Legal Analysis: Share Capital Reduction, Director's Duties & Meetings

This case study examines several issues in company law. First, it analyzes whether Wealthy Ltd. can reduce its share capital and the procedures involved under Section 256A of the Corporations Act 2001, emphasizing fairness to shareholders and creditor protection. Second, it assesses whether Morris, a minority shareholder in H Ltd., can take action against the directors for breaching their duties under Sections 182 and 183 by diverting customers to their own business. Morris can apply for a court order under section 234. Finally, it addresses whether the members of a company can call a general meeting against the directors' wishes, referencing Section 249D of the Corporations Act 2001, which mandates directors to arrange a meeting upon request from members holding at least 5% of the votes, provided the request meets specific requirements.

Running Head: COMPANY LAW
COMPANY LAW
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Author Note

1COMPANY LAW
Answer One
Issue:
The issue that has been identified in the given scenario is whether Wealthy Ltd. can reduce its
share capital and the procedure involved in reduction of share capital.
Rule:
Section 256 A of the Corporations Act 2001 provides the rules that are necessary to be followed
by a company for the purpose of reducing its share capital.
A company can reduce its share capital in accordance with section 256 B of the Corporations
however such reduction:
 Has to be fair and reasonable to the shareholders of the company
 Must not prejudice the ability of the company to pay off the creditors of the company
 Reduction of share capital is approved under section 256C of the Act
For the purpose of reducing share capital a company requires the approval of the shareholders by
way of either ordinary resolution or by special resolution.
A company is required to notify the ASIC about the reduction of share capital before the meeting
of the shareholders is called. A company is obligated to notify the ASIC about the changes in the
structure of the company after the share capital has been reduced. In case of selective reduction a
company is required to provide a copy of the resolution to the ASIC.
Application

2COMPANY LAW
Thus in this case Wealthy Pty Ltd can successfully reduce the share capital by complying with
the provision as provided in section 256 of the CA. The company has to gain the approval of the
shareholders and must notify the ASIC about the change in the structure of the company post the
reduction
Conclusion
The company Wealthy Ltd can reduce its capital successfully
Answer 2
Issue
The issue that has been identified in the given scenario is whether Morris can take any action
against the directors of H Ltd.
Rule
It has been provided through the section 182 (1) of the Corporations Act 2001 that any director
or officer of a company must not use their position in the company improperly so as to gain a
benefit or advantage for themselves or to detrimentally affect the corporation.
According to section 183 of the aforementioned act it can be stated that any person who obtains
any information by virtue of being an officer, director employee of a company must not misuse
such information to gain personal advantage or to harm the corporation.
If it is assessed by the court that a party contravened the aforementioned sections, a declaration is
made by the court according to the penal provisions mentioned in section 1317 E of the

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Corporations Act 2001. After the declaration has been made ASIC can seek pecuniary penalty
order or apply for a disqualification order.
Section 234 states that any person who is a member of the company can apply for an order of
derivative action under section 233 of the CA.
Application
As provided in the given case study the directors of H Ltd breached the provisions of sections
182 and 183 of the CA by diverting customers to their business. Thus Morris who is the member
of the company has the right to apply for a court order under section 234.
Conclusion
Thus to conclude it can be said that Morris can apply for a court order for breach of duties of the
director.
Answer there
Issue
The issue that has been identified in the given scenario is whether the members of the company
can call a general meeting despite the wish of the directors for not calling the meeting.
Rule
It has been provided in the Corporations Act 2001 under section 249 D(1) that the directors of a
company are obligated to call and arrange a general meeting at the request of the members with
as minimum of 5% of the votes that can be cast at such meeting.

4COMPANY LAW
However, as provided in section 249D(2) the request to call a general meeting by the
shareholders to be provided to the directors of the company must:
 Contain the resolution to be proposed during the meeting
 Such application must be writing
 Duly signed by the members of the company who propose to hold the meeting
 Be addressed to the company.
In accordance with section 249(5) of the aforementioned act, it can be stated that directors must
call the meeting within a time period of 21 days upon receiving the request to call the general
meeting by the members of the company.
Application
Thus in relation to the facts provided in the given case study, it can be stated that the directors
are obligated to call the general meeting upon the request of the members in accordance with
section 249 D of the CA. However such request must comply with the provisions of section
249D (2). The meeting must be held within 21 days after the request is given to the directors.
Conclusion
Thus to conclude, it can be stated that the directors are obligated to hold a meeting upon the
request of the members.

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Reference List:
Corporations Act 2001 (Cth)
"Corporations Act 2001". 2018. Legislation.Gov.Au.
https://www.legislation.gov.au/Details/C2017C00328.