BLAW20001 Corporate Law Study Notes

*Page reference to Commercial Applications to Company Law 14th Edition Page 1 of 26

DirectorsAppointment or removal of directors (check pg217)

Pty Ltd Directors can be appointed by members under s201G [RR] or by directors under

s201H(1)[RR]. Directors may be removed by members under s203C [RR].

Public Directors of unlisted public may be appointed by members under s201G [RR]

while members of listed public always have the right to elect directors [ASXListing Rules]. Directors may also be appointed by BOD under s201H [RR].

Directors can be removed by ordinary resolution under s203D despite anything inthe constitution or contract between director and coy

Directors cannot be removed by a resolution of the other directors: s203E.Appointment, role and removal of MD Directors may appoint one or more of themselves as MD (s201J) [RR]. BOD can

confer upon the MD any of the powers that the board itself can exercise (s198C) [RR].Directors may revoke or vary the appointment of a MD under s203F [RR].

Type of director De facto director

Deputy Commissioner of Taxation v Austin: Has resigned as director but continuedto play an active role in the coysenior responsibilities expected from him

Mistmorn Pty Ltd (in liq) v Yasseen & Chameleon Mining NL v Murchison MetalsLtd: A person who undertook tasks typically expected of a director

Shadow director Although a company cannot itself be appointed a director of another company

under s201B(1), it is possible for a company to be a shadow director of anothercompany: Standard Chartered Bank of Australia Ltd v Antico.

Disqualification of director (check pg221)

Directors’ Meeting s248C [RR]: any of the directors can call a board meeting s248F [RR]: quorum for the meeting is two directors s248D: Meeting can be held using any technology s248A [RR]: “paper meetings”


Directors’ Duties [ASIC v Adlers180-182, 184, Ch2E]s180: Duty of Care (check pg250 for other cases of breach of duty of care) Daniels v AWA Ltd sets out the minimum standard of care, skill and diligenceexpected of all directors. (Hence, especially useful for non-exco directors) check pg242

s180(1) (ASIC v Rich: define “rationally/ reasonably belief”. pg255-6) Delegation of powers by BOD

s198D: directors may delegate any of their powers to a committee of directors, employees ofthe coy and any other person unless the coy’s constitution prevents the delegation.

s198C: delegation to CEO or MD Each director is responsible for the exercise of the power by the delegate as if the power had

been exercised by the directors themselves (s190(1)) unless s190(2) applies. s189: Reliance on info or advice

ASIC v Healey: A director is not relieved of the duty to pay attention to the company’saffairs which might reasonably be expected to attract inquiry, even outside the area of thedirector’s expertise.

s181: Duty to (i) act in good faith in the best interest of the coyMembers Directors must act in the best interest of the coy as a whole: Greenhalgh v Arderne

Cinemas Ltd Where a coy has classes of members with diff interests, the directors must act fairly when

making decisions that affect the interests of those members: Mills v Mills. It may be fairfor directors to not pay dividends when profit ↓ even though the decision does not affectall members equally.

Creditors When the coy is insolvent or nearly insolvent, the interests of the coy become those of its

creditors rather than its s/h: Kinsela ; Walker v Wimborne Note: Even though the interests of the coy are those of its creditors now, directors do not

owe a duty directly to creditors which is enforceable by creditors: Spies v The Queen. Theduty is owed to the coy.

Other stakeholders They cannot receive priority over interests of members: Parke v Daily News

(ii) Proper purpose (check pg281-2) Two-step analysis: Howard Smith Ltd v Ampol Petroleum Ltd

Legal purpose VS Actual purpose Example of improper use of power to issue shares

diluting the shareholding of a member: Kokotovich Constructions Pty Ltd v Wallingtonentrenching control of the company in certain shareholders by issuing them more


shares: Whitehouse v Carlton Hotel Pty Ltd; ASIC v Australian Investors Forum PtyLtd

attempting to reduce a member or members who hold a majority of the voting power toa minority position: Howard Smith Ltd v Ampol Petroleum Ltd

directors maintaining control of the company: Hogg v Cramphorn Ltd; WesternVentures Pty Ltd v Resource Equities Ltd

Other examples (other than share issue)Advance Bank of Australia Ltd v FAI Insurances Australia Ltd: directors used coy’sfunds to conduct a campaign to re-elect several of the directors

Permanent Building Society (in liq) v Wheeler: Directors used their power to have thecoy enter into contracts for the purchase of sale of property.

Where directors have mixed purposes:Without the improper purpose, director wouldn’t have exercised the power i.e. thesubstantial purpose was improper: Kokotovich Constructions Pty Ltd v Wallington;Whitehouse v Carlton Hotel Pty Ltd

s588G: Duty to prevent insolvent tradingDefence: s588H Consequences for breach of statutory duty (s180-183 & Ch 2E)

Civil penalty provisions Disqualification for a specified period of time Pay penalty of up to $200000 Pay compensation to the coy for any loss/ damage caused

Criminal penalty (Note: not applicable for s180) Pay fine of up to $220000 Imprisonment for up to five years

Consequences for breach of general law dutyPayment of compensation or damages to coy by person who has breached the duty.

Duty to avoid conflicts of interestGeneral Law

Director or senior exco officer must not place themselves in a position wherethere is an actual or substantial possibility of conflict between a personalinterest and their duty to act in the interests of the coy unless the permission ofthe coy is obtained: Hospital Products Ltd v United States Surgical Corp;Phipps v Boardman

Where the general law conflict rule applies, the director must disclose theirinterest to the coy or there will be breach of duty to avoid conflict of interest.

Transactions with the coy Director’s interest in the transaction may be direct; or indirect [Aberdeen

Railway Co v Blaikie Bros] It is not necessary that a conflict between interest and duty cause either aloss to the coy or a profit to the director in order for there to be a breach of


duty: Gemstone Corp of Australia Ltd v Grasso Taking corporate property, info and opportunitiesDirectors must not do so without the permission of the coy Eg of directors breaching their duty: Furs Ltd v Tomkins; Cook v Deeks Eg of director not breaching his duty: Peso Silver Mines Ltd v Cropper

What if the coy cannot take the opportunity? Breach of duty if taking the opportunity: Regal (Hastings) Ltd v Gulliver

Can a director resign to take up a corporate opportunity? NO if the resignation was influenced by a desire to acquire the opportunity[CMS Dolphins Ltd v Simonet] or it was the director’s position with the oldcompany that lead him to the opportunity which the director later acquired[Canadian Aero Service Ltd v O’Malley]

Conflicting duties e.g. a person is director of two companies: State of SouthAustralia v Marcus Clark

Directors (of two coy) cannot divulge confidential info of one coy to anothercompeting coy

Nominee directors must act in the interests of the coy of which they are adirector: Bennetts v Board of Fire Commissioners of NSW

Company’s Constitution (check pg299-300)

It may include provisions allowing conflict with full disclosure to, and consentof, the board.

For Pty Ltd, see RR s194. A nominee director’s duty to avoid conflict can be modified by a provision inthe coy’s constitution so that there will be no breach of duty when they act inthe best interest of their represented group: Levin v Clark

Statutory Regulation s191: Duty to disclose material personal interest unless s191(2)appliesoffence: Fine and/or Imprisonment

Voting s194[RR]: Once directors of Pty Ltd have disclosed material personalinterest under s191 (or if no disclosure of interest is needed), directors mayvote on the “interested” matter, retain benefits under the transaction and thecoy cannot avoid the transaction merely because of the existence of theinterest.

s195: Directors of public coy who has material personal interest MUSTNOT be present and vote on the matter unless his participation is approvedby other directors (s195(2)) or ASIC (s195(3))Offence: Fine

Not enough directors to form quorum because of s195? s195(4): Call general meeting of membersgeneral meeting may pass aresolution to deal with the matter


s196: ASIC may make an order that director to whom s195 applies may bepresent and vote if the matter needs to be dealt with urgently.

s182: Improper use of position: Grove v Flavel (check pg307 for other cases) s183: Improper use of info: ASIC v Vizard (Use of confidential info for share trading) Ch 2E: Related party transactionsIssuing Share Capital

Who can issue share? s124(1): Company [supported by s254A for issue of pref shares] s198A(2):[RR]: Directors

Is there a difference for Pty Ltd and public coy when issuing share capital? If it’s issued to directors or related party, then it’s a related partytransactiononly applies to public coy

Only public coy can seek funds from the public through a product disclosurestatement, called prospectus and offer statement

Directors’ duties s181: Good faith, best interest of the company, proper purpose s182: Use of position to gain advantage or cause detriment Compliance with constitution which sets out procedure for issuing of shares

(s246B(1))?s140: constitution has the effect of contract between parties s254D [RR]: For Pty Ltd, before issuing shares of a particular class, directorsmust offer them to existing holders of shares of that class [Pre-emption].

When shareholders have a say in issuing shares? Variation of class rights under general law (variation of strict legal rights) orunder s246C (deemed variation)procedures under s246B(1) or (2) need to befollowed.

Modification of constitutions136(2) When there is issue of pref shares (since pref shares is not covered by RR),coy must either insert sth into the constitution regarding the pref shares, orthey must pass the resolution to issue the pref shares

Related party transactions (members’ approval needed under s208(1) s229(3)(e): Financial benefitsissuing securities to related party s228: Who are the related parties? s210-216: exceptions?

Remedies available for unhappy shareholders? s246D: Members with at least 10% of the votes in the class affected may applyto the Court to have the variation, cancellation or modification set aside.

s232: Oppression


What if there is a variation of class rights meeting but you didn’t receive the noticeand you would have attend the meeting and vote against it?

s1322: procedural irregularities- if member or members didn’t receive notice tovotes

s232: Oppression



Reducing Share Capital

Share buy-back

s257D

s257C

Note:Cancel shares: s257HNotify ASIC: s254Y

Consequences of breach If a company buys back thisshares in a way not allowed byDiv 2 of Pt 2J.1, the buy-backwill be a prohibited self-acquisition and any personinvolved in the contraventioncontravenes s259F(2)civilpenalty provision

Other consequences: s257J


Reduction of Capital

Consequences of contravention If member/ creditor believes that a proposed reduction does not meet the

requirements of s256B, the person may approach the court for injunction unders1324 to prevent the transaction from proceeding.

If breach s256B, validity of reduction is not affected+company is not guilty(s256D). Person involved in contravention breached s256B(2)civil penalty

Other consequences: s256E Case: Gambotto v WCP Ltd if involve modification of constitution Actions that members can take

Pt 2F.1: Oppression- [Note: even if the share reduction procedures are followed,members can still seek oppression]

s461: Winding up the company s1324: Injunction

(s256B)


Financial Assistance

Consequences of breach of s260As260D

Validity of financial assistance+any contract/ transaction connected with it is notaffected

Company not guilty of an offence Person involved in the contravention is guiltycivil penalty provision


Related Party Transactions [ASIC v Adler]

s224: related partycannot vote on theresolutions219: Requirement onexplanatory statementto members

(s210-216)

NOTE:(1) Public coy?(2) s208(1)s229s228s210-216

s50AA

Consequencesfor breach ofs208 are setout in s209


Company in Financial Difficulties When is a coy insolvent?Company is insolvent if it is unable to pay its debts as and when they become due andpayable: s95A

Presumptions of Insolvency s588E(3): Where a coy is being wound up and it si proved that the coy was

insolvent at a particular time during the 12 months ending on date of theapplication for winding up, there is a presumption that the coy continued to beinsolvent through that period.

s588E(4): when a coy has failed to keep or retain financial records for a specifiedperiods as required by s286, then the coy is presumed to have been insolvent forthe entire period that it was in contravention of s286.

When the coy is insolvent or nearly insolvent, the interests of the coy become those ofits creditors rather than its s/h: Kinsela ; Walker v Wimbornes180: Duty of caretowards creditors?

Types of debt1) Deemed debts (s588G(1A)) (check pg261)materially prejudicial to creditors?

Payment of dividends must meet requirements under s254T

A>L before dividends is declared fair and reasonable to the company as a whole does not materially prejudice the company’s ability to pay its creditors

Share capital reduction, share buy-back, financial assistance Etc

2) Other types of debt The debt must be for a specific amount The debt can be a contingent one: Hawkins v Bank of China The debt must be voluntarily incurred by the coy

What if directors transfer asset into their own company when coy is insolvent?


Breach of directors’ duties: s181, s182

s588G: Insolvent Trading Defence: s588H Consequences of contravention of s588G

Payment of compensation brought by liquidator: s588M brought by individual creditor with liquidator’s written consent (s588R) orcourt’s permission (s588T). Note: creditor cannot sue if liquidator has alreadysued the director (s588U)

Civil penalty provision [s588G(2)] Disqualification under s206C pecuniary penalty under s1317G compensation to company for any loss/ damage incurred under s588J

Criminal provision [s588G(3)]- if dishonest compensation to company under s588K Fine Imprisonment

Relief from Liability for breach of director’s duties

Relief be given by court for: breach of statutory duty (s1317S) and general law duty (s1318)Note: It is impossible for the court to grant relief from any criminal liability.

Requirements: The officer has acted honestly Considering all circumstances, it’s fair for the officer to be excused from liability

Relief be given by company (i.e. Ratification) (check pg331) Members can ratify some breaches of officers’ general law duties through ordinaryresolution. Members must have all necessary info in order to vote to ratify a breach Notice of meeting must set out clearly the breach and etc Vote must occur within reasonable time following the actions of the director

Limit on power of members to ratify a breach:Miller v Miller

Insurance and indemnification of breach of duty (pg332)


Voting Rights of Members

Note: Members can’t override decisions of the board [Automatic Self-Cleansing FilterSyndicate Co Ltd v Cunninghame]

Adopt, modify or repeal constitution: s136 – special resolution

Variation of class rights General law variation of class right (i.e. strict legal rights of shares are differentbefore and after the change): Greenhalgh v Arderne Cinemas Ltd andWhite vBristol Aeroplane Co

Deemed variation of class rights: s246C if there is variation of class rightsfollow procedures set out under s246B (check

pg147 for resolutions required) Unhappy s/h? s246D or s232

Share buy-back Buy-backs under an employee share scheme, an on-market offer or an equal

access scheme that involve the buy-back of more than 10% of the companycapital in a 12-month periodordinary resolution: s257B

Selective buy-backspecial resolution (person whose shares are being boughtback cannot vote in favour): s257B

Buy-back from related parties: Chapter 2E

Share capital reduction Equal reductionordinary resolution: s256C(1) Selective reductionspecial resolution (no votes being cast in favour by person

who is to receive consideration): s256C(2) Reduction of capital that benefited related parties: Chapter 2E

Financial Assistance Must be approved by s/h is the financial assistance materially prejudices the

interests of the company or s/h or the company’s ability to pay its creditors:s260A


Financial assistance provided to related parties: Chapter 2E

Appointment or removal of directors (check pg217) Pty Ltd

Directors can be appointed by members under s201G [RR] Directors may be removed by members under s203C [RR].

Public Directors of unlisted public may be appointed by members under s201G [RR]

while members of listed public always have the right to elect directors [ASXListing Rules].

Directors can be removed by ordinary resolution under s203D despiteanything in the constitution or contract between director and coy

Approve directors’ remuneration and benefits s202A [RR]: directors’ remuneration must be approved by ordinary resolution Members’ approval is needed for certain benefits conferred on related parties

under s208 unless s211 applies.

Related party transactions Unless the financial benefit is exempted under s210-216, the giving of the

financial benefit must be approved by members of the public company under s208. Note: s224: Related party must not vote in the resolution

To initiate voluntary winding up: Pt 5.4B (check pg158)

To make decisions that usually belong to the board when the board is unable to act

the BOD was hopelessly deadlocked and s/h had ordinary powers of appointingnew directors: Barron v Potter

directors have material personal interestlack of quorumgeneral meetingunder s195(4)

to ratify directors’ acts:Miller v Miller


Personal Action of MembersA member may be given a personal right because of:(1) Express Contract

The contract might state that a certain individual member has additional votes.

(2) Statutory Contract s140: A coy’s constitution and any replaceable rules that apply to the coy formstatutory contract.

Includes members’ class rights Hence, if during a resolution, the coy calculated your votes wrongly, e.g. you have 5votes per share but they calculated as 1 vote per sharebreach of contract

Where a member brings a legal action to enforce the statutory contract, it must beestablished that the breach of contract affects the member in their capacity as amember: Eley v Positive Government Security Life Assurance Co Ltd

(3) Statute Law (check pg356 for more rights)

Rights to call meeting Request the director to convene meeting: s249D

Directors can refuse to act on request where the sole purpose of the meetingis an improper one (e.g. Members have no voting right on that issue): NRMALtd v Parker

Act directly to convene the meeting: s249F Note: The meeting must be for a proper purpose (s249Q), regardless of the

motivation of the requisitioners [NRMA v Scandrett]. If it is not proper purpose,a person who does not want the meeting to go ahead can apply for injunction(s1324) preventing it.

Right to put item on agenda: s249N


Members holding at least 5% of the votes that may be cast on the resolution, ornumbering at least 100, may propose resolutions to be considered at a meetingunder procedure set out in Div 4 of Pt 2G.2.

Procedural irregularities: s1322 Note: The substantial injustice must flow from the irregularity itself, not the

outcome of the irregularity: Polikwa v Heven Holdings Pty Ltd &MTQHoldings Pty Ltd RCR Tomlinson Ltds1322(2) applies

(4) General Law Right to notices of meetings (which provide adequate info about the matters to bediscussed): Kaye v Croydon Tramways Co

Right to vote at meetings unless the constitution of the coy takes away that right:Pender v Lushington

Right to have voting rights protected against improper action of directors E.g. share issue which is undertaken for an improper purpose and which dilutesthe member’s shareholding in the coy: Residues Treatment & Trading Co Ltd vSouthern Resources Ltd

If the coy attempts to take away these personal rights without the consent of the member,the member is able to bring legal action to enforce the contract. s232: Oppressive conduct? s1322: Procedural irregularities? s1324: Injunction? (NOTE: there must be breach of the Act to use this sec)

Can members ever enforce directors’ duties in their own name? It depends on whether the action is against the coy or is the action targeted at member:

Brunninghausen v Glavanics. General rule: The duties are owed to the coy. Directors who breached their duty in a way that is oppressive to a member will befaced with oppression action. Hence, while s/h cannot enforce the director’s duties,the breach of duty formed a basis for the oppression action.

Example: a director has cancelled the shares of someone in the coy that he didn’t like.While the director breached s181 (improper purpose) and s182 (misuse of position),the breach of duty is not actionable by member as a breach of director’s duty, but it is


the basis for oppression action. It could be a basis for statutory injunction (because ofbreach of s181 and s182).

Member’s Derivative Action (check pg 357)

Members can bring statutory derivative action (Pt 2F.1A) to commence and prosecutelegal proceedings, where the alleged wrongdoers control the company Note: When BOD refuse to bring the action, the members in general meeting cannotsubstitute their decision for that of the board: Kraus v JG Lloyd Pty Ltd

Who may apply? s236 A member, former member, or person entitled to be registered as a member of thecoy or of a related coy

An officer or former officer of the coy

Criteria used by court in order to grant the application Probable that the coy will not take legal action Applicant in acting in good faith It is in the best interests of the coy for applicant to be granted leave Serious question to be tried (i.e. not frivolous claims)

Statutory Remedies available to members

Oppression Remedy: Pt 2F.1 Wayde v New South Wales Rudby League Ltd: Was the decision made by the directorsa decision that no BOD acting reasonably would have made? If sobreach of s232

Example of oppressive conduct Diversion of biz opportunity: Scottish Co-operative Wholesale Society Ltd v

Meyer Improper exclusion from management


If the minority member has a reasonable expectation of continued participationin the management, then the removal of the minority member will beoppressive: Hogg v Dymock

Unfairly restricting dividends Note: Just because a minority member wants higher dividends doesn’tconstitute oppression if it is the decision of the director to adopt a conservativefinancial policy (i.e. not pay high dividends): Thomas v HW Thomas Ltd

It will only be an oppressive conduct if directors or majority membersdeliberately pay low/ no dividends while paying high remuneration forthemselves (own interest)

Oppressive conduct of board meetings: John J Starr (Real Estate) Pty Ltd vRobert R Andrew (A’asia) Pty Ltd

Issue share to reduce a member’s ownership interest in the company:Kokotovich Constructions Pty Ltd v Wallington

Failure of director to act in the interest of the company: Re Spargos Mining NL& Jenkins v Enterprise Gold Mines NL

Remedies where there is oppression: s233 NOTE: Only a member who is or was a member as defined in s231 has a remedyunder Pt 2F.1 for oppressive conduct. UNLESS you are removed from the registerbecause of an oppressive conduct (s234).

Winding up the company: s461(1) It is just and equitable to do so: s461(1)(k)

Deadlock Fraud (i.e. the reason the coy was established was to commit a fraud on investors):

Re Neath Harbour Smelting & Rolling Works; orMisconduct in its operations: Loch v John Blackwood Ltd

Failure of substratum (i.e. a coy undertakes biz which is entirely different from whatit was supposed to do when it was first registered): Re Tivoli Freeholds Ltd

Breakdown in mutual trust: Ebrahimi v Westbourne Galleries Ltd; Khamo v XLCleaning Services Pty Ltd; Nassar v Innovative Precasters Group Pty Ltd

When it is in public interest for a coy to be wound up and the application to thecourt us brought by a public authority (check pg351)

(2)Directors are acting in their own interestsunfair or unjust to members: s461(1)(e) Eg: directors prefer the interests of another coy which they control: Re National

Discounts Ltd


(3)There is oppressive, unfairly prejudicial or unfairly discriminatory conduct: s461(1)(f)and (g) (check oppressive conduct above)

Injunction: s1324 Can be applied for by ASIC or anyone whose interests have been, or would be affectedby the conduct which contravenes the Corps Act.

s1324(10): The Court may, either in addition to or in substitution for the grant ofinjunction, order that person to pay damages to any other person.

s1324(1A): Contravention of Corps Act is automatically taken to affect the interests ofa creditor or member of the coy if:

the insolvency of the coy is an element of the contravention the coy contravenes certain of the share capital requirements relating to theshare buy-back, financial assistance or share capital reduction provisionscontained in the Corps Act.


Transacting by Companies

The authority for a coy toenter the contract willnormally come from aformal resolution of its BOD:(1) Resolution that the coywill enter a particulartransactionSubstantiveauthority(2) Resolution authorizingthe execution of therelevant docsFormalauthority

The seal is fixed to thedoc and witnessed by(s127(2)) or The doc issigned by (s127(1)): Two directors, or A director and a coysecretary


Actual Authority

NOTE: Express restrictions limit implied actual authority.Express actual authority Arises from provision in the Corps Act or the coy’s constitution

E.g. s198A gives BOD the power to exercise all the coy’s powers except thosereserved for general meeting to exercise.

Through delegation by the board (or another coy agent having actual authority)E.g. s198D allows BOD to delegate any of its power to a committee of directors, adirector, an employee or any other person.

Implied actual authority Appointing someone to a certain position

CEO or MD While this will normally involve express actual authority, even where there isno express list of delegated powers, once someone is being appointed to thisposition, he is granted the implied actual authority to “do all such things as fallwithin the usual scope of that office”: Hely-Hutchinson v Brayhead Ltd

A CEO’s usual functions: Are to be in charge of the coy’s business: Entwells Pty Ltd v National and

General Insurance Co Ltd Do not include entering a transaction that canot be characterized as anordinary trading transaction [Corpers (No 664)Pty Ltd v NZI SecuritiesAustralia Ltd] or selling the coy’s main biz.

Other Exco officers Have implied actual authority reflecting the scope of authority that is usuallydelegated to someone doing their type of job in their type of coy.

A director, acting alone A single director in a multi-director coy does not usually has the power to bindthe company i.e. no implied actual authority to bind the coy in contract withoutsiders: Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd;Northside Developments Pty Ltd v Registrar-General; Hely-Hutchinson vBrayhead Ltd

Unless he’s an executive director For them to have any authority to bind the coy contractually, either:

Authority must have been expressly granted to themAuthority must have flowed from conduct of the board as a whole

Chairperson of BOD Does not usually have the power to bind the coy: Hely-Hutchinson v Brayhead

Ltd Unless he’s an executive chairperson


Company secretary Has implied actual authority to sign contracts relating to admin matters:

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd Acting to give the person authority, including acquiescence

E.g. Sean has no express authority in doing something. However, the rest of thedirectors know what Sean has been doing and do nothing to stop him.

Effectively, the board has ratified Sean’s unauthorized action which therebygranting him implied actual authority to bind the coy in similar transactions infuture: Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd; Hely-Hutchinson v Brayhead Ltd

Apparent AuthorityCommon Law Statute Law Requirements for apparent authority:

A “holding out” Representation may consists ofwords or conduct

By someone with actual authority Apparent authority is notenough: Crabtree-Vickers

On which the other person relied If these three requirements aresatisfiesexistence of apparentauthoritycoy cannot denies that it isbound by a contract on the ground thatit’s not authorized.

s129(3): Requirements for apparentauthority: A “holding out” By coy or someone with actualauthority

Reliance

Enforcing Defective ContractWhile coy might want to deny that it is bound by a contract due to some lack of authorityor defect in procedures, there is a need to balance the competing interests of outsiders

dealing with companies and innocent shareholders+ creditors of companies(1) Enforcing Defective Contract made by Agents

Outsider may be able to prove that thepurported agent had enough: Implied actual authority Apparent authorityOutsider can also rely on indoor mgmtrule“persons dealing with a coy in goodfaith may assume that acts within itsconstitution and powers have been properlyand duly performed and are not bound to

Assumptions: s128, s129 s129(1): statutory indoor mgmt rule s129(2): authority about certain officers s129(3): apparent authority s129(4): officers properly perform theirduties

s129(5): due execution without seal s129(6): due execution with seal


inquire whether acts of internal mgmt havebeen regular”

Exception Actual knowledge

Purported agent lacked express actualauthority

Contract was defective in some way Outsider deliberately kept their eyesshut so as to not discover anirregularity that they thought existed

Put on inquiry When someone in their positionwould usually make inquiry but theyfailed to do so

When a reasonable person in theirposition would have been inquiredabout possible irregularity and wouldhave investigated, but they haveeither not investigated at all orsufficiently.

NOTE: the exception can apply even whenthere is subjective suspicion, but wasnegligent

Exception: s128(4)Actual knowledge or suspicion thatassumptions were incorrectNOTE: “suspicion” is narrower than “puton inquiry” i.e less effective on stoppingthe assumptions being made. Hence, it iseasier for outsider to use statutoryassumptions to enforce defective contract.

(2) What if document is forged? (check pg548)

Narrow sense i.e. Forgedsignatureindoor mgmt rule cannotapply

Wide sense i.e. Unauthorizedtransaction or sealif apparentauthority existed, indoor mgmt rule canapply

Northside Developments Pty Ltd vRegistrar-General

s128(3): the assumptions may be madeeven if a doc has been forged unlesss128(4) applies

(3) Enforcing Defective Contract made directly by Company (check pg550)N/A Common seal has been used

A person may assume that a doc hasbeen properly executed as per requiredby s129(6) and the seal is witnessed(s127(2)).

May use s129(2) and s129(3) to supports129(6) assumption


Common seal has not been used Under s129(5), a person may assumethat a doc has been validly executedwhere the doc appears to have beensigned in accordance with s127(1).

May use s129(2) and s129(3) to supports129(5) assumption


Pty Ltd vs Ltd

Pty Ltd PublicNot allowed to undertake certainfundraising activities that requirethe issue of a prospectus

Issue of share topublic

Can issue shares to the public toraise funds

s113: Not permitted to have morethan 50 non-employee s/h

Number of s/h Unlimited

s203C[RR]: May be able to do soby resolution

Removal ofdirector

s203D: Always able to do so byresolution

s194: May vote on the matter Director withmaterialpersonal interest

s195(1): Must not be present +vote on the matter UNLESS hisparticipation is approved by otherdirectors with no material personalinterest (s195(2)) or ASIC(s195(3))

s201A: At least one Number ofdirector

s201A: At least three

s254W(2)[RR]: directors may paydividends as they see fit

Dividends right s254W(1): each share in a classhas the same div rights unless it isprovided for in the constitution orby special resolution

N/A Related partytransaction

Ch 2E

s249A: Resolutions may bedeemed to have been passedeven though no meeting washeld, provided all s/h sign a docstating that they support theresolution

s250N: Required to hold AGM s204A: Must have a secretary s292: Required to lodgefinancial reports regardless ofthe size of the company’soperations

Documents

BLAW20001 Corporate Law Study Notes