Corporations Act 2001 Analysis

This assignment delves into various aspects of the Corporations Act 2001 in Australia. It examines the legal framework surrounding share buybacks, exploring their purpose and shareholder benefits. The document also analyzes the mandatory nature of dividends based on relevant case law like Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd. Additionally, it investigates the concept of oppression remedies available under the Act, shedding light on shareholder protection mechanisms.

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Corporations Law
ACC204
01-Oct-17
(Student Details : )

CORPORATIONS LAW 2
QUESTION 1
I: ISSUE
The key issue in this case revolves around the actions which can be taken by the Galli’s
grandchildren in the matter of non payment of the dividend for this year.
R: RULE
The shareholders purchase the shares of a company to not just be its shareholders but also to
earn returns on their invested money through dividends (Latimer, 2012). Under section
254W(2) of the Corporations Act, 2001(Cth) , it is not obligatory to pay the dividends. The
company can issue shares only when the requirements covered under section 254T of this act
are satisfied (ICNL, 2017). As per this section, the dividend only has to be paid when there is a
sufficient amount of profits and where the payment of dividend would not affect the capacity of
the company in fulfilling the obligations of the creditors (Federal Register of Legislation, 2017).
Section 232 of this act covers the provisions regarding the oppressive conduct which takes
place against the minority shareholders (WIPO, 2015). Under this section, the court can make
an order for remedies under section 233 where an oppressive conduct is established or such
conduct which is discriminatory in an unfair manner (Austlii, 2017). Under section 233 of
Corporations Act, the court can make different orders whereby the aggrieved party is given
remedies for the established oppressive conduct, and the remedies which can be offered
includes winding up order against the company, amending/ modifying the constitution of the
company, applying for the management to purchase the shares of the applicant, refraining the
management from doing something particularly an act, transmitting the shares by will or law,
discontinuing some events, and even asking the directors to do a particular act (Victorian Law
Reform Commission, 2017).
A recent verdict given in Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326
made it an oppressive conduct when there was a failure on part of the company in paying the

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mandatory dividend (Launders, Hogan and Randall, 2014). Three conditions were laid down in
Thomas v H W Thomas Ltd (1984) 1 NZLR 686 for oppressive remedy as per which, it has to be
shown that the object for which the act was undertaken was to cause such actions where an
oppression took place, or which was unfairly prejudicial/ discriminatory; the second condition is
that the reasonable expectation had not been met; and the last condition is that awarding the
remedies would be not only equitable but also just and fair (New Zealand Official Law Reports,
2017).
A: APPLICATION
Section 245W(2) of this act provides that the dividend is a choice of the directors. And in this
case study, the dividend on A Class Shares is to be issued at discretion and so, on the basis of
this section, the Galli can freely deny the dividends to the shareholders. Also, Wambo Coal Pty
Ltd v Sumiseki Materials Co Ltd required the oppressive conduct only when it dealt with
mandatory dividend. And on the basis of Thomas v H W Thomas Ltd, the three conditions have
not been fulfilled as the conduct was not oppressive, but merely to use the profits of the
company for expanding the business; also, the discretionary nature of dividends would deny
the presence of oppressive conduct; and in case the remedies covered under section 233 are
awarded in this case, it would become unfair and unjust.
C: CONCLUSION
To conclude, due to the absence of oppressive conduct in this case, the claim of Galli’s
grandchildren would not be upheld and the company cannot be forced to pay the dividend.
QUESTION 2
I: ISSUE
The key issue in this case revolves around the benefits which revolve around buy back of shares
and the conditions which have to be fulfilled for this.

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R: RULE
The buyback of shares can be defined as the shares of the company being repurchased by them
and the stock of the company being reacquired (Latimer, 2012). There are many benefits of
opting for buy back and this includes taking advantage of the undervalued share prices of the
company; dropping the dilution; increasing the company’s ownership; increasing the financial
ratios particular the return on equity, which plays a crucial role when the shares of the
company are being bought back (Kandarpa, 2016). Linking the benefits to the context of the
previous case study, by undertaking share buyback, the company can save the costs of litigation
in case in the oppressive conduct case, the matter reaches the court and the court ultimately
orders the company to buy back the shares of the minority shareholder (WIPO, 2015).
The Australian Securities and Investments Commission along with the Corporations Act provide
the statutory requirements for the share buyback in the nation. Division 2 of Part 2J.1 of the
Corporations Act provides the requirements which have to be followed when it comes to the
buyback of shares. Further, the information which has to be disclosed is covered under section
257A and the requirements of a report of an independent expert for the valuation purpose is
given under the ASIC’s Regulatory Guide 75 (ASIC, 2007).
A: APPLICATION
Applying the provisions covered above in the given case study, the company could safeguard
from the possible liabilities in case a case of oppressive conduct is deemed successful. Also, it
would avoid the company from having to pay dividends to the shareholders of A Class and
increase ownership of company. So, after fulfilling the requirements stated above, including the
report of independent expert, the buyback should be undertaken by the company.
C: CONCLUSION
To conclude, by following the requirements which have been covered above, the buyback of
shares can be undertaken by the company.

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QUESTION 3
I: ISSUE
The key issue in this case revolves around opting for capital reduction instead of buyback of
shares for FWLP.
R: RULE
The share capital reduction denotes the process in which the equity held by the shareholder is
reduced for the company based on the methods which have been covered under the statue
(Dagwell, Wines and Lambert, 2015). By opting for capital reduction, the value of the
shareholders can be increased and also leads to the capital structure of the company being
more efficient (Nanda, 2015). In order for a capital of the company to be reduced, based on
section 256C of the Corporations Act, it has to be reasonable and just for the shareholders as a
whole and at the same time, the same should not prejudice the payments which have to be
made to the creditors of the company and under this section, there is a need to obtain the
approval of shareholders. By redeeming the preference shares of the company, particularly
which are redeemable based on section 245J to section 254K and also by cancelling the shares
as per section 258A and 258FA of this act (ASIC, 2014). As per section 254Y of Corporations Act,
once the shares have been cancelled, there is a need to file Form 484 with ASIC which covers
the details of the cancelled shares (Australian Government, 2013).
A: APPLICATION
In the given case study, FWPL should opt for cancellation of shares instead of buying them back
as this would have the approval of shareholders which would minimize the chances of a case of
oppression being made against the company. However, it would have to be shown that this
cancellation is not prejudicial to the creditors and that it is fair.

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C: CONCLUSION
To conclude, the company should cancel the shares instead of buying back the shares as it
would have shareholders approval.

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REFERENCES
ASIC. (2007) Share buy-backs. [Online] ASIC. Available from:
http://download.asic.gov.au/media/1240127/rg110.pdf [Accessed on: 01/10/17]
ASIC. (2014) Reduction in share capital. [Online] ASIC. Available from: http://asic.gov.au/for-
business/running-a-company/shares/reduction-in-share-capital/ [Accessed on: 01/10/17]
Austlii. (2017) Corporations Act 2001. [Online] Austlii. Available from:
http://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/ca2001172/ definitions
[Accessed on: 01/10/17]
Australian Government. (2013) Corporations Act 2001. [Online] Australian Government.
Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 01/10/17]
Dagwell, R., Wines, G., and Lambert, C. (2015) Corporate Accounting in Australia. NSW: Pearson
Australia.
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of
Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on:
01/10/17]
ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from:
http://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on:
01/10/17]
Kandarpa, K. (2016) What is the Purpose of a Share Buyback and How can Shareholders Benefit
from it?. [Online] Wise Owl. Available from: https://www.wise-owl.com/investment-
education/what-is-the-purpose-of-a-share-buyback-and-how-can-shareholders-benefit-from-it
[Accessed on: 01/10/17]
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.

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Launders, R., Hogan, J., and Randall, S. (2014) When will a dividend be mandatory?: Wambo
Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326. [Online] Lexology. Available from:
https://www.lexology.com/library/detail.aspx?g=e32fb35d-7227-428d-a2d9-435d0e07a28e
[Accessed on: 01/10/17]
Nanda, D.S. (2015) Reduction in share capital: Analysis. [Online] Corporate Law Reporter.
Available from: http://corporatelawreporter.com/2015/02/23/reduction-share-capital-analysis/
[Accessed on: 01/10/17]
New Zealand Official Law Reports. (2017) Thomas v H W Thomas Ltd - [1984] 1 NZLR 686.
[Online] New Zealand Official Law Reports. Available from: http://www.lawreports.nz/thomas-
v-h-w-thomas-ltd-1984-1-nzlr-686/ [Accessed on: 01/10/17]
Victorian Law Reform Commission. (2017) The oppression remedy in the Corporations Act.
[Online] Victorian Law Reform Commission. Available from:
http://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act#footnote-
135972-53-backlink [Accessed on: 01/10/17]
WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from:
http://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 01/10/17]