Corporate Law

CORPORATE LAW
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CORPORATE LAW
Question 1
The Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 case 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. McDiarmid wanted 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 the restraint 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 is Salomon v A Salomon and 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 Gilford Motor Co Ltd v Horne [1933] Ch 935. As per
this case, a non-compete clause was present between Mr.Horne and Gilford Motor Co 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