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LECTURER PREVIEW COPY. NOT FOR SALE OR DISTRIBUTION© . All rights reserved. Enquiries to Federation Press
Contents
Preface vAcknowledgments xxiiiTable of Cases xxivTable of Statutes xli
Chapter 1Introduction to Corporations Law 1Overview 1A Select History of Corporations Law 1
Historical development of the corporate entity 1Joint stock companies 2Development of corporations law in Britain 3Development of corporations law in Australia 4
Companies Act 1981 5Corporations Act 1989 5Corporations Law 5Corporations Act 2001 6
Commonwealth’s Legislative Power to Enact a Federal Corporations Regime 7
Corporations Act 1989 7Corporations Law 10Cross-vesting 12
Current Jurisdictional and Administrative Arrangements 15Review questions 16Further reading 17References Chapter 1 17
Chapter 2Choosing Between Business Organisations 18Overview 18Sole Proprietorship 19Definingasoleproprietorship 19Benefitsandshortcomingsofasoleproprietorship 19
Trading Trust 20Definingatrust 20Benefitsandshortcomingsofatrust 21Corporate trustee 23
Partnership 24Definingapartnership 24Limited partnerships 27Benefitsandshortcomingsofapartnership 28
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
LECTURER PREVIEW COPY. NOT FOR SALE OR DISTRIBUTION© . All rights reserved. Enquiries to Federation Press
Joint Ventures 29Definingajointventure 29Benefitsandshortcomingsofajointventure 31
Company 32Definingacompany 32Liability of members 32Company limited by shares 32Company limited by guarantee 33Unlimited company 33No-liability company 34Public and proprietary companies 34
Public companies 34Proprietary companies 35Small and large proprietary companies 35
Benefitsofregistration 36Separate legal identity 36Limited liability 36Perpetual succession 36Flexibility 36Finance 37
Shortcomings of registration 37Formalities 37Costs 37Participation in management 37
Benefitsofproprietarycompanies 38Benefitsofpubliccompanies 39Review question 40Further reading 40References Chapter 2 40
Chapter 3Corporate Personality 41Overview 41Corporate Personality 41Definingcorporatepersonality 41Limited liability 42Multiple capacities 44Distinguishing company and shareholder property 46
Company Liability 46Difficultiesindeterminingcorporateliability 46Strict liability 47Vicarious liability 47Primary liability: The organic theory 48Privilege against self-incrimination 54
Piercing the Corporate Veil 54Piercing the corporate veil 54Sham 54
x CONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
LECTURER PREVIEW COPY. NOT FOR SALE OR DISTRIBUTION© . All rights reserved. Enquiries to Federation Press
Statutory directives to pierce the corporate veil 54Insolvent trading 55Debts incurred as trustee 56
Common law rules regarding piercing the corporate veil 57Avoiding a legal obligation 57Fraud 58Agency 58Corporate groups 61Trusts 64Public policy: the enemy 64
Review questions 65Further reading 65
Chapter 4Promoters and Pre-registration Contracts 67Overview 67Promoters 67Definingapromoter 67Promoter’s duties 71Consequences of a breach of duty 71
Pre-registration Contracts 72Pre-registration contracts at common law 72
Liability of the company 72Liability of the promoter 72Breach of warranty of authority 73
Reimbursement of promoter’s costs 74Pre-registration contracts under the Corporations Act 74
Introduction 74Personcontractingonbehalfoforforthebenefitofthecompany 75
Agency 75Types of contracts 77
Contract pre-registration 77Registrationofthecompanyorreasonablyidentifiablecompany 80
Registration 80Companyorreasonablyidentifiablecompany 80
Ratifiedorsubstitutedpre-registrationcontract 80Whatamountstoratification? 80Whatamountstoasubstitution? 82Ultra vires 82
Ratificationorsubstitutionwithintimelimits 82Effectofratification 82Effectofnoratificationorsubstitution 83Release from liability 84Trustee’s right of indemnity 84Review question 84Further reading 85References Chapter 4 85
xiCONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Chapter 5Registration of Corporations 86Overview 86Registration of ‘New’ Companies 86
‘Shelf’ companies 86Prerequisites to registration 87
Membership 87Reservation of company name 87Consent of director/secretary 88Constitution 89
Application for registration 89Documents to accompany application for registration 90Registration 90Certificateofregistration 90Effect of registration 91Post-registration requirements 91
Common seal 91Appointmentofofficersandauditors 91Registers 92Minute books 93Share issues 93Accounting records 93Annual general meeting 93
Registration of Existing Entities 93Companies registered under Corporations Law 93Transfer of registration of companies 94Transfer of registration by non-companies 94Registrable Australian Bodies 95Foreign corporations 95Review question 96Further reading 96
Chapter 6The Corporate Constitution 97Overview 97Identifying the Corporate Constitution 97
Memorandum and articles 97Mandatory and replaceable rules 98
Adopting /displacing replaceable rules 98Legal Consequences of Mandatory Rules
and Constitution 99Altering the Constitution 99
Special resolution 99Precondition in constitution 100Alterations affecting members 100Common law requirements 100
xii CONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Statutory Contract 106Binding nature of the constitution 106Alterable contract 106Separate contract 107
Independent contract 107Interdependent contract 108
Parties to the statutory contract 109Outsiders and the statutory contract 109Members enforcing outsider rights 110
Ultra Vires Doctrine 113Ultra vires doctrine at common law 113Ultra vires in the narrow sense: Corporate capacity 113Ultra vires in the wide sense: Members’ and directors’ powers 113Review questions 116Further reading 116
Chapter 7Shares and Dividends 117Overview 117Shares 118
Nature of a share 118Evidence of shareholding 118
Classes of Shares 119Power to issue different classes of shares 119Definingaclassofshares 119
Deferred shares 120Ordinary shares 120Preference shares 121Governor’s shares 123Employee shares 124
Variation of class rights 124Definingavariationofclassrights 124Procedure to vary class rights 125Challenging a variation of class rights 126
Share Capital 127Description of share capital 127Altering share capital 128Maintenance of share capital 128
Prerequisites for a reduction of share capital 128Procedure for reduction of share capital 129Challenging a reduction 130
Company purchasing its own shares 135Prohibition on company purchasing its own shares 135Buy-backs under Div 2 of Part 2J.1 136
Company lending money on security of its own shares 136Prohibition on company lending money on security of its own
shares 136Exemptions 138
xiiiCONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
LECTURER PREVIEW COPY. NOT FOR SALE OR DISTRIBUTION© . All rights reserved. Enquiries to Federation Press
Companyfinanciallyassistingpurchaseofitsownshares 138Prerequisitesforfinancialassistance 138Procedure for shareholder approval 142Exemptions 142Consequences 143
Dividends 144Procedure for declaring/announcing dividends 144Effect of declaring a dividend 144Dividendsmustbepaidoutofprofits 145Definitionofprofits 145
Past years’ losses 145Eventsafterthecurrentfinancialyear 145Futureprofits 146Netprofits 147Capital losses and gains 147Netprofitsofthecompanydeclaringthedividend 153
Interim dividends 153Consequences 154Review questions 155Further reading 156
Chapter 8Corporate Fundraising 157Overview 157Debt Capital 158
Pros and cons of debt capital 158Form of debt capital 159
Debentures 159Security for debt capital 160
Charges 160Fixedandfloatingcharges 160Negative pledges 161Registration of charges 161
Definitionofsecurities 162Offers requiring disclosure 163Exceptions to disclosure requirements 164
Small scale offerings 165Sophisticated and professional investors 166Rights issues 167
Disclosure document 168Definitionofdisclosuredocument 168Prospectus 168Continuously quoted securities 169Short form prospectus 171Profilestatement 171Offer information statement 172
Clear, concise and effective disclosure 173
xiv CONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Supplementary and replacement disclosure document 173Obligation to correct information 173Supplementary document 174Replacement document 174Stop orders 174
Requirements for offering securities 175Preparation of disclosure document 175Lodgement with ASIC 175Exposure period 176
Defective disclosure 176Prohibition 176Criminal liability 176Civil liability 177Part 2 Division 2 179
Restrictions on advertising and publicity 179Prohibition 179Exemptions 180Hawking securities 181Unsolicited offers to purchase securities 181
Financial Services Reform Act 181Review question 182Further reading 183
Chapter 9Appointment and Removal of Directors 184Overview 184Board of Directors 184
Role of board of directors 184Division of power between board and general meeting 185
DirectorsandOfficers 187Definitionofdirector 187Definitionofofficer 191Validation of appointment 191
Section 129 assumptions 191Indoor management rule 192Validation of acts under ss 201m and 204e 193Court’s power to validate acts under s 1322(4)(a) 194
CompanyOfficers 194Executive and non-executive directors 194Managing director 194Chiefexecutiveofficer 195Governing director 195Associate director 195Chairperson 196Alternate director 196Secretary 196
xvCONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Qualifications 197Natural persons 197Number 197Residence 197Age 197Sharequalification 198Consent 198
Disqualification 198Managing a corporation 198Automaticdisqualificationforconvictionofcertainoffences 199Automaticdisqualificationofanundischargedbankrupt 200Court’s power to disqualify for breaching civil penalty provisions 201Court’s power to disqualify for managing insolvent companies 206Court’s power to disqualify for repeated breaches of the
Corporations Act 206ASIC’s power to disqualify persons subject to liquidator’s report 209Court’s power to grant leave to manage a corporation 211
Appointment of Directors 214First directors 214Subsequent directors 215
Directors’ Remuneration 216Right to remuneration at common law 216Right to remuneration under the replaceable rules 216Single director/shareholder companies 216Listed entities 216Managing director 217Disclosure requirements 217
Listed entities 217Resignation and Removal of Directors 218
Resignation 218Vacationofoffice 219
Retirement by rotation 219Automatic vacation under the Corporations Act 219Automatic vacation under constitution 219
Removal of directors 220Proprietary companies 220Public companies 220
Paymentsforlossofoffice 222Review questions 224Further reading 224
Chapter 10Directors’ Duties 226Overview 226Duty to Act Honestly/in Good Faith and in the
Best Interests of the Company 227Fiduciary duty 227
xvi CONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
LECTURER PREVIEW COPY. NOT FOR SALE OR DISTRIBUTION© . All rights reserved. Enquiries to Federation Press
Whatconstitutesthecompany’sinterests? 227Company’s interests 227Shareholders 227Nominee directors 232Group companies 234Creditors 235Employees and other third parties 241Equitable relief 241
Statutory duty 242Relationship with other duties 244Consequences of a breach 244
Injunction 244Civil penalty 244Disqualification 250Compensation 257Criminal offence 257
Duty Not to Fetter Discretion 258Proper Purpose Doctrine 258
Fiduciary duty 258Directors’ honesty 259Importance of improper purpose 259Share issues 259
Registration of share transfers 262Consequences of breach 265
Generally 265Share issue 266Registration of share transfer 266
Statutory duty 266DutytoAvoidaConflictofInterests 266
Fiduciary duty 266Contracting with the company at common law 267Contracting with the company under the constitution 268Contracting with the company under the Corporations Act 269Useofpositionforpersonalprofitinequity 274UseofpositionforpersonalprofitunderCorporationsAct 280
Duty to Act with Due Care and Diligence 286Common law 286Statutory duty of care and diligence 290
Business judgment rule 292Reliance and delegation 292Consequences of breach 293
Insolvent Trading 294Duty to prevent insolvent trading 294Insolvency 294Debt 295‘Incurring’ a debt 295Objective test 296
xviiCONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Defences 297Consequences of breaching s 588g 301
Compensation 301Civil penalty 301Criminal offence 302
Review question 302Further reading 302
Chapter 11Meetings 305Overview 305WhatConstitutesaMeeting? 305
More than one person 305Meeting in person 306Resolutions and declarations without meetings 306
Board Meetings 307Convening board meetings 307Notice 309Attendance at board meetings 310Quorum 310Voting 311Minutes 311
Annual General Meeting 312Obligation to convene annual general meeting 312Convening an annual general meeting 312Agenda 312
General Meetings 313Directors’ power to convene a general meeting 313Members requisitioning a general meeting under s 249d 313
Who may requisition a general meeting under s 249d? 313Basis for requisitioning general meeting 313Notice 314Members’ right to convene general meeting 314
Members convening a general meeting under s 249f 314Court’s power to order the convening of a general meeting under
s 249g 314Basis for an order convening a general meeting 314Whatis‘impracticable’? 315
Directors’ power to postpone meetings 317Notice of general meetings 317
Length of notice 317Service of notice 318Content of notice 319Directors’dutytoprovidesufficientinformation 319
Circulation of members’ resolution and statement 321Quorum 322Resolutions 323
xviii CONTENTS
Concise Income Tax 5th edition Julie Cassidy
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Proxies 323Appointment of proxies 323Revocation of proxy’s appointment 324Rights and powers of a proxy 324
Representatives 325Appointment of representative 325Rights and powers of representative 325
Voting 325Show of hands 325Poll 326Chairperson’s casting vote 326
Minutes of general meeting 326Validating procedural irregularities 327Review questions 329Further reading 329
Chapter 12Members’ Remedies 331Overview 331Rule in Foss v Harbottle 331
Proper plaintiff rule 331Common law exceptions to Foss v Harbottle 333
Personal rights 334Statutory Derivative Action 338
Standing to seek leave to bring a derivative action 338Grounds for an application 341
Company will not bring proceedings 341Notice 341Good faith 342Best interests of the company 344Serious question to be tried 346Substitution of litigant 346Ratification 346
Court’s powers 347Independent investigator 347Costs 347
Leave to settle proceedings 347Oppression 347
Oppressive or unfairly prejudicial or discriminatory conduct 347Standing under s 234 348Whomaybetheoppressor? 351Scope of s 232 352
Objective test 352Act or omission 352Isolated past conduct or continuous course of conduct 352Ultra vires, illegal or want of probity 353Discriminatory 353
xixCONTENTS
Concise Income Tax 5th edition Julie Cassidy
© The Federation Press All Rights Reserved
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Oppressive conduct 353Unfairly prejudicial or discriminatory conduct 355Contrary to interests of members as a whole 362Nature of relief under s 233 362
Injunctions 362Introduction 362Standing to apply for injunction 363Nature of relief under s 1324 369
Right to Inspect Books 369Members’ right to inspect books 369Directors’ right to inspect books 370Review questions 371Further reading 372
Chapter 13External Administration 374Overview 374Receivership 375
Appointment of receiver 375Appointment by creditor 375Appointment by a court 375Impact of appointment on directors’ powers 380
Termination of appointment 381Receiver’s powers 381Receiver’s duties 382Receiver’s liability 383
Schemes of Arrangement 384Definingcompromiseorarrangement 384Agreement to scheme 384
Convening meeting to consider proposal 384Explanatory statement 385
Court’s discretion to approve compromise or arrangement 385Administration of Company 389
Appointment of administrator 389Impact of appointment on directors’ powers 391
Termination of appointment 391Committee of creditors 391Administrator’s powers 392Administrator’s duties 392Administrator’s liability 393Moratorium 398Creditors’ meeting 398Termination of scheme of arrangement 400Termination of administration 402
Winding Up 403Types of winding up 403Appointment of liquidator 403
xx CONTENTS
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Impact of appointment on directors’ powers 405Termination of liquidator’s appointment 406Liquidator’s powers 407Liquidator’s duties 408Liquidator’s liability 409Winding up by the court 410
Court’s power to wind up a company 410Winding up in insolvency 410Winding up on other grounds 411
Voluntary winding up 420Application by members 420Application by creditors 420Court’s powers 421
Deregistration 421Types of deregistration 421Voluntary deregistration 421Deregistration initiated by ASIC 422Reinstatement 422Review questions 425Further reading 426
Index 428
xxiCONTENTS
Concise Income Tax 5th edition Julie Cassidy
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