This document provides information on various aspects of Corporate Law including case studies, issues, rules, and applications. It covers topics such as shareholders' resolutions, breach of restraint of trade clause, and validity of proposed constitutional amendments. The document also includes references for further reading.
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CORPORATE LAW Question 1 TheAutomatic Self-Cleansing Filter Syndicate Co Ltd vCuninghame[1906] 2 Ch 34case is significant as it addressed the issue is shareholders through resolution can sell the company assets even if the directors do not agree with the same. In this case, a dominant shareholder Mr.McDiarmidwanted to sell the assets of the company to another entity. In order to proceed with the same, he called a meeting where shareholders’ resolution in favour of sale was passed despite directors opposing the same (Cassidy, 2016). When the matter landed in court, it was eventually decided that the powers vested to the directors under s. 198A have to be independently used by the directors without any direct interference from shareholders. These are statutory powers which can be altered only though amendment in the company constitution through a special resolution (Ciro & Symes, 2015). Question 2 Issue The key concern is to outline if Carl’s conduct has caused any breach of therestraint of trade clause. Rule In accordance with s. 124(1), Corporations Act 2001, a company has a separate legal entity which implies that it can enter into contractual relationship.The key implication of this separate legal entity is that the business liabilities would not be considered as personal liabilities for owners assuming no personal guarantee has been given. A leading case indicating this isSalomon vASalomonand Co Ltd[1897] AC 22. However, this limited liability provided under the company legal structure has potential to be misused. Therefore, in certain circumstances the court may demand piercing the veil for the company to identify the real ownership (Pathinayake, 2014). A useful case indicating the above is GilfordMotorCo Ltd v Horne [1933] Ch 935. As per this case, a non-compete clause was present between Mr.Horne and GilfordMotorCo Ltd. This was applicable for two years from the data Mr.Horne left employment. However, a new company was incorporated by Mr.Horne before the ending of the two years named JM Horne & Co Ltd. Mr. Horne was neither the director not the shareholder of the company. Instead the
CORPORATE LAW sole shareholders and directors were his wife and friend. This company competed directly with Gilford Motors. As a result, Gilford Motors accused Mr.Horne of violating the non- compete clause. The court pierced the veil and determined that the company and Mr. Horne were essential the same entity and hence held Mr. Horne in violation of the non-compete clause (Harris, 2014). Application \ As per the scenario provided, restraint of trade clause has been enacted between Carl and Ozzie Loans which prevents Carl from opening any competing business for a period of two years. But, Carl during this period opens a competing business i.e. Betta Loans where his wife is the only director and shareholder. His wife is not involved in the business and Carl conducts the business. Carl has approached Ozzie Loans clients and hence is causing damaged to the ex-employer. Considering the similarity of this scenario with GilfordMotorCo Ltd v Horne, it is evident that the court would pierce the veil. It would find that company and Carl are not different and hence an injunction order would be issues to prevent him from conducting business. Conclusion On the basis of the above discussion, it is apparent that Ozzie Loans would be successful in their action against Carl and his company. Question 3 Issue The validity of the proposed constitutional amendment needs to be determined in the wake of fraud on minority and possible suppression. Relevant Rule It is possible to amend the company constitution through a special resolution. In such resolutions, minority shareholders lack voting rights to influence or change the outcome. This puts them in position of vulnerability as the changes made in company constitution may
CORPORATE LAW be adverse to their interests. In order to avoid fraud on minority, Corporations Act 2001 has provided remedies under s.232–s.235 (Cassidy, 2016). As a result, any change which is oppressive, unfairlydiscriminatory or prejudicial would be nullified by a court order. Also, in case the change in company constitution would require mandatory selling of shares by minority member(s), it is essential that the same would have a proper purpose and must take place at a fair valuation. In the absence of either of the above, such changes would be considered void (Harris, 2014). Application In the scenario presented, the minority shareholder ofBioroboLtd is Rosslyn. Her husband is a director in a firm which directly competes with Rosslyn. The members have come to known about the leaking of confidential information regarding Biorobo to her husband and also approaching Biorobo clientsfor doing business with husband’s firm. As a result, an amendment has been proposed to the company constitution whereby all members whose spouse are directors in competing firms would be forced to sell their shares. Under the circumstance, the amendment seems fair and for safeguarding the interest of the firm and members as a whole. Also, fair valuation is being offered as an independent expert would be appointed. Also, the change cannot be termed as unfairly oppressive or discriminatory. Conclusion The proposed amendment to the company constitution would be considered as valid since Rosslyn is not subject to fraud on minority.
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CORPORATE LAW References Cassidy, J. (2016).Corporations Law Text and Essential Cases(4thed.). Sydney: Federation Press. Ciro, T. & Symes, C. (2015).Corporations Law in Principle(9thed.). Sydney:LBC Thomson Reuters. Harris, J. (2014).Corporations Law(2nded.). Sydney: LexisNexis Study Guide. Pathinayake, A. (2014).Commercial and Corporations Law(2nded.). Sydney :Thomson- Reuters.