Company Law Issue Case Study 2022

Running head: COMPANY LAW
Company Law
Name of the Student
Name of the University
Author Note

COMPANY LAW1
Question 1
Issue
The issue arising from the given situation is whether the proposed share cancellation
would comply with the Corporations Act 2001 (Cth), and the steps DO would need to take to
cancel Max’s shares.
Rule
The removal of a director belonging to a private company needs to be affected in
accordance with the constitution and in the absence of such a constitution in accordance with
the replaceable rules provided in the Corporations Act 2001 (Cth) (CA). Any director who
has been removed does not have the right to restrict the company from effecting the removal.
However, he may have the option of availing remedy in the employment law. In case the
constitution is silent regarding the removal of a director or the company does not have a
constitution of its own, the removal of a director of a private company can be effected in
accordance with section 203C of the CA. Such a removal needs to be accompanied by a
general meeting that will be conducted in accordance with the constitution of a company or
replaceable rule provided u/s 135 of the CA. The removal needs to be carried out by the
shareholders by passing and ordinary resolution.
In case there is an absence of a constitution or an absence of a provision in the constitution
in relation to cancellation of variation of class rights, the same can be carried out by the
procedure laid u/s 246B(2) of the CA. Such a cancellation can be carried out by passing a
special resolution pertaining to the company. The special resolution needs to be passed at the
general meeting by the affected class holders. This cancellation of class rights needs to be

COMPANY LAW2
accompanied by a special resolution as well as the written consent of the members with the
minimum of 75% of votes belonging to the affected class.
U/s 246F(1) of the CA, a notice needs to be lodged with the ASIC by the company setting
out all the particulars relating to any division of the shares among the classes in case there
was no previous division being made with respect to the shares.
U/s 246B(3) of the CA, the company is required to provide a written notice
acknowledging such cancellation or variation to the members belonging to the affected class
within a period of 7 days subsequent to search cancellation or variation.
U/s 246D of the CA, the right to apply for the setting aside of a variation by any of the
members has been provided. Members who disagree with their rights being cancelled and has
been owning at least 10% of the votes with respect to the class can apply to the court for the
setting aside of the cancellation. For the purpose of effecting such a setting aside of the
cancellation the Court needs to be satisfied that the cancellation would affect the applicants in
a detrimental way. Such an application is to be made within one month of such variation.
However, if every member belonging to a particular class of shares consent to such a
cancellation, the cancellation will be given effect from the date of resolution on the date of
consent or any other prescribed dates.
Application
In the present situation, Digital Optometry Pty Ltd (“DO”) has been registered on 30
November 2018 by Max and Lucy who were also the directors of DO. DO needs to be
governed by the replaceable rules of the CA. Both Lucy and Max was issued 500 “A” class
ordinary shares each with an issue price of $1.00 per share (fully paid). Max has been
entrusted with the management of the finances of DO and raising capital for the company.
Lucy would be responsible for managing the IT team employed by DO to develop the online