Legal Analysis of Business Transactions and Directorial Duties in Chip-Eze Pty Ltd and Incredible Gifts Pty Ltd
Added on 2023-06-05
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Contents
QUESTION 1:.............................................................................................................................................2
QUESTION 2:.............................................................................................................................................4
Reference List.............................................................................................................................................7
Contents
QUESTION 1:.............................................................................................................................................2
QUESTION 2:.............................................................................................................................................4
Reference List.............................................................................................................................................7
2
QUESTION 1:
Introduction: Alteration of constitution, Power of minority to restrain alteration, Contract
with Company in its independent capacity.
Ryder and Kody graduated and then decided to initiate a business which deals in selling of
unique, hand-made crafts and other gifts online. They want to start a company with the name
Incredible Gifts Pty Ltd. On 2nd May 2018, Kody and Ryder went for the registration of the name
Incredible Gifts Pty Ltd, but it was already registered. So they registered the name Astounding
Gifts Pty Ltd.
Now, there are series of transactions that take place which require analysis.
a. To advice Melanie as what recourse she has for the non-payment of her monthly
payments for the remainder of her 12 month contract?
In Australia, it is the Corporation Act 2001 that governs the incorporation and the working of a
company. When a company is made then in order to achieve its object there are several
contractual relationships that can be established by a company. Such contracts are binding in
nature as it is made by the company in its individual capacity (Salomon v A Salomon and Co Ltd
(1897). (Harris, Hargovan, & Adams 2011)
But, many a times, the officers (promoters) establish contracts on company behalf before its
registration and are called pre incorporation/ registration contracts. In common law, Kener v
Baxter (1866), the pre registration contracts are void. (Easson & Soberman 1992)
But, Section 131 of the Corporation Act 2001, provides that if pre registration contract is
approved/ratified upon its incorporation, then, such contracts are enforceable (Aztech Science Pty
Ltd v Atlanta Aerospace (Woy Woy) Pty Limited (2004)
In Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd (1987), section
131 has the applicability upon contract which is made prior the incorporation. If a contract was
made when the company was registered and later altered its name, then, section 131 is not
applicable. (Hossain 2013)
Thus those contracts which are binding on the company either because the company has
established it on its own behalf or whether the same is ratified by the company, such contracts
are binding in nature. Thus, as per Airloom Holdings Pty Ltd v Thales Australia Ltd (2011) if
there is breach of any contractaul obligtaion then the agreived party can sue the comoany for
breach and claim damages.
Now, as per the facts, that a contract was made by Ryder with Melanie for a monthly payment of
$5,000 on 26 April 2018. But, the contract was made by Ryder on behalf of Incredible Gifts Pty
Ltd, which was not registered when the contract was made.
As per Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Limited, the contract should
not be enforceable as it is a pre regitertaion contract.
Later a comoany was registered in the name of Astounding Gifts Pty Ltd. Astounding ratify the
contract in its meeting on 12th May 2018. Thus, the pre registration contract was made with
Ryder but the contract was ratified by Astounding. So, by applying section 131 and
QUESTION 1:
Introduction: Alteration of constitution, Power of minority to restrain alteration, Contract
with Company in its independent capacity.
Ryder and Kody graduated and then decided to initiate a business which deals in selling of
unique, hand-made crafts and other gifts online. They want to start a company with the name
Incredible Gifts Pty Ltd. On 2nd May 2018, Kody and Ryder went for the registration of the name
Incredible Gifts Pty Ltd, but it was already registered. So they registered the name Astounding
Gifts Pty Ltd.
Now, there are series of transactions that take place which require analysis.
a. To advice Melanie as what recourse she has for the non-payment of her monthly
payments for the remainder of her 12 month contract?
In Australia, it is the Corporation Act 2001 that governs the incorporation and the working of a
company. When a company is made then in order to achieve its object there are several
contractual relationships that can be established by a company. Such contracts are binding in
nature as it is made by the company in its individual capacity (Salomon v A Salomon and Co Ltd
(1897). (Harris, Hargovan, & Adams 2011)
But, many a times, the officers (promoters) establish contracts on company behalf before its
registration and are called pre incorporation/ registration contracts. In common law, Kener v
Baxter (1866), the pre registration contracts are void. (Easson & Soberman 1992)
But, Section 131 of the Corporation Act 2001, provides that if pre registration contract is
approved/ratified upon its incorporation, then, such contracts are enforceable (Aztech Science Pty
Ltd v Atlanta Aerospace (Woy Woy) Pty Limited (2004)
In Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd (1987), section
131 has the applicability upon contract which is made prior the incorporation. If a contract was
made when the company was registered and later altered its name, then, section 131 is not
applicable. (Hossain 2013)
Thus those contracts which are binding on the company either because the company has
established it on its own behalf or whether the same is ratified by the company, such contracts
are binding in nature. Thus, as per Airloom Holdings Pty Ltd v Thales Australia Ltd (2011) if
there is breach of any contractaul obligtaion then the agreived party can sue the comoany for
breach and claim damages.
Now, as per the facts, that a contract was made by Ryder with Melanie for a monthly payment of
$5,000 on 26 April 2018. But, the contract was made by Ryder on behalf of Incredible Gifts Pty
Ltd, which was not registered when the contract was made.
As per Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Limited, the contract should
not be enforceable as it is a pre regitertaion contract.
Later a comoany was registered in the name of Astounding Gifts Pty Ltd. Astounding ratify the
contract in its meeting on 12th May 2018. Thus, the pre registration contract was made with
Ryder but the contract was ratified by Astounding. So, by applying section 131 and
3
Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd, the contract is valid
as even though it is made when the comaony was not registered but was ratified by a comoany
after its regitsrtaion. Only the name of the comoany was changed and nothing else. So. Melaine
has full right to sue the comoany when the comppany has stopped paying the contract price of
$5,000 (Airloom Holdings Pty Ltd v Thales Australia Ltd (2011).
Now, Kody and Ryder were the two directors (holding 45% shares each). A contract was also
made with Salman (holding 10% of the shares) to act as the company’s accountant.
A first director meeting was held on 12th May 2018. On 10th July 2018, Ryder and Kody found
that Salman has confirmed the accounting position with Incredible Gifts Pty Ltd (competitor) and
is trying to encourage Melanie to provide her hand-made gifts to Incredible Gifts instead. A
members meeting was called and a resolution was passes to alter the constitution according to
which the directors have now power to buy back shareholdings of less than 12% at their
discretion.
So, the issue that arise is
a. To make Salman understand the process of alteration of the company constitution.
A comoany can govern its self either by the constuitition or by the replaceable rules or by both.
There are various rules and provisins that are made part of the constitution with which all
comoany officers must comply with. However, at times, the shareholders may find a need to
bring varations in the provisons of the constitution. (Legal Vision 2018)
The basic process that must be folowed in order to bring alternation in the constitution is
nentioned under section 136 (2) of the Act. Section 136 (2) submits that a constitution can be
repealed or modifies by the shareholders by passing special resolution on such behlaf. The
resolution must be passed by 75% of the votes. These amendments has the power to bind the
minoirty shareholders even if the minority shareholders are agianst the specail resolution.
(Australia 2011)
Thus,
It is submitted that Kody and Ryder are both permitted to alter the constitution by giving 75% of
the votes in the meeting. Salman holds 10% of the votes and even if votes againt the resolution
still Kody and Ryder together makes 90% of the shareholdings (which is in excess of 75%) and
thus are capable to pass the resolution. The alteration is perfectly valid and Salman has to abide
by the same.
But, what of Salman does not want to abide by the same.
So, the next issue that arise is
b. Whether Salman can prevent the inclusion of the clause allowing the directors to
expropriate her shares?
It is submitted that there are few amendements in the Constitution that does not bind the
shareholders. Such amendmenst are establihed under section 246B of the Act. The amendment
includs:
Commonwealth Bank of Australia vs. Australian Solar Information Pty Ltd, the contract is valid
as even though it is made when the comaony was not registered but was ratified by a comoany
after its regitsrtaion. Only the name of the comoany was changed and nothing else. So. Melaine
has full right to sue the comoany when the comppany has stopped paying the contract price of
$5,000 (Airloom Holdings Pty Ltd v Thales Australia Ltd (2011).
Now, Kody and Ryder were the two directors (holding 45% shares each). A contract was also
made with Salman (holding 10% of the shares) to act as the company’s accountant.
A first director meeting was held on 12th May 2018. On 10th July 2018, Ryder and Kody found
that Salman has confirmed the accounting position with Incredible Gifts Pty Ltd (competitor) and
is trying to encourage Melanie to provide her hand-made gifts to Incredible Gifts instead. A
members meeting was called and a resolution was passes to alter the constitution according to
which the directors have now power to buy back shareholdings of less than 12% at their
discretion.
So, the issue that arise is
a. To make Salman understand the process of alteration of the company constitution.
A comoany can govern its self either by the constuitition or by the replaceable rules or by both.
There are various rules and provisins that are made part of the constitution with which all
comoany officers must comply with. However, at times, the shareholders may find a need to
bring varations in the provisons of the constitution. (Legal Vision 2018)
The basic process that must be folowed in order to bring alternation in the constitution is
nentioned under section 136 (2) of the Act. Section 136 (2) submits that a constitution can be
repealed or modifies by the shareholders by passing special resolution on such behlaf. The
resolution must be passed by 75% of the votes. These amendments has the power to bind the
minoirty shareholders even if the minority shareholders are agianst the specail resolution.
(Australia 2011)
Thus,
It is submitted that Kody and Ryder are both permitted to alter the constitution by giving 75% of
the votes in the meeting. Salman holds 10% of the votes and even if votes againt the resolution
still Kody and Ryder together makes 90% of the shareholdings (which is in excess of 75%) and
thus are capable to pass the resolution. The alteration is perfectly valid and Salman has to abide
by the same.
But, what of Salman does not want to abide by the same.
So, the next issue that arise is
b. Whether Salman can prevent the inclusion of the clause allowing the directors to
expropriate her shares?
It is submitted that there are few amendements in the Constitution that does not bind the
shareholders. Such amendmenst are establihed under section 246B of the Act. The amendment
includs:
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