Law of Business: Dividend, Buy-Back, and Capital Reduction

This document presents a comprehensive solution to a business law assignment. The assignment analyzes a case involving a dispute over dividend payments to shareholders, specifically addressing whether a legal claim can be made against the non-payment of dividends. It examines relevant sections of the Corporations Act 2001 (Cth) and legal precedents to determine shareholder rights and potential remedies. Furthermore, the assignment delves into the procedures of share buy-back, including selective buy-back, and evaluates the implications for the company and its shareholders. The analysis includes the conditions and requirements for such transactions, emphasizing the need for majority votes and compliance with ASIC regulations. Finally, the assignment explores the concept of capital reduction, its conditions, and how it differs from share buy-back. It assesses whether A-Class stock can be subject to capital reduction, outlining the necessary steps and the importance of shareholder approval.

Running head: LAW OF BUSINESS
Law of Business
Name of the Student
Name of the University
Author Note

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LAW OF BUSINESS
Answer 1:
Issue
The case stated here discusses whether a legal claim can be made against the non-payment of the
dividend by grandchildren of Galli.
Rule
According to the Section 53 of Corporation’s Act, activities that are carried on to support the
various operations of an organization are called affairs.
It is the motive of Corporations Act 2001 (Cth) to safeguard the interests of all minority stock
holders and prevent them from any oppression projected by the directorial board.
As stated in the section 232 of the act, it can be said that the court can prosecute and make orders
based on Corporation Act’s section 233, in relation to the organizations operations and
objectives. The court can do the same of it sees any omissions or changes that are not clarified,
or if the organization doesn’t consider the interests of the shareholders, is oppressive, unfair and
makes decisions that may not benefit the interests of the company.
It was stated by the court of law that the compensation can be taken even if the directorial board
or the management are not particularly at fault or haven’t breached any of the common laws. It is
up to the objective test to decide the guilt of the party, as in the In the case of Waydev NSW
Rugby League [1985] HCA 68 case.
In the Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042 case, it was seen that sometimes
probity’s extent can lack due to the various ways of how things might be conducted, all these are
connected to how the company conducts its operations and organizes its conduct.

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As stated in Section 233, the court, if deems appropriate, can carry on any orders given out
through the corporation act’s section 232, which may also include the reduction of the share
capital, buying and selling of stock, decisions based on my organizational operations that may
occur, any actions that the organization might take legally, decisions on company’s winding up
and etc. As stated in the corporation act’s section 234, a member of the organization has the right
to apply for an order that is based on the corporation act’s section 233.
Application
It was the company’s policy that extended for several years to pay equal and regular dividends to
share holders of the A class category. But, due to certain circumstances, the company deemed the
grandchildren of Galli, lazy and aborted their payments then and there. As clearly mentioned in
the corporations act’s sections 234 and 233, being legal members of the organization, the
grandchildren, can with all rights issue an order under 233 against the organization.
It is also seen that the grandchildren’s situation can fall under the various clauses of the section
232 which involve discriminatory oppressions. This strengthens the claim of the grandchildren
and hence solidifies their claiming of the order. It was also mentioned in the previous cases that
the directorial board can in no way breach an already solid contract, hence, making it easier for
the judges to use the section 232 against the directorial board.
Conclusion
It is possible for the grandchildren to establish an order and a solid claim against the
organization.

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LAW OF BUSINESS
Answer 2:
Issue
It is required in this part of the project to study the procedure of share buy-back and the
procedure of selective buy-back.
Rule
The process of purchasing shares from stock holders of the company and then, by the orders of
the ASIC, forfeiting them, is called buying back of shares or simply shares buy-back. It can be
said that selective buyback is risky as there is a strong chance of insolvency strike.
Only a certain selected organizational members are given the facility of buying back shares
which can only be reached when a majority vote of 75% is gained in favor of it to progress in a
very special resolution of the organization. The voting procedure is not without its restrictions, it
is necessary that the people who are in for the voting were not involved in the sales of stock. For
the buyback to proceed, it is necessary that with the orders of ASIC, the shares are firstly
canceled.
Though the process of share buyback as mentioned previously can only be allowed in certain
special situations by the law, it is completely up to the stalk holder whether he wants to buy back
the shares or not. As said previously, a majority resolution of the directorial board is a necessary
step.
In case there is a selective buy-back of stock, a notice must be passed that would contain all the
necessary information of the organization.
Application

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As stated above, an organization or a company cannot force its stock holders to sell their shares
that they own; it’s totally their decision to make. In the given case, it would beneficial for the
organization to opt for the process of selective buy back, as their goal here is clear and limited to
only a certain group of share holders that is the A class stock holders and not anyone else. Hence,
by being selective with their choice, they help in organizing the company in the right manner.
Such decisions are taken in order to organize the capital doctrine and come under Corporations
act’s section 257 (B).
Conclusion
It’s concluded that the simplest and the most prominent course of action in this case would be
that the organization opts for Selective Buy-Back.
Answer 3:
Issue
This part discusses whether A-Class stock can be subjugated to total removal from the share
capital, and if the answer is yes, then what might the necessary conditions be.
Rule
It can be said that only of the conditions are supportive enough to indulge the shareholders in a
positive scenario and benefit them in all possible degrees then, capital reduction can be
considered as countermeasure. The judgment is not just made by examining the organizations
ability to pay debts.
The process of cancelation of shares or reduction of capital by the share cancelation in the share
capital, including assets that are no longer viable and can be liquidized is called capital

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reduction. It is very much different from what we had studied in the process of share buy-back as
if reduction is finalized, it can in no way be stopped, it will continue nevertheless.
It is required that forms Form 2205 or 2560 are given away by the ASIC, approving the
reduction of capital, a couple of weeks before equal reduction. Unlike equal reduction, it is
required that a special statement is given out by the ASIC in selective reduction process.
If terms are disagreeable or laws broken, the stock holders have the right to reach out to the court
of law.
Application
It is required in the process of reduction that all the steps are taken as directed by the common
law and sections of the CA. It is necessary that the steps are in favor of benefitting the company
and stock holders. The decision will be granted with a 75% majority vote. As stated above,
unlike Share buy-back, in reduction, once a decision is taken, its ironclad and cannot be reversed
or opposed in any way.
Conclusion
Hence, it’s concluded from the above facts that the reduction process in possible with the
majority support of stock holders.

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References
Corporation Act 2001 (Cth)
Waydev NSW Rugby League [1985] HCA 68
Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042