonable reduction 2. This is done to buyback share through cancellation and repurchase of the
shares. Due to excessive loss, the company are not able to generate the expected earning , so they
1 Campbell, Mark, "Pre-Emptive Self-Defence: When And Why" (2011) 11(1) Oxford
University Commonwealth Law Journal
2 "Raise Paddles To Raise Funds" (2015) 15(9).