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3. Constitution

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Queensland University of Technology

Constitution Legal Capacity & Powers Legal Capacity of an Individual Company has legal capacity of an individual: s124  Includes eg power to give guarantee & provide indemnity: Brick & Pipe Powers of a Body Corporate  Powers of a body corporate, including power to— (s124(1)) (a) Issue & cancel shares (b) issue debentures (c) grant options over unissued shares (d) distribute any of the company‘s property among members (e) give security by charging uncalled capital (f) grant floating charge over company‘s property (g) arrange for company to be registered as body corporate outside this jurisdiction (h) do anything that it is authorised to do by any other law  These powers do not excuse director‘s breach of duty—simply set out power of company wrt outsiders: ANZ Executors and Trustee Co Ltd v Qintex Australia Ltd (1990) (Q=holding company borrowed from ANZ—undertaking to execute guarantees by subsidiaries—guarantees not executed—Q goes insolvent—ANZ seeking to recover against subsidiaries  Assets & liabilities of subsidiary separate from holding co—subsidiaries were insolvent at the time so cannot order to give guarantee → only Q contractually bound || in any event subsidiaries would have received no consideration for undertaking to execute guarantee)  Breach does not affect validity of transaction: ANZ v Qintex o ↔ CL doctrine of ultra vires (abolished)  Not restricted by— o Company‘s best interests: s124(2) (A company's legal capacity to do something is not affected by the fact that the company's interests are not, or would not be, served)  BUT Company may be wound up if directors conducting affairs in own interests rather than interests of the company:s461(1)(e) o Objects in constitution: s125(2) (An act of the company is not invalid merely because it is contrary to or beyond any objects in the company's constitution)  BUT remedies available to minority members faced with oppressive action: s232 Constitution as a Statutory Contract Takes effect as a statutory contract between—  Company & each member: s140(1)(a) o Constitution directs that disputes between coy & members to arbitration → courts will enforce it as a contractual promise: Hickman v Kent or Romney Marsh Sheep-Breeders’ Assn (1915) o members can only enforce where provision affects them as members  provision gives benefit to a member in a different capacity → not enforceable: Eley v Positive Government Security Life Assurance Co Ltd (1875) (wages and conditions of company solicitor who was also member  did not affect member in capacity as a member)  Company & each director/secretary: s140(1)(b) o Can only enforce when provisions affect them in that capacity: Shuttleworth v Cox Bros and Co (Maidenhead) Ltd [1927] (D = director for life under const—coy changed const to be able to remove him  original provision was subject to the statutory power to alter the constitution—not enforceable in original form)  Member & member: s140(1)(c) Andrew Trotter LWB334 Corporate Law o where provisions affect one member vis-à-vis the other (eg right of pre-emption on transfer of shares)  NOT on third parties: Eley v Positive Gov Security Lite Assurance (3P solicitor named in articles cannot enforce against directors)  Can only involve rights in capacity as members: Hickman v Kent Romey (arbitration clause) o Notice of meetings, dividends etc o Not—  Role as Solicitor: Eley  Indemnity: Baileys v NSWMDV  Binding on members joining later—consent by buying shares  Amendments—bind all members/directors/coy itself o UNLESS restriction on share transfer → those members must consent in writing: s140(2) Replaceable rules = Default rules of internal management of company  Constitution may replace them (in full or one by one): s134 o Public companies usually have constitution o Pty companies may want to have different classes of shares etc  Replaceable rules amended by legislation → apply in amended form to all companies who have not displaced them— (listed in s141) Restrictions on Power  Objects Clauses—  CL—Compulsory: Ashbury Railway Carriage Co Ltd v Riche  Company only has capacity for substantive objects & those reasonably incidental thereto or implied thereby—any other acts are ultra vires and unenforceable: Ashbury Railway Carriage Co Ltd v Riche (objects = manufacture of railway carriages | powers included power to borrow etc  could not construct railway lines); Rolled Steel Products Ltd v British Steel Corporation  Substantive object—expressly authorised to pursue on construction of constitution itself & capable of being pursued as an end itself: Rolled Steel Products Ltd v British Steel Corporation  Dependent object—expressly authorised to pursue on construction of constitution itself BUT not capable of being pursued as an end itself— incidental to the substantive object: Rolled Steel Products Ltd v British Steel Corporation  Implied powers—necessary & reasonably incidental to achieving primary objects: Attorney General v Great Eastern Railway Co  CA—Optional: s125(2)  BUT act contrary to objects is not invalid: s125(2) (An act of the company is not invalid merely because it is contrary to or beyond any objects in the company's constitution)  Constitution may contain express restriction or prohibition on company‘s exercise of powers: s125(1) (If a company has a constitution, it may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers) o BUT exercise of power in breach of such a restriction is not invalid: s125(1) (The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company's constitution)  Affects only internal parties—not contract formed with 3P: Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) (B & others borrowed from O—B executed guarantee on behalf of 3P—requisite resolution of BoD not reached=breach of constitution—3P defaulted on loan—B sought to invalidate guarantee  defect in deed outside of O‘s knowledge (actual or Andrew Trotter LWB334 Corporate Law constructive)—remedy for breach of constitution lies against directors not against O → guarantee enforceable)  Outsiders may presume that constitution has been complied with: s129(1) o Unless actual knowledge: s128(4)  NOT BOUND by following constitutional amendments unless agree in writing— (140(2)) o Require to take up more shares o Increases liability o Imposes or increases restrictions on transfer of shares Remedies for Breach  No statutory consequences for breaching contract under CA Equitable relief  Injunction  Declaration  Generally not damages—would prejudice claims of other creditors who have preference under s 563A: Holdsworth v Glasgow Bank cf. Sons of Gwalia v Margartic (re 563A) Statutory injunction: s1324 [→remedies against directors]  Whether members can request injunction to stop breach of directors duties (failure to act in good faith) under s181 under s1324 is subject of judicial debate: Mesenberg; Airpeak  For example— o Enforce payment of dividends declared o Enforce right to vote Relief from Oppressive Conduct of Affairs: Pt 2F.1 [→relief for members]  Order may be given where conduct, act, omission or resolution would be— o Contrary to the interests of the members as a whole: s232(d) o Oppressive | unfairly prejudicial | unfairly discriminatory against member: s232(e)  Content of order— o that the company be wound up: s232(1)(a) (also s461(f)&(g) (an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole)) o that the company's existing constitution be modified or repealed: s232(1)(b) o regulating the conduct of the company's affairs in the future: s232(1)(c) o Purchase of shares  by member or recipient of shares: s232(1)(d)  with an appropriate reduction of the company's share capital: s232(1)(e) o Proceedings  to be instituted, prosecuted, defended or discontinued by company: s232(1)(f)  by a member on behalf of the company: s232(1)(g) o appointing a receiver or a receiver and manager of any or all of the company's property: s232(1)(h) o restraining a person from engaging in specified conduct or from doing a specified act: s232(1)(i) o requiring a person to do a specified act: s232(1)(j) Order for Winding Up under s461 [→remedies against directors]  In a range of circumstances including where— o Company reaches special resolution: s461(1)(a) Andrew Trotter LWB334 Corporate Law o Company is inactive—no business, no members, etc: s461(1)(c)&(d) o Directors conducting affairs in own interests rather than interests of the company: s461(1)(e) o oppressive as under s232: s461(1)(f) (members as a whole) (g) (particular member) o it would be otherwise just and equitable—the breach is really bad: s461(k); Airpeak Pty Ltd v Jet stream Aircraft Ltd Civil Penalty Orders  Acting in breach of constitutive provision probably not in best interests of the company so could be in breach of s181 → civil penalty provisions apply: s 1317E, G, H List of Replaceable Rules: s141 Officers and Employees Voting and completion of transactions--directors of proprietary companies 194 Powers of directors 198A Negotiable instruments 198B Managing director 198C Company may appoint a director 201G Directors may appoint other directors 201H Appointment of managing directors 201J Alternate directors 201K Remuneration of directors 202A Director may resign by giving written notice to company 203A Removal by members--proprietary company 203C Termination of appointment of managing director 203F Terms and conditions of office for secretaries 204F Inspection of books Company or directors may allow member to inspect books 247D Director's Meetings Circulating resolutions of companies with more than 1 director 248A Calling directors' meetings 248C Chairing directors' meetings 248E Quorum at directors' meetings 248F Passing of directors' resolutions 248G Meetings of members Calling of meetings of members by a director 249C Notice to joint members 249J(2) When notice by post or fax is given 249J(4) When notice under paragraph 249J(3)(cb) is given 249J(5) Notice of adjourned meetings 249M Quorum 249T Chairing meetings of members 249U Business at adjourned meetings 249W(2) Who can appoint a proxy [replaceable rule for proprietary companies only] 249X Proxy vote valid even if member dies, revokes appointment etc. 250C(2) How many votes a member has 250E Jointly held shares 250F Objections to right to vote 250G How voting is carried out 250J Andrew Trotter LWB334 Corporate Law When and how polls must be taken 250M Shares Pre-emption for existing shareholders on issue of shares in p
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