Corporate Law

Running head: CORPORATE LAW
Corporate Law
Name of the Student
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CORPORATE LAW1
Part A
Issue 1
Whether the first constitutional alteration requiring Pearl and Marina to repay their initial share
price can be enforced against them.
Rule
An alteration of the terms of the constitution can be carried out by a company in compliance with
the provisions in s 136(2) of the Corporations Act 2001 (Cth) (CA)1, which requires a special resolution
to be passed to that effect. A special resolution requires 75 percent of the votes casted by members to be
in favour of the same for the purpose of being valid. As per the provisions contained in s 249L(c) of the
CA2, the meeting needs to be notified by way of a notice which contains the intentions that are to be
proposed in the special resolution and needs to state the details of the resolution to all the members of the
company.
However, the alteration of the constitutional terms can be restricted even if the special resolution
has been complied with all the requirements by virtue of s 136(3) of the CA3. The company does not have
the authority to carry out and alteration to make the member bound by encouraging for the liability of
either acquiring new shares for increasing the liability with respect to the contribution towards the shares
by virtue of s 140(2) CA4. This can be supported with the case of Ding v Sylvania Waterways Ltd [1999]
46 NSWLR 4245. The company also does not have the right to make the minority shareholders to give up
their shares by way of sale as has been seen in the case of Gambotto v WCP Ltd [1995] 182 CLR 4326.
1 The Corporations Act 2001 (Cth), s 136(2)
2 The Corporations Act 2001 (Cth), s 249L(c)
3 The Corporations Act 2001 (Cth), s 136(3)
4 The Corporations Act 2001 (Cth), s 140(2)
5 Ding v Sylvania Waterways Ltd [1999] 46 NSWLR 424
6 Gambotto v WCP Ltd [1995] 182 CLR 432

CORPORATE LAW2
The minority shareholders being subjected to such treatment has the option of availing oppressive
remedy against the company by virtue of s 232 of the CA7.
Application
In the present situation, Calamari Music calls a Special General Meeting to alter the constitution.
The alteration would require all shareholders that hold less than 15% of the company’s shares to repay the
initial purchase price of their shares as additional capital once each year. This alteration of the
constitution can be carried out by the passing of a special resolution as per s 136(2) CA8, which requires
75 percent of the votes casted by members to be in favour of the same for the purpose of being valid.
Moreover, it required proper notice to be given to the members as per the requirements set out in s
249L(c) CA9, which has been duly complied with in this situation.
The resolution has been passed accordingly but there are certain restrictions upon the passing of a
special resolution that needs to be adhered to for the purpose of avoiding liability. This requires the
company from passing any resolution that has the effect imposing additional liability upon the minority of
the shareholders. The company in this case has been compelling the minority shareholders namely Pearl
and Marina to make additional payments with respect to repayment of the initial purchase price. This
needs to be restricted as per the provisions contained in s 140(2) CA10. This can further be illustrated with
the case of Ding v Sylvania Waterways Ltd [1999] 46 NSWLR 42411.
Conclusion
Hence, the first constitutional alteration requiring Pearl and Marina to repay their initial share
price cannot be enforced against them.
7 The Corporations Act 2001 (Cth), s 232
8 The Corporations Act 2001 (Cth), s 136(2)
9 The Corporations Act 2001 (Cth), s 249L(c)
10 The Corporations Act 2001 (Cth), s 140(2)
11 Ding v Sylvania Waterways Ltd [1999] 46 NSWLR 424