Torrens University LAW2001 Corporate Law Assignment Solution

This document presents a solution to a Corporate Law assignment, addressing key legal concepts. The assignment tackles three main questions. Question 1 analyzes the case of *Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame*, focusing on shareholder power in selling company assets. Question 2 examines a scenario involving a restraint of trade clause, applying the principle of piercing the corporate veil, referencing the *Gilford Motor Co Ltd v Horne* case. The final question, Question 3, considers the validity of a proposed constitutional amendment in the context of fraud on minority shareholders, referencing the *Corporations Act 2001* and relevant case law. The solution provides detailed analysis, legal rules, application of the rules to the facts and conclusions for each question, demonstrating a strong understanding of corporate law principles.

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Question 1
The Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 case is
significant as it addressed the issue is shareholders through resolution can sell the company
assets even if the directors do not agree with the same. In this case, a dominant shareholder
Mr. McDiarmid wanted to sell the assets of the company to another entity. In order to
proceed with the same, he called a meeting where shareholders’ resolution in favour of sale
was passed despite directors opposing the same (Cassidy, 2016). When the matter landed in
court, it was eventually decided that the powers vested to the directors under s. 198A have to
be independently used by the directors without any direct interference from shareholders.
These are statutory powers which can be altered only though amendment in the company
constitution through a special resolution (Ciro & Symes, 2015).
Question 2
Issue
The key concern is to outline if Carl’s conduct has caused any breach of the restraint of trade
clause.
Rule
In accordance with s. 124(1), Corporations Act 2001, a company has a separate legal entity
which implies that it can enter into contractual relationship. The key implication of this
separate legal entity is that the business liabilities would not be considered as personal
liabilities for owners assuming no personal guarantee has been given. A leading case
indicating this is Salomon v A Salomon and Co Ltd [1897] AC 22. However, this limited
liability provided under the company legal structure has potential to be misused. Therefore, in
certain circumstances the court may demand piercing the veil for the company to identify the
real ownership (Pathinayake, 2014).
A useful case indicating the above is Gilford Motor Co Ltd v Horne [1933] Ch 935. As per
this case, a non-compete clause was present between Mr.Horne and Gilford Motor Co Ltd.
This was applicable for two years from the data Mr.Horne left employment. However, a new
company was incorporated by Mr.Horne before the ending of the two years named JM Horne
& Co Ltd. Mr. Horne was neither the director not the shareholder of the company. Instead the

CORPORATE LAW
sole shareholders and directors were his wife and friend. This company competed directly
with Gilford Motors. As a result, Gilford Motors accused Mr.Horne of violating the non-
compete clause. The court pierced the veil and determined that the company and Mr. Horne
were essential the same entity and hence held Mr. Horne in violation of the non-compete
clause (Harris, 2014).
Application
\
As per the scenario provided, restraint of trade clause has been enacted between Carl and
Ozzie Loans which prevents Carl from opening any competing business for a period of two
years. But, Carl during this period opens a competing business i.e. Betta Loans where his
wife is the only director and shareholder. His wife is not involved in the business and Carl
conducts the business. Carl has approached Ozzie Loans clients and hence is causing
damaged to the ex-employer. Considering the similarity of this scenario with
Gilford Motor Co Ltd v Horne, it is evident that the court would pierce the veil. It would find
that company and Carl are not different and hence an injunction order would be issues to
prevent him from conducting business.
Conclusion
On the basis of the above discussion, it is apparent that Ozzie Loans would be successful in
their action against Carl and his company.
Question 3
Issue
The validity of the proposed constitutional amendment needs to be determined in the wake of
fraud on minority and possible suppression.
Relevant Rule
It is possible to amend the company constitution through a special resolution. In such
resolutions, minority shareholders lack voting rights to influence or change the outcome.
This puts them in position of vulnerability as the changes made in company constitution may

CORPORATE LAW
be adverse to their interests. In order to avoid fraud on minority, Corporations Act 2001 has
provided remedies under s.232–s.235 (Cassidy, 2016). As a result, any change which is
oppressive, unfairly discriminatory or prejudicial would be nullified by a court order. Also, in
case the change in company constitution would require mandatory selling of shares by
minority member(s), it is essential that the same would have a proper purpose and must take
place at a fair valuation. In the absence of either of the above, such changes would be
considered void (Harris, 2014).
Application
In the scenario presented, the minority shareholder of Biorobo Ltd is Rosslyn. Her husband is
a director in a firm which directly competes with Rosslyn. The members have come to known
about the leaking of confidential information regarding Biorobo to her husband and also
approaching Biorobo clients for doing business with husband’s firm. As a result, an
amendment has been proposed to the company constitution whereby all members whose
spouse are directors in competing firms would be forced to sell their shares. Under the
circumstance, the amendment seems fair and for safeguarding the interest of the firm and
members as a whole. Also, fair valuation is being offered as an independent expert would be
appointed. Also, the change cannot be termed as unfairly oppressive or discriminatory.
Conclusion
The proposed amendment to the company constitution would be considered as valid since
Rosslyn is not subject to fraud on minority.

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References
Cassidy, J. (2016). Corporations Law Text and Essential Cases (4thed.). Sydney: Federation
Press.
Ciro, T. & Symes, C. (2015).Corporations Law in Principle (9thed.). Sydney: LBC Thomson
Reuters.
Harris, J. (2014). Corporations Law (2nded.). Sydney: LexisNexis Study Guide.
Pathinayake, A. (2014). Commercial and Corporations Law (2nded.). Sydney :Thomson-
Reuters.