#8580 - Checklist For Entire Ba Course - Business Associations

Nature of co entity: (a) sep legal person (Salomon; Lees) (b) corporate veil (SSK; Spraeg; Briggs; Carlton)

Corporate constitution: what do the replaceable rules cover? S 141

Structure of the Board:

1. Definition: ‘Director’: includes a person in accordance with whose instructions or wishes the directors of the company are accustomed to act: s 9. Ss 181- 184, 191, 588G. ‘Officer’ includes someone who participates in decisions that affect at least substantial part of business; or has capacity to significantly affect co’s financial standing; or in accordance with whose instructions directors are accustomed to act (excluding advice given y person in proper performance of functions attaching to professional capacity or business relationship with diretors or co): s 9. (eg in Adler adler was an officer of HIH as an active member of the investment committee). Ss 180 – 184, possibly 209(2)

2. Appointment, remuneration, cessation: see min reqs in s 201A, : How directors appointed Pt 2D.3? How can board be dismissed? S 203C, D and E

3. Directors rights to information: access to company books under s 198F (while director, reasonable times for purposes of legal proceedings to which person is party or has reason to be believe will be), right continues for 7 years: s 198F(2), see s 290 access to financial records.

4. Powers: BOD has all powers of management not expressly reserved to GM (Cuninghame): s 198A(RR).

   1. Meetings? Directors’ meetings may be called by director giving reasonable notice individually to every other director: s 248C; can be called or held using any tech consented to by all directors (can give standing notice): s 248D; can elect a chair (s 248E); a quorum is 2 directors who must be present at all times (s 248F, RR); note special rules for prop co under s 194, public 195.

   2. Passing resolutions? (1) At meetings: BOD acts collectively to pass resolutions by majority: s 248G, and chair can have a casting vote if necessary in addition to vote as director: s 248G(2). (2) Otherwise: Can circulate resolutions for all directors to sign: s 248A; if 1 director prop co just record and sign resolution: s 248B.

      1. Under s 191(4), even if a director does not disclose MPI at meeting, doesn’t affect validity of any act, transaction, agreement, resolution or any other thing. (could be an offence)

      2. Under s 195(5) a director of a public co with an MPI cannot be present at the meeting or vote on the matter, is an offence (s 195(1B)), unless approved by board/ASIC under s 195(2) or (3), but if contravene that doesn’t affect the validity of any resolution: s 195(5);

   3. Limits on powers: BOD can’t ratify breach of DD (Furs), but see s 195(2) for approving voting.

5. Irregularities: eg no quorum or defect in notice. Proceedings not invalidated unless court considers irregularity may cause substantial injustice which cannot be remedied by court order: s 1322(2).

General meeting: Consider (1) procedural formalities – s 249L; (2) GL obligations: under full and frank disclosure? S 249L; Fraser; Re Marra; and s 12DA ASICA. (3) duomatic principle?

1. How to call: s 249L; Fraser v NRMA; Re Marra. (Must give full and frank disclosure of the nature and extent of interest so average commercial man on the run can understand.)

2. How to hold: quorum of 2: S 249T; irregularities cured under; s 1322; Re Express; Duomatic; Kinsella

3. Equitable limitations upon the voting powers of majorities: consider: (1) Majority cannot appropriate co’s property and rights (Cook v Deeks) (2) where const alteration that prejudices shareholders rights (Gambotto; Greenhalgh; Clyde) – test is whether or not the res was for proper purposes and was not oppressive and was procedurally fair (Gambotto) (remedies: injunction, declaration, oppression remedy, rectification s 175). (3) Can’t use res to prejudice creditors (Kinsella).

4. GM ratification of DD breach?

   1. Proc reqs for calling meeting satisfied? Re Notice: directors have an interest or may benefit must make full and true disclosure of any benefits may derive: Chequepoint. Even where one director calls the meeting, if another has an interest, has GL obligation to ensure that shareholders receive sufficient information about his interest to ascertain its likely effect on his judgment: Winns;

   2. Proc reqs for holding meeting satisfied? Quorum at GM is 2 members.

      1. Unanimity? Possible requirement (Cook v Deeks), likely effective (regal; Furs v Tomkies).

      2. Voting when interested, majority shareholder? (When director is a majority shareholder, and breaches duty to co, then fraud on minority to ratify that: Ngurli)

      3. Voting when interested? possibly not able to vote on shares when interested (Gambotto)

      4. When share issue power in dispute, those shares should not be voted on: Hogg

   3. Substantive limitations on what a GM can ratify of a DD breach: (a) cannot ratify fraud on minority (Ngurli) – test is in Gambotto (for proper purposes, not oppressive, fair); (b) cannot ratify damage to creditors (c) cannot bar derivative action (s 239) (d) cannot ratify breach of stat duty (Angas - but can be taken into account in relieving liability under s 1317S) (e) breach of equitable duty: Ford: can ratify share issue for improper purpose unless dishonest (Hogg); but under Ngurli this could possible be a fraud on the minority.

Corporate contracts: (freeman; hely-Hutchinso; crabtree-vickers; Brick & Pipe; Adler)

1. How does a co sign contracts: (1) under s 127, director/sec or 2 directors required to sign a corporate contract. When only one person sign a contract, unlikely the outsider can rely on assumptions, since likely knew/suspected that more people should have signed the contract: see ss 129(5) and 129(6)).

2. Do the statutory assumptions apply? ss 124 – 130:

   1. Under s 129: (1) compliance with constitution; (2) proper appointment and scope of authority of those who are shown on info made available to public by ASIC to be a director) (3) where held out have all the usual authority of director/officer in that position or has been duly appointed, (4)

   2. S 128(4) disqualification:

3. Authority at GL: Actual authority, implied authority, ostensible, and indoor management rule

   1. Implied authority from position:

      1. MD: appointed under s 201J, conferred any powers that directors can exercise: s 198C. Implied grant to do all things that fall within usual scope Hely-Hutchinson; Crabtree. Can engage others to provide services (Freeman); authorize agents to make contracts on behalf of co (Crabtree Vickers). When borrowing, giving security or guarantees, must fall within usual scope Hely-Hutchinson).

      2. Others: Single director – no usual authority to bind company: Northside; Brick and Pipe. Chair - likely has no more authority (Hel-Hutchinson), Secretary – can make contracts connected with administrative side, but no implied authority to manage. Misc – eg Daniels appointed to be money market manager and foreign exchange dealer had usual authority to enter into contracts and borrow currency from banks.

   2. Implied authority from circumstances: need evidence of communication by words or conduct of board of their respective consent to one another and to the agent (Freeman).

      1. CONSIDER: does person commit co to contracts and then later seeks approval which board gives? Then board is letting that person assume role of MD (Brick and pipe – where person who assumed role as MD then had power to make reps about someone else’s authority).

      2. Factors to consider: what board does, size of co, purpose of co, position of co in group (eg if chairman of group given authority from individual co’s to enter into contracts: Equiticorp)

   3. Ostensible authority (Freeman): Three reqs: (1) rep was made to outsider - that agent had authority to enter on behalf of co into a contract of the kind sought to be enforced (2) rep made by someone with actual authority to manage business of co generally or in respect of matters to which the contract relates (eg MD, board) (3) contractor induced by such rep to enter contract.

      1. Eg:Freeman , director had to knowledge of other directors been employing agents and acting as MD, held that directors had held him out as MD, so act in hiring had authority.

      2. but cf in Crabtree the MD did not have actual authority to make purchase in question, so even though under usual authority he would have had authority to sign, didn’t have authority to represent that anyone else had authority.

      3. Eg in Brick, person with implied authority to act as MD, represented someone else was secretary, and thus contract signed by that secretary with another director valid: Brick

      4. note s 130 means outsiders do not have constructive notice of constitution.

   4. Indoor management rule? Persons dealing with co in good faith can assume acts within constitution and powers properly and duly performed (Turquand). However, the inherent nature of the contract as being for purposes apparently unrelated to co’s business can put the third party on notice and require that they inquire (Northside).

4. Special issue: Authority from a resolution to enter into a contract?

   1. (1) Resolution valid? Quorum of 2: s 248F? Exclude ds with MPI under s 195(4).

   2. (2) If resolution valid, contract rescindable by co if made in breach of directors’ fiduciary duty? (Aberdeen; Transvaal; Camelot).

      1. Consequences: breach of s 191 doesn’t affect the validity of any act, transaction, agreement, instrument, resolution or other thing: s 191(4). But there could be a voiding under general law principles: s 193 (Craven Textile); or voidable under constitution at the option of the co (Camelot).

      2. Right to elect for rescission lost if innocent third...