Corporate Law & Replaceable Rules: Fuzzy Jazz Catzz Pty Ltd

This case study examines the legal issues arising from the actions of Ella, the director of Fuzzy Jazz Catzz Pty Ltd (FJC), a jazz club established by Tony, Ella, Barry, Dionne, and Celine. The company is governed by the replaceable rules of the Corporations Act 2001 (Cth). Ella's decision to issue new shares to raise capital for opening restaurants, without offering shares to Tony who disapproved of her management style, is analyzed for potential breaches of section 140 (regarding replaceable rules) and sections 232, 233, and 234 (related to oppressive conduct) of the Corporations Act. The analysis concludes that Tony likely has grounds to pursue legal action based on these breaches, as Ella's actions are detrimental to shareholder interests and violate the binding nature of replaceable rules. Desklib provides access to similar solved assignments and past papers for students.

Running head: CORPORATION AND BUSINESS LAW
Corporation and Business Law
Name of the Student
Name of the University
Author Note

1CORPORATION AND BUSINESS LAW
Issue
Whether Tony has any rights under section 140 for the breach of the constitution or under
section 232, 233 and 234 of the Corporations Act 2001 (Cth).
Rule
Section 140(1) of the Corporation Act 2001 (Cth) provides for the effect of the replaceable
rules and the constitution of a company. The replaceable rules and the constitution in relation
to a company can be construed to have the effect of a contract. The effect of these as a
contract is binding upon each of the member of the company and the company itself. It also
can be treated as binding between the each of the directors of the company, its company
secretary and the company itself. It also binds the all the members to this contract towards
each of them. Under this binding contract, the each of the person mentioned in this section
upon whom the contract is binding are required to abide by and ensure performance of the
constitution and the replaceable rules so far as is applicable to them.
Section 140(2) of the Corporation Act 2001 (Cth) after a person has become a member of
the company, will not be bound by any additional rules that has been brought as a
modification to the constitution afterwards if he has not consented in writing to the same.
These rules includes the taking up of further shares by the member. It also includes any
additional liability of the member to make any contribution towards the share capital of the
company or any payment of money made to company. The member of the company under
this section will also not be bound by any increased restrictions or any imposition that has
been made afterwards and did not availed his consent with respect to the right to make
transfer of shares that has already been held by him.
Section 232 of the Corporations Act 2001 (Cth) provides for the grounds under which the
court may deliver an order following the provisions contained in section 233. This firstly

2CORPORATION AND BUSINESS LAW
includes the conduct relating to the affairs of the company. Secondly, it includes the an
omission or act that has been made on behalf of or by the company, which can be either
actual or proposed. It can also be made against a resolution or a projected resolution that has
been effected by the member or members of the company. This mentioned order can also be
made against any act by the company, which has the effect of being detrimental with respect
to the interest that the member might have as a whole. This empowers a court to deliver an
order against any act that has been prejudicial in an unfair way, oppressive and
discriminatory upon a member or a class of members. Section 234 of this Act empowers any
member or members of the company to bring an action under section 233. Any person who
has ceased to be a member or any person whom ASIC deems fit may also bring an action
under this section. Section 233 of the Act empowers the court to deliver an order to wind up
the company or any rules be repealed. The same can be illustrated with the case of Campbell
v Backoffice Investments Pty Ltd [2009] HCA 25.
Application
In the present situation, the Tony, Ella, Barry, Dionne and Celine decided to set up a jazz
club. They created a company named Fuzzy Jazz Catzz Pty Ltd (FJC), which is regulated by
the replaceable rules contained in the Corporations Act. This means that the conduct of the
company will be regulated by the replaceable rules as contained in the Act.
Ella graduated with a B. Com and is an excellent business woman. For this reason, she
has been made the sole director of the club. All the members own twenty percent of the
ordinary share capital of the company. The club has been making a considerable amount of
profit and Ella wanted to open restaurants where jazz is played. For this reason, she opined
that the company would require $1.5million and the same would be raised through an issue of
shares as the company already has a lot of debt. Barry hates the idea of FJC opening

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restaurants because he thinks it will ruin the reputation of FJC. Owing to this, he refused to
buy any new shares. Dionne and Celine agreed with Barry, but in any case, can’t afford to
buy any extra shares in the company. Ella did not want Tony to increase his shareholding in
FJC as, unlike Celine, Dionne and Barry, Tony has always disapproved of Ella’s way of
running the company. Ella therefore decides that she will take up some of the new shares
herself and the rest is offered to people who she has met in an online music chat room. Tony
is not offered any shares. All of the $1.5million is raised.
This can be construed to be a breach on the part of Ella as she has failed to abide
replaceable rules with respect to the Act. As the company has been expressly governed by the
replaceable rule, the rules are binding upon the members and the director as a contract. Any
further rule or modification that has been formulated by the director of the company will not
binding upon the members. Again, the These rules includes the taking up of further shares by
the member. It also includes any additional liability of the member to make any contribution
towards the share capital of the company or any payment of money made to company. Ella is
also said to be in breach of section 232 of the Act as her acts are detrimental to the interests
of the shareholders company. She can also be treated to be in section 234. This gives Tony a
right to bring an action under section 233.
Conclusion
Tony has a rights under section 140 for the breach of the replaceable rules and under
section 232, 233 and 234 of the Corporations Act 2001 (Cth).