Company Law: Regulations on General Meetings, Appointment and Dismissal of Directors, and Shareholders' Rights

Company Law 1
Company Law
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Company Law 2
Introduction
According to company law, several regulations have been put in place in relation to
general meetings, the appointment and dismissal of directors, and also the rights of shareholders.
When a company is formed with a constitution or adopts it later on, the clauses listed therein
shall act as its internal management rules. In the absence of a constitution, the Replaceable rules
as indicated under the Corporations Act will be enforced (Asic.gov.au, 2018). In other cases, the
internal rules of a company are made up of the Constitution and some of the Replaceable Rules.
This paper analyses various instances whereby the laws and rules may be applied. It considers
several instances where exceptions and limits are presented to protect the minority shareholders
who tend to have limited powers compared to the majority shareholders.
Advice to Al Gorey
Advising Al and Tipper on their Dismissal
In the current case study, several events have taken place which must first be analyzed
before Al and Tipper can be effectively advised on their dismissals. First, Kelly requested the
Board for an extraordinary general meeting which was refused. Ten days later, she held the
general meeting without notice which was only attended by Bud. At this time, Kelly was a
member because she declined the position of director as she did not want to be involved in
management. However, since Bud attended the meeting, it is evident that the holding of the
general meeting was indeed valid (Hill 2010, p. 347). This is because the Board failed to accept
her request, so she used the fact that there was 50% of votes of requesting members. However,
the fact that the directors were not given notice of 21 clear days makes it an illegal meeting

Company Law 3
(Asx.com.au., 2018). This is especially true considering the fact that one of the agendas of the
meeting involved the removal of a director.
Second, Kelly declared that three resolutions were passed. One, Clause two was deleted
from the company’s constitution. Two, both Al and Tipper were dismissed as directors. Lastly,
Kelly was appointed to the Board of Directors. Generally, before a quorum is reached, there must
be at least two voting members. In the current scenario, Bud did not vote on any of the listed
resolutions. Therefore, it is likely that the resolutions can be held null and void considering the
fact that a quorum was not reached (Leuciuc 2012, p. 279). In addition, the Corporations Act
2001 (Cth) s 203C of the Replaceable Rule allows a Pty company to remove a director by
ordinary resolution of general meeting. Unfortunately, the fact that only two members were
present during the meeting and one did not vote makes the decision inapplicable as there are no
majority votes (Lang 2005, p. 739). Just as is the case in Chew Investment Australia Pty Ltd v
General Corp of Australia Ltd (1988) the decision may be easily dismissed because there was no
poll (Venus 2016, p. 30). Therefore, the approach taken to dismiss Al and Tipper goes against
the internal rules of the Fresh Company. The right channel was not used in making any of the
three decisions.
Advising Al of any Liability he may have incurred
In this scenario, the duties of promoters must be taken into consideration. A promoter is
any individual who has actively participated in the process of forming the company, raising its
capital, and even establishing its business. The duties include no conflict of interest, no secret
profits, and the duty of full disclosure. In the 5th May 2017 contract, it is evident that a breach of
duty was being experienced (Price 2011, p. 23). Fresh entered into a contract with Al to purchase
the business and the land at an overhaul of $700,000. This represents a conflict of interest as Al

Company Law 4
is considered the promoter of the company. He is still part of the company as he knows
everything about it. He helped to develop it and even came up with the idea of incorporation. He
is still the director and chairperson of Fresh according to the Company’s constitution (Edmunds
& Lowry 2003, p. 201). The fact that he also bought it presents a conflict of interest as he will
obviously act in his own interests rather than that of the company. This issue may be likened to
that of Tracy v Mandalay (1953) whereby the stakeholders of a company were also seeking to
purchase it. The promoters have a legal duty to focus on the company’s benefits first before any
other.
Part B: Advice to Kelly
Contract with Officeworks
According to s. 131 of the Corporations Act 2001, when a person enters into a contract on
behalf of the proposed company, the company becomes bound by that contract if it later becomes
registered and ratifies the contract. Under s. 131(2), if the company is not registered, then the
signatory becomes liable for the damages. After a company has become registered, it is
considered a separate legal entity from its members and its controllers. Salomon v Salomon
[1897] note that signing a contract on behalf of an unregistered company is considered very
risky as there is no proof that it is a separate legal entity. Therefore, the person who signed the
contract will be held liable.
In the current situation, Kelly purchased computers on behalf of Fresh Pty Ltd. At this
time, the company had not been incorporated which is why Kelly signed on its behalf. However,
even after its incorporation, no payment was made despite the computers being delivered. This is
proof that the company had ratified the contract. If ratification was not present, then the same