Table of Contents Corporate Law

Transcription

1 Table f Cntents Crprate Law THE LEGAL NATURE OF COMPANIES... 3 [3-100] The Separate Entity Dctrine... 3 [3-140] Cnsequences f treating the cmpany as a separate legal entity... 3 TYPES OF COMPANIES... 4 [4-320] Cmpanies limited by shares... 4 [4-340] Classificatin f public r prprietary cmpanies... 4 Prprietary cmpanies... 4 Public cmpanies... 5 [4-360] Changing type f cmpanies... 5 CORPORATE GROUPS... 6 [4-420] Des the law treat crprate grups differently?... 6 Cntrlled entities... 6 Circumstances that the law recgnise and regulate crprate grups... 6 INTERNAL GOVERNANCE RULES... 8 The replaceable rules... 9 The cnstitutin Legal effect f the internal gvernance rules SINGLE DIRECTOR/SHAREHOLDER COMPANIES [5-700] What is this cmpany? [5-720] What rules gvern single directr/sharehlder cmpanies? DIRECTORS Backgrund T Directrs Definitin Of Officer And Directr Appintment And Rle Of The Managing Directrs Types Of Directrs [10-360] What Is A De Fact Directr? [10-370] What Is A Shadw Directr? The Directrs Pwer Of Management [6-420] What Are The Bard s Pwers? [6-440] Can Members Override Decisins Of The Bard? [6-445] Can Members Give Instructins T The Bard? [6-460] Members Optins If Disagree With Decisins Of The Bard Prceedings Of The Bard [10-520] Hw Are Directrs Meetings called and held? [10-540] Can bard delegate their pwers? MEMBERS/SHAREHOLDERS Members Decisin-Making Pwers Members Structural Or Cnstitutinal Decisins [7-300] Adpting And Amending The Internal Gvernance Rules: [7-360] Varying Class Rights Members Cntrl Over The Cmpsitin Of The Bard [7-400] Appinting And Remving Directrs Members Meetings Cnvening Meetings Cnducting Meetings Member Vting What Are An Ordinary Reslutin And A Special Reslutin? Decisin-Making Withut A Meeting Restrictins n Member Decisin-making Equitable Limitatin n Majrity Vting Pwer IRREGULARITIES [8-620] What is a prcedural irregularity? [8-640] What ther irregularities are autmatically validated? [8-680] What amunts t substantial injustice? OVERVIEW OF DUTIES The Duty f Care [11-220] What standards are applied?

2 [11-240] What is business judgment rule? The Duty T Prevent Inslvent Trading [12-120] Wh wes the duty? When is a cmpany inslvent? What are the reasnable grunds fr suspecting inslvency? [12-160] Defences available fr breach f sectin 588G The Duty T Act In Gd Faith In The Best Interests Of The Cmpany [13-100] What is meant by gd faith [13-120] What are the cmpany s interests? The Duty T Act Fr A Prper Purpse Duty T Avid Cnflicts Of Interests The General Law Rules The Statutry Rules Disclsure Of Material Persnal Interests And Directr Vting [14-340] Hw is vting by directrs f public cmpanies restricted? [14-360] When is there imprper use f psitin r infrmatin? [14-380] related parties transactins f public cmpanies? CONSEQUENCES & REMEDIES Cnsequences fr Breaching Statutry Duties [15-140] Civil Penalties [15-160] Criminal Penalties Remedies fr Breaching General Law Duty [15-210] Civil remedies fr cmpany fr breach f general law duties? [15-220] Civil remedies fr cmpany fr breach f statutry duties? Relief Frm Liability Fr Breach Of Duty [15-310] When can relief frm liability be given by the curt? [15-320] When can a breach f duty be ratified by the cmpany? Members Remedies General law remedies Members Statutry Remedies Member s Persnal Rights And Actins Member s Derivative Actin SHARES Issuing f New Shares CAPITAL MAINTENANCE [20-220] When can a cmpany pay dividend? [20-240] What are the cnsequences f a breach? [20-300] What is the prhibitin n self-acquisitin? [20-320] Are there any exceptins t the rule? [20-340] What are the cnsequences f a breach? Prhibited Financial Assistance [20-440] When is financial assistance permitted? When member apprval is given When the assistance is exempt under s 260C [20-460] Are directrs duties relevant? [20-480] What are the cnsequences f a breach? Permited Buy-Backs What are the prcedural requirements** [20-580] What are the cnsequences f a breach? Permitted Reductins Of Capital [20-620] When is reductin f capital allwed? Requirements fr member apprval [20-660] What are the cnsequences f a breach?

3 THE LEGAL NATURE OF COMPANIES Cmpanies have tw particularly significant legal characteristics r attributes that enable them t functin as legal persns in their wn right. These are separate legal persnalities and legal capacity. [3-100] The Separate Entity Dctrine The law treats a cmpany as being a separate persn frm its members and thse wh manage its peratins à dctrine f separate legal persnality Cmpany can incur and receive bligatins and hld prperty in its wn name. The fact that the cmpany is treated as a separate persn frm its participants means that the cmpany cntinues unchanged even if the identity f the participants in it changes. Salmn v Salmn & C Ltd Mr Salmn ran a bt manufacturing business as a sle trader. After the business was established, Mr Salmn incrprated a cmpany in which he and members f his family were the nly sharehlders, and he sld the business t the cmpany. Hwever, the cmpany is unable t pay full amunt t him, s the cmpany agreed t pay cmpany charge ver time. The effect f the charge was that the cmpany s assets had t be used t pay ut Mr Salmn in full befre paying ther creditrs. Curt Decisin: The Huse f Lrd held that, despite the fact that Mr Salmn cntrlled the cmpany, it des nt make him the agent r trustee f the cmpany. The cmpany is treated as perating the business in its wn right and as being separate frm its cntrller, Mr Salmn. [3-140] Cnsequences f treating the cmpany as a separate legal entity A cmpany s bligatins and liabilities are its wn, nt thse f its participants. Where a cmpany incurs a cntractual bligatin r a liability in trt, that bligatin r liability is the cmpany s and nt an bligatin r liability f its members r fficers Creditrs f the cmpany are generally unable t lk t the participants in the cmpany t pay fr the cmpany s debts. A cmpany can sue and be sued in its wn name Sectin 119 f the Crpratins Act 2001 (Cth) prvides that, when a cmpany is registered, it cmes int existence as a bdy crprate. This means that it is nt necessary fr the members f the cmpany r its fficers t be named as arties t the legal prceedings where the prceedings nly invlve the cmpany. A cmpany has perpetual successin. This means that the cmpany is a cntinuing entity in law with its wn identity regardless f changes in its membership. It cntinues in existence, unchanged, even if its riginal members die, sell their shares t thers r therwise cease t participate as sharehlders. It will cntinue t exist until it is de-registered under statutry prcedure set ut in the CA. A cmpany s prperty is nt the prperty f its participants. The participants in a cmpany have n prprietary (legal r equitable) interest in the cmpany s prperty. Therefre, they have n wnership rights. Macaura v Nrthern Assurance C Ltd à Macaura transferred his interest in a timber plantatin t a cmpany cntrlled by him. He had insured the timber in his wn name but failed t transfer the insurance plicy t the cmpany. When fire destryed the timber, the insurance cmpany refused t pay because the cmpany was the wner f the timber (and the cmpany des nt have insurance). A cmpany can cntract with its cntrlling participants. Because they are separate legal entities, a cmpany and its participants can enter int cntracts with each ther. Frm Salmn s case, a cmpany can lend mney t r brrw mney frm its cntrlling sharehlder. Lee v Lee s Air Farming Ltd à the cntrlling sharehlder and managing directr f a cmpany was killed in flying accident (related t wrk). His widw successfully argued that she was entitled t a payut under wrkers cmpensatin insurance fr her husband s death because her husband was a wrker, that is he had entered int a cntract f service with the cmpany. 3

4 TYPES OF COMPANIES Once the decisin is made t use a cmpany as the frm f business assciatin fr a particular enterprise, the chice then becmes ne between the different types f cmpanies that can be frmed under the Crpratins Act. Cmpanies are classified in tw main ways. Firstly, they are classified accrding t the nature f the members liability. Secndly, they are classified accrding t whether they are public r prprietary. Crpratins Cmpanies registered under the Crpratins Act Other crpratins (eg incrprated assciatins) Public cmpanies Prprietary cmpanies Limited by shares Unlimited with share capital Limited by shares Unlimited with share capital Limited by guarantee N liability [4-320] Cmpanies limited by shares A cmpany limited by shares is defined in sectin 9 f the Crpratins Act as a cmpany frmed n the principle f having the liability f its members limited t the amunt unpaid n the shares respectively held by them. In these cmpanies, members cntribute, r agree t cntribute when called upn t d s, mney r prperty as share capital. In return they are issued with fully r partly paid shares. [4-340] Classificatin f public r prprietary cmpanies A persn prpsing t apply fr registratin f a cmpany limited by shares must decide whether they wish the cmpany t be a prprietary cmpany r a public cmpany. Prprietary cmpanies Sectin 113(1) f Crpratins Act states that prprietary cmpanies are nt allwed t have mre than 50 members; nt allwed t invite public t subscribe fr shares in the cmpany Sectin 201A(1) f Crpratins Act states that prprietary cmpanies must have at least ne directrs Crpratins Act differentiates between small prprietary and large prprietary cmpanies. The test f whether the prprietary cmpany is small r large is set ut in sectin 45A f the Crpratins Act. Large prprietary cmpanies are subject t mre extensive disclsure and reprting bligatins than small prprietary cmpanies are. A cmpany is small if it satisfies at least tw f the fllwing three tests s45a(2): The cnslidated grss perating revenue fr the financial year f the cmpany and the entities it cntrls (if any) is less than $25 millin The value f the cnslidated grss assets at the end f the financial year f the cmpanies and the entities it cntrls (if any) is less than $12.5 millin 4

5 The cmpany and the entities it cntrls (if any) have fewer than 50 emplyees at the end f the financial year Sectin 112(1) f Crpratins Act states that prprietary cmpanies may be a cmpany limited by shares r an unlimited cmpany with share capital. Sectin 249A f the Crpratins Act states that reslutins f prprietary cmpanies that must be passed at general meetings f sharehlders may be deemed t have been passed even thugh n meeting was held, prvided all sharehlders sign a dcument stating that they supprt the reslutins Public cmpanies Sectin 250N(1) f the Crpratins Act: public cmpanies are required t hld an annual general meeting Sectin 292(1) f the Crpratins Act: Public cmpanies are required t ldge financial reprts regardless f the size f the cmpany s peratins Special restrictins n transactins with related parties apply t public cmpanies under Chapter 2E f the Crpratins Act Sectin 201A(2) f the Crpratins Act: public cmpanies must have three directrs r mre Sectin 204A(2) f the Crpratins Act: public cmpanies must have a secretary Sectin 329 f the Crpratins Act: the resignatin f an auditr f a public cmpany requires the cnsent f ASIC Sectin 300(10) f the Crpratins Act: Directrs reprts f a public cmpany must cntain statements abut the qualificatins f directrs, their attendance at meetings f directrs, their sharehldings r their cntracts with the cmpany Sectin 201E f the Crpratins Act: special rules apply t the appintment f public cmpany directrs Sectin 203D and 203E f the Crpratins Act: restrictins apply t the remval f public cmpany directrs Public cmpanies may be listed r unlisted but all cmpanies listed n the ASX are public cmpanies. [4-360] Changing type f cmpanies The prcedure fr cnverting frm ne type f cmpany t anther is set ut in Pt 2B.7 f the Crpratins Act. The cmpany must pass a special reslutin t change its type and then cmply with varius registratin requirements, including prviding infrmatin t ASIC. ASIC will then alter the details f the cmpany s registratin t reflect the change f type. Sectin 166 f the Crpratins Act states that the change des nt create a new legal entity r affect the cmpany s existing relatinship with utsiders. 5

6 CORPORATE GROUPS Crprate grup is used t describe the situatin where cntrl f ne r mre cmpanies is in the hands f anther cmpany. [4-420] Des the law treat crprate grups differently? Cmpany law treats each cmpany in a crprate grup as a separate entity. Sme parts f the Crpratins Act impse special bligatins n cmpanies and their participants where a relatinship f hlding cmpany and subsidiary cmpany exists. Divisin 6 f Pt 1.2 f the Crpratins Act prvides that a cmpany is a subsidiary f anther cmpany (hlding cmpany) if and nly if it satisfies the cnditin: Sectin 46 A bdy crprate (in this sectin called the first bdy ) is a subsidiary f anther bdy crprate if, and nly if: (a) the ther bdy: (i) cntrls the cmpsitin f the first bdy's bard; r (ii) is in a psitin t cast, r cntrl the casting f, mre than ne-half f the maximum number f vtes that might be cast at a general meeting f the first bdy; r (iii) hlds mre than ne-half f the issued share capital f the first bdy (excluding any part f that issued share capital that carries n right t participate beynd a specified amunt in a distributin f either prfits r capital); r (b) the first bdy is a subsidiary f a subsidiary f the ther bdy. H v Akai Pty Ltd (2006) à cmpanies in the Akai grup had entered int an agreement with anther grup, Grande, under which Grande culd perate the business f the Akai grup. The curt fund that this agreement was nt enugh t make the Grande Cmpany a hlding cmpany f the Akai Cmpany. Cntrlled entities Crpratins Act impses special rules n cmpanies and the entities they cntrl. The cncept f cntrl is defined in sectin 50AA. Sectin 50AA(1) f the Crpratins Act states that an entity cntrls a secnd entity if the first entity has the capacity t determine the utcme f decisins abut the secnd entity s financial r perating plicies. All subsidiaries are entities cntrlled by their parent cmpany. But the cncept f cntrlled entities is that a cmpany culd be cntrlled by anther cmpany withut being its subsidiary. Circumstances that the law recgnise and regulate crprate grups Inslvent trading Sectin 588V f the Crpratins Act: a hlding cmpany may be liable fr debts incurred by a subsidiary after that subsidiary became inslvent in certain circumstances Related party transactin Chapter 2E f the Crpratins Act (further discussin in chapter 14) Financial statement The accunting rules fr cmpany financial statements and reprting in Ch 2M f the Crpratins Act allw fr the preparatin f cnslidated r grup financial statements and fr grup reprting and disclsure. Large and small prprietary cmpanies Directrs duty The assets and peratins f cmpanies and entities cntrlled by them are taken int accunt in determining whether a particular cmpany is small r large prprietary cmpany Sectin 187 f the Crpratins Act allws a directr f a whlly wned subsidiary (cmpanies in which all the issued shares are held by a hlding cmpany r its nminee) t act in the interests f the parent cmpany is sme circumstances. 6

7 Sectin 187 A directr f a crpratin that is a whlly-wned subsidiary f a bdy crprate is taken t act in gd faith in the best interests f the subsidiary if: a) the cnstitutin f the subsidiary expressly authrises the directr t act in the best interests f the hlding cmpany; and b) the directr acts in gd faith in the best interests f the hlding cmpany; and c) the subsidiary is nt inslvent at the time the directr acts and des nt becme inslvent because f the directr's act. 7

8 INTERNAL GOVERNANCE RULES One f the ways in which cmpany law achieves the regulatin f relatinship between participants in the cmpanies is t prvide a legal framewrk fr agreement between thse participants n matters f internal administratin relating t the cmpany. The rules r arrangements agreed between the participants are referred t in this bk as the cmpany s internal gvernance rules. The internal gvernance rules have effect as cntractual bligatins n the cmpany, its members and fficers. Changes t the internal gvernance rules generally require a special reslutin f members. A cmpany s internal gvernance rules will cnsist f: Replaceable rules set ut in the Crpratins Act A cnstitutin, r A cmbinatin f the replaceable rules and a cnstitutin A cmpany s internal gvernance rules will deal with the fllwing: The appintment, remval and pwers f the cmpany s fficers (directrs and secretary) The prcedure fr cnvening and cnducting directrs meetings The prcedure fr cnvening and cnducting members meeting (including vting rights) Any special rights attaching t classes f shares Rules relating t dividends Rules relating t the transfer and transmissin f shares The Crpratins Act prvides a set f mdel rules, in the frm f replaceable rules, which a cmpany may adpt as its internal gvernance rules but it is nt bliged t d s. Sectin 134 f the Crpratins Act: a cmpany s internal management may be gverned by prvisins f this Law that apply t the cmpany as replaceable rule, by a cnstitutin r by a cmbinatin f bth. Cmpanies that retain their memrandum (which were required by law t have) and articles f assciatin frm befre 1 July 1998 are treated as having adpted a cnstitutin in thse terms, which displaces the replaceable rules fr that cmpany. 8

9 THE REPLACEABLE RULES If the cmpany was frmed n r after 1 July 1998, it may make that electin simply by nt adpting a cnstitutin. Sectin 135 f the Crpratins Act: if the cmpany was frmed befre 1 July 1998, it can invke the replaceable rules by repealing its existing memrandum and articles f assciatin The replaceable rules apply t a cmpany unless displaced r mdified in accrdance with sectin 135(2) f the Crpratins Act by peratin f sectin 135(1) f the Crpratins Act. If the replaceable rules cntained in the Crpratins Act are amended by parliament, thse amendments autmatically apply t the cmpany. Sectin 135(1) f the Crpratins Act states that the replaceable rules d nt apply t single directr/ sharehlder cmpanies, that is, t prprietary cmpanies in which the same persn is bth its sle directr and its sharehlder Single directr/sharehlder cmpanies, therefre, have n internal gvernance rules unless they have adpted a cnstitutin. If an additinal member r directr jins such a cmpany, the replaceable rules will then apply t the cmpany unless they are displaced by a cnstitutin The Crpratins Act cntains 42 replaceable rules, which appear thrughut the statute. They are listed in sectin 141 f the Crpratins Act: Prvisins that apply as replaceable rules Officers and Emplyees 1 Vting and cmpletin f transactins directrs f prprietary cmpanies Pwers f directrs 198A 3 Negtiable instruments 198B 4 Managing directr 198C 5 Cmpany may appint a directr 201G 6 Directrs may appint ther directrs 201H 7 Appintment f managing directrs 201J 8 Alternate directrs 201K 9 Remuneratin f directrs 202A 10 Directr may resign by giving written ntice t cmpany 203A 11 Remval by members prprietary cmpany 203C 12 Terminatin f appintment f managing directr 203F 13 Terms and cnditins f ffice fr secretaries 204F Inspectin f bks 14 Cmpany r directrs may allw member t inspect bks 247D Directrs meetings 15 Circulating reslutins f cmpanies with mre than ne directr 248A 16 Calling directrs meetings 248C 17 Charing directrs meetings 248E 18 Qurum at directrs meetings 248F 19 Passing f directrs reslutins 248G Meetings f members 20 Calling f meetings f members by a directr 249C 21 Ntice t jint members 249J(2) 22 When ntice by pst r fax is given 249J(4) 22A When ntice under paragraph 249J(3)(cb) is given 249J(5) 23 Ntice f adjurned meetings 249M 24 Qurum 249T 25 Chairing meetings f members 249U 26 Business at adjurned meetings 249W(2) 27 Wh can appint a prxy 249X Replaceable rule fr prprietary cmpanies nly 28 Prxy vte valid even if member dies, revkes appintment, etc 250C(2) 29 Hw many vtes a member has 250E 30 Jintly held shares 250F 9

10 31 Objectins t right t vte 250G 32 Hw vting is carried ut 250J 33 When and hw plls must be taken 250M Shares 33A Pre emptin fr existing sharehlders n issue f shares in prprietary 254D cmpany 33B Other prvisins abut paying dividends 2554U 34 Dividend rights fr shares in prprietary cmpanies 254W(2) Transfer f shares 35 Transmissin f shares n death 1072A 36 Transmissin f shares f bankruptcy 1072B 37 Transmissin f shares n mental incapacity 1072D 38 Registratin f transfers 1072F 39 Additinal general discretin fr directrs f prprietary cmpanies t refuse t register transfers. 1072G 10

11 THE CONSTITUTION Sectin 135(2) f the Crpratins Act prvides that a sectin r subsectin that applies t a cmpany as a replaceable rule can be displaced r mdified by the cmpany s cnstitutin. Members f the public cmpanies that have adpted a cnstitutin can btain a cpy f that cnstitutin frm the cmpany under sectin 139 f the Crpratins Act Public cmpanies are required t ledge their cnstitutins and details f any amendments t them with ASIC, therefre it is pssible fr any persn t btain a cpy f a public cmpany s cnstitutin by cnducting a search f ASIC s recrds. There is n requirement fr a prprietary cmpany t ldge a cpy f its cnstitutin with ASIC unless ASIC requests it under sectin 138 f the Crpratins Act. [5-540] Hw des a cmpany adpt a cnstitutin? Sectin 136(1)(a) f the Crpratins Act states that cmpanies can chse t adpt a cnstitutin n registratin and it is dne by each persn wh is prpsing t becme a member agreeing in writing t the terms f the prpsed cnstitutin befre the applicatin fr registratin is ldged Sectin 136(1)(b) f the Crpratins Act states that cmpanies may adpt a cnstitutin at any time after registratin by special reslutin Sectin 137 f the Crpratins Act states that where a cmpany has passed a reslutin t adpt a cnstitutin, that reslutin will take effect n the day it is passed r a later date specified in the reslutin (unless it als invlves a change f name, change f type r variatin f class rights) [5-560] Hw des a cmpany amend r repeal a cnstitutin? Amendment t and repeal f cnstitutin are gverned by sectin 136 and sectin 137 f the Crpratins Act: Sectin 136(2) f the Crpratins Act prvides that, generally, amending r repealing a cmpany s cnstitutin requires a special reslutin f members. Hwever, a cmpany may include in its cnstitutin a further requirement that must be satisfied befre the special reslutin takes effect. E.g. in a small cmpany, the members may agree that amendments t the cnstitutin require the written cnsent f all the members. If such a requirement were included in the cnstitutin, any purprted amendment t the cnstitutin by special reslutin wuld nt take effect unless that additinal requirement was satisfied: sectin 136(3) f the Crpratins Act. Such a prvisin itself cannt be altered unless the additinal requirement is met: sectin 136(4) f the Crpratins Act. Sectin 137 f the Crpratins Act states that where a cmpany has passed a reslutin t adpt a cnstitutin, that reslutin will take effect n the day it is passed r a later date specified in the reslutin (unless it als invlves a change f name, change f type r variatin f class rights) Sectin 136(5) f the Crpratins Act states that public cmpanies that amend r repeal their cnstitutin must give ntice t ASIC 11

12 LEGAL EFFECT OF THE INTERNAL GOVERNANCE RULES A cmpany s internal gvernance rules perate as a cntract and this cntract is created by statute. Sectin 140(1) f the Crpratins Act states that a cmpany s cnstitutin (if any) and any replaceable rules that apply t the cmpany have effect as a cntract: a. between the cmpany and each member; and b. between the cmpany and each directr and cmpany secretary; and c. between a member and each ther member Sectin 140 is imprtant in determining: the manner in which the internal gvernance rules are t be interpreted the rights f the cmpany, its members and fficers t require cmpliance with the internal gvernance rules the cnsequences f a failure, by sme persn wh is bund by them, t cmply with the internal gvernance rules. [5-620] Hw are the rules enfrced? There are certain legal limitatins that apply under the internal gvernance rules 1. Sectin 140(1) f the Crpratins Act is limited in that it prvides fr the internal gvernance rules t have effect as a cntract nly: a. between the cmpany and each member; and b. between the cmpany and each directr and cmpany secretary; and c. between a member and each ther member Therefre, the internal gvernance rules d nt perate as a cntract between a member and an fficer, r between an fficer and anther fficer. Further, the cntract cannt be enfrced by utsiders. Eley v Psitive Gct Security Life Assurance C Ltd à the cmpany s articles f assciatin stated that Eley shuld be the cmpany s slicitr. When the cmpany ceased t emply him as its slicitr, he sued t enfrce the relevant article under the predecessr t sectin 140. Hwever, he failed because the curt held that the statutry cntract is a deemed cntract nly as between the parties referred t in the sectin. 2. T the extent that sectin 140 cnfers rights r bligatins n a member, it des s nly if (and while) the persn is a member and nly in their capacity as a member. A persn becmes a member n registratin f the cmpany if they are named in the applicatin fr registratin, r n their name being entered in the cmpany s register f members fllwing issue t them f new shares in the cmpany, r transfer t them f existing shares frm an existing sharehlder. Applicatin fr membership may be unable t enfrce the statutry cntract until they are registered as members: Bailey v NSW Medical Defence Unin Ltd. 3. A member cannt enfrce cmpliance by the cmpany with a prcedural requirement in the internal gvernance rules where failure t cmply with that requirement can validly be excused by a majrity f members in general meeting 4. A member s right t enfrce the internal gvernance rules under sectin 140 may be limited t thse f the rules that cnfer rights that are persnal t the member in its capacity as such. [5-660] What happens if the rules are nt bserved/ are breached? Unlike many ther prvisins f the Crpratins Act, a failure t cmply with the replaceable rules that apply t a cmpany is nt f itself a cntraventin f the Crpratins Act. Sectin 135(3) f the Crpratins Act states that failure t cmply with the replaceable rules is nt a breach f the Act. E.g. a persn seeking an injunctin requiring cmpliance with the replaceable rules must d s under the rdinary jurisdictin f the Supreme Curt If a prvisin f a cmpany s internal gvernance rules (whether a replaceable rule r a prvisin f a cnstitutin) has nt been bserved, then the fllwing may result: 12

13 In the case f nn cmpliance by the cmpany, a member may be able t btain a declaratin r injunctin requiring the cmpany t cmply, prvided the rule is ne that a member can enfrce n the principles set ut abve. A directr r the cmpany secretary may als be able t enfrce the internal gvernance rules n this basis. In the case f nn-cmpliance by a member, anther member r the cmpany may be able t btain declaratry r injunctive relief, r damages In the case f nn-cmpliance by a directr r secretary, the cmpany may be able t btain declaratry r injunctive relief, r damages Nn-cmpliance with the internal gvernance rules may amunt t a prcedural irregularity [8-620]. E.g. internal gvernance rules will generally specify the required number f members fr a qurum. Hlding a meeting withut a qurum may be a prcedural irregularity. In cases f prcedural irregularity, sectin 1322 f the Crpratins Act applies. 13

14 SINGLE DIRECTOR/SHAREHOLDER COMPANIES [5-700] What is this cmpany? Due t single directr/sharehlder cmpanies have nly ne participant, the rules f cmpany law (including the rules that are cntained in the internal gvernance rules) that regulate the relatinship between multiple participants have n applicatin t them. Hwever, such cmpanies are still cnsidered as separate legal entity and therefre must act as such. [5-720] What rules gvern single directr/sharehlder cmpanies? Sectin 135(1) f the Crpratins Act prvides that the replaceable rules d nt apply t a prprietary cmpany while the same persn is bth its sle directr and sle sharehlder. Instead, sectin 198E, 201F and 202C cntain certain prvisins that gvern the peratin f single directr/sharehlder cmpanies. These prvisins apply whether r nt the single directr sharehlder cmpany has adpted a cnstitutin: 198E(1) Sectin 198E The directr f a prprietary cmpany wh is its nly directr and nly sharehlder may exercise all the pwers f the cmpany except any pwers that this Act r the cmpany's cnstitutin (if any) requires the cmpany t exercise in general meeting. The business f the cmpany is t be managed by r under the directin f the directr. Nte: Fr example, the directr may issue shares, brrw mney and issue debentures. 198(2) The directr f a prprietary cmpany wh is its nly directr and nly sharehlder may sign, draw, accept, endrse r therwise execute a negtiable instrument. The directr may determine that a negtiable instrument may be signed, drawn, accepted, endrsed r therwise executed in a different way. Sectin 201F 201F(1) The directr f a prprietary cmpany wh is its nly directr and nly sharehlder may appint anther directr by recrding the appintment and signing the recrd. 201F(2) If a persn wh is the nly directr and the nly sharehlder f a prprietary cmpany: a) dies; r b) cannt manage the cmpany because f the persn's mental incapacity; and a persnal representative r trustee is appinted t administer the persn's estate r prperty, the persnal representative r trustee may appint a persn as the directr f the cmpany. Sectin 202C A persn wh is the nly directr and the nly sharehlder f a prprietary cmpany is t be paid any remuneratin fr being a directr that the cmpany determines by reslutin. The cmpany may als pay the directr's travelling and ther expenses prperly incurred by the directr in cnnectin with the cmpany's business. Sectin 249B f the Crpratins Act: where smething must be dne by the member f a single directr/sharehlder cmpany in their capacity as a member, it can be dne by the member recrding a reslutin in writing and signing it. Sectin 251A f the Crpratins Act: the reslutin must be recrded in the cmpany s minute bk 14