Co. Pty. Ltd. v. Moorehead (1909), 8 C.L.R. 330 clanking its chains

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1 23 COMPANIES PRELIMINARY NOTE Companies and Associations for Business Purposes The word "company" is ordinarily used with reference to a number of persons more or less permanently associated for some common purpose of business. The term is commonly used as part of the name of a firm, but with time its application has become more and more confined to incorporated associations for commercial or industrial purposes. An association of persons carrying on business in common with a view of profit, not being a corporation, is of necessity a partnership in law and the relationship of the members inter se and with strangers Partnerships to the partnership is determined by the law of partnership (see the Partnership Act of 1891, s. 5, title PARTNERSHIP). Partnerships may take the form of limited partnerships under the Mercantile Acts, 1867 to 1896, ss , title MERCANTILE LAW. The specific features of such partnerships are, firstly, that in addition to members in the position of ordinary partners, they contain "special partners", whose general liability is limited to specific amounts contributed by them to the common capital, and, secondly, that the capital of the partnership cannot be reduced below the original amount by withdrawal of capital or division of profits. (See ibid., ss. 54, 55, 61.) Prohibition of Large Partnerships Business partnerships of more than twenty persons must now be incorporated (the Companies Act of 1961, s. 14, post). On the other hand a company incorporated under the Companies Act of 1961 must consist of at least five members, unless it be a proprietary company, when it must consist of at least two members. (See ibid., ss. 14, 36, post.) Bodies Corporate Creation by the Crown The Crown alone has power at common law to create corporations 9 Halsbury's Laws of England, 3rd ed., pp. 21, 22. This power was somewhat extended by the Chartered Companies Act, 1837, 7 Will. 4 & 1 Vic. c. 73, 3 Halsbury's Statutes of England, 2nd ed., p. 262, under which the power formerly exercisable by grant of a charter may be exercised by letters patent. With respect to authority of a dominion Governor to exercise the power of the Crown in this respect, see Bonanza Creek Gold Mining Co. Ltd. v. R., [1916] 1 A.c [1916] All E.R. (Reprint) 999. Incorporation by Statute The vast majority of corporations in existence at the present time are however created by or under Act of Parliament. Corporations have been constituted by special Act, as, e.g., the Australian Mutual Provident

2 24 COMPANIES Vol. 2 Society Act of 1857 (20 Vic.) (replaced by the Australian Mutual Provident Society's Act, 1934 (not reprinted», but are ordinarily incorporated by virtue of registration under a general Act, the Act now in force being the Companies Act of 1961, post, which replaces the Companies Acts, 1931 to Nature and Powers of Corporations The essential feature of a corporate body is that it exists as a legal person independently of its members, with the consequence that it has a continuity, and may acquire legal rights and become subject to legal obligations, independently of its members 9 Halsbury's Laws of England, 3rd ed., p. 8. Conversely, members are not ordinarily liable for the obligations, and cannot ordinarily sue to enforce the rights, of the corporation. A corporation created by royal charter or letters patent acquires as of course power in law to do all such things as a natural person can do (Bonanza Creek Gold Mining Co. Ltd. v. R., supra). The position of companies incorporated by or under statute, however, is very different; such companies have only such powers as are conferred directly or indirectly by statute, and any act attempted beyond those powers fails of legal effect (Ashbury Railway Carriage and Iron Co. v. Riche (1875), L.R. 7 H.L. 653; 9 Halsbury's Laws of England, 3rd ed., p. 62). In the case of companies incorporated by registration under the Companies Act of 1961, post, s. 19 imputes to the company the powers set forth in the Third Schedule unless expressly excluded or modified by the memorandum or articles. The operation of the doctrine of ultra vires (see Ashbury Railway Carriage and Iron Co. v. Riche, supra) is limited by s. 20, although whether the section will be found to be as effective as has been hoped, remains to be seen. History of Company Legislation in Queensland The Companies Act of 1839 allowed spiritual persons to be members of companies. Various Acts had been passed from time to time empowering particular joint stock companies to sue and defend legal proceedings in the name of an officer appointed for that purpose. The Companies (Process) Act of 1842 required such companies to appoint a substitute for any such officer upon his ceasing to hold office. The Companies (Process) Act of 1848 applied provisions for proceedings by and against officers on behalf of the company to proceedings between members of the company and the company itself, and prevented the shares or other interests of a member in the company from being set off against any claim the company might have had against him. The Companies (Winding-up) Act of 1847 made provision for winding up joint stock companies committing an act of insolvency. This Act appears to have been still applicable to joint stock companies incorporated prior to the Companies Act The Companies Act 1863 was the first Act providing generally for incorporation of companies upon registration. Section 3 of that Act required registration thereunder of all large companies, associations or partnerships formed after the commencement of the Act to carry on a business for acquisition of gain. Incorporation took place upon registration of the memorandum and articles of association signed by at least

3 PRELIMINARY NOTE 25 seven proposed members of the company and setting out the objects of the proposed company and the regulations governing the conduct of its affairs (ss. 5, 13, 17). Under Part VI joint stock companies existing at the commencement of the Act and consisting of seven or more members and any company thereafter constituted according to law otherwise than under the Companies Act 1863 might become registered thereunder (ss ). When so registered a company became generally subject to the provisions of the Act (s. 190). The provisions of the Companies Act 1863 were considerably supplemented by the Companies Act Amendment Act of 1889 (providing, inter alia, for reduction of capital), the Companies Act of 1891, the Companies (Winding-up) Act of 1892, the Companies Act of 1893, the Companies Act of 1896, the Companies Acts Amendment Act of 1909 (providing, inter alia, for registration of mortgages), and the Companies Acts Amendment Act of The joint effect of these Acts was to create the code of company legislation which is now embodied, with further extensions, in the Companies Act of 1961, post. This body of legislation was supplemented by the Mining Companies Act of 1886 (now replaced by Division 1 of Part XI of the Companies Act of 1961, post), the British Companies Act of 1886, and the Foreign Companies Act of 1895 (both now replaced by Division 3 of Part Xl {)f the 1961 Act). The Companies Act of 1931 replaced the body of company law established by the Acts repealed by s. 4 thereof. It also contained a number of provisions which upon its commencement became law for the first time in Queensland. This Act followed closely the Companies Act, 1929 (Imperial), for which see Halsbury's Statutes of England, Vol. 2, pp. 775 et seq. The Companies Act of 1931, together with the Rules of Court of 17 March 1932, and 30 June 1932, and the Companies (Winding-up) Rules of 1934, formed a code of law and practice with respect to companies. This code has now been repealed by the Companies Act of 1961, and the Companies Rules, Uniform Company Law The need had long been felt for uniformity throughout the Commonwealth in the law relating to companies. With Huddart Parker & Co. Pty. Ltd. v. Moorehead (1909), 8 C.L.R. 330 clanking its chains in the path of Federal enactment under s. 51 (xx) of the Commonwealth Constitution (title COMMONWEALTH AND STATES), the answer was seen to lie in State and Federal co-operation. Accordingly, conferences involving Commonwealth and State Attorneys-General, Registrars and Parliamentary Draftsmen took place, the result of which has been the enactment in the several States and the Australian Capital Territory of substantially identical company legislation, differing only in drafting styles to meet local conditions. In Queensland this legislation is comprised of the Companies Act of 1961, the Companies Rules 1963 and certain Regulations. Companies Act of 1961 The Companies Act of 1961, which commenced on 1 July 1963, repealed the several Acts set forth in the First Schedule to the 1961 Act, s. 4. The Act is, of course, broadly similar to the Companies Acts, 1931 to 1960 which it replaced, but in many respects it has modified

4 26 COMPANIES Vol. 2 and extended the provisions of the earlier Acts. In addition, some new concepts have been introduced and some old concepts dispensed with. In drafting the Act the draftsman has drawn heavily on overseas experience. Not only has he been influenced by the Companies Act 1948 (Eng.) but also by the Model Business Corporation Act drawn up by a Committee of the American Bar Association (ss. 19 and 20) and by the South African Act (see Part IX). Sections 5 and 6 of the Companies Act of 1961 define many of the terms used in the Act. It might be noted that the definition in s. 6 of "subsidiary and holding company" is drawn far more widely than the corresponding definition in s. 137 of the Companies Acts, 1931 to Administration Part II deals with the administration of the Act and provides for Registrars of Companies, s. 7, and a Companies Auditors Board, s. 8. Section 9 provides that company auditors must be registered and further provides, inter alia that a registered company auditor may become a registered liquidator. The Board has power to inquire into the conduct, character and ability of registered company auditors and registered liquidators and may penalise them, s. 9. Except with the leave of the Court, or in the case of a members' voluntary winding up of an exempt proprietary company, a liquidator must be registered before he can act in a winding up, s. 10. The Minister may appoint registered liquidators as official liquidators, s. 11. Registers and the lodging of documents, returns etc., are provided for by ss. 12, 13. Constitution Division 1 of Part III deals with the constitution of companies. Section 14 provides that a minimum number of five, or a minimum number of two where a proprietary company (defined by s. 15) is contemplated, may form an incorporated company of any of the five types specified in subsection (2), Subsection (3) prohibits unincorporated business associations of more than twenty members. A corporation, or its nominee cannot be a member of a holding company, s. 17. Powers Division 2 of Part III deals with the powers of companies. Section 19 enacts two powers which pertain to all companies, and provides that unless expressly excluded or modified by the memorandum or articles, a company's powers include the powers set forth in the Third Schedule. In s. 20 can be seen an attempt to limit the doctrine of ultra vires in relation to companies (see for example Ashbury Railway Carriage and Iron Co. v. Riche (1875), L.R. 7 H.L. 653), but whether the section will prove to be as effective as has been hoped remains to be seen. Section 21 regulates generally the alteration of the memorandum and s. 28 sets forth the procedure for altering the objects clause. Sections make provision for the names of companies. Companies which wish to change from public to proprietary companies, or vice versa, must follow the requirements laid down in s. 26. For special default provisions relating to proprietary companies, see s. 27. Section 29 deals generally with articles of association. Articles may adopt all or any of the regulations contained in Table A or Table B (no-liability company), s. 30. In so far as articles do not exclude or

5 PRELIMINARY NOTE 27 modify those regulations, they apply as far as applicable, ibid. Alteration.of articles is dealt with by s. 31. For the binding effect upon the,company and its members of the memorandum and articles, see s. 33. Section 36 prohibits the carrying on of business by a company with fewer than the statutory minimum number of members..shares, Debentures and Charges These are dealt with in Part IV. Prospectuses must be distributed with forms of application for issue of shares or debentures, s. 37. The provisions with respect to prospectuses apply to invitations to the public to deposit money with the company in certain cases, s. 38; and to certain ;advertisements, s. 40. As to conditions upon statements in a prospectus that stock exchange listing has been or will be applied for, see s. 44. The issue of share warrants is forbidden, s. 57. For the power to issue shares at a discount, see s. 59; and at premium, see s. 60. As to alteration or reduction of share capital, see ss. 62, 64. Interests other than shares, debentures, etc., are dealt with by ss. '76-89, the general design of which is to safeguard investors in unit trusts, investment contract schemes, land trusts etc. Division 6 of Part IV deals with the title and transfer of shares, debentures etc. A share certificate is prima facie evidence of the title of the member to the shares, s. 92. Section 98 deals with the certification by companies of transfers. Division 7 of Part IV deals with the registration of charges; see particularly s Directors and Officers For the appointment, qualifications etc. of directors, see ss :Section 121 applies an age limit to directors. Directors are obliged to disclose interests in contracts etc. of the company, s. 123, and see also as to their duty to act honestly and diligently, s Loans to directors made by the company are regulated by s Directors have a general duty to make certain disclosures to the company, s In certain circumstances a company must disclose its directors' emoluments, s Meetings Meetings of companies are provided for by Division 3 of Part V. Accounts For provisions relating to accounts and their audit, see ss Inspection Inspectors may be appointed to investigate the affairs of a company, ss They may be appointed by the Governor in Council, s. 169, or by the company itself, s Section 175 provides for an application to the Court for the winding up of a company on the petition of the Crown Law Officer at any time after a report has been made by the inspector. The Crown Law Officer may investigate the ownership of shares or debentures, s An investigation may be made in Queensland of a company which is being investigated in another State, s Arrangements and Reconstruction Part VII deals with arrangements and reconstructions. By s. 181, "if the required number of creditors or members agrees to a compromise.or arrangement which is then approved by the Court (which has power.to alter or impose conditions upon it) the compromise or arrangement

6 28 COMPANIES Vol. 2 becomes binding on all creditors or members. Take over offers are dealt with specifically by ss. 184, 185 and the Tenth Schedule. Section 186 provides for a remedy by the Court in cases of oppression. Receivers and Managers Receivers and managers are dealt with by ss A receiver must be a registered liquidator, s The remuneration of receivers and managers may be fixed by the Court, s Official Management This concept, new to Australian law and largely imported from South African legislation, is dealt with by Part IX. An official manager is appointed by a meeting of creditors, requested by a creditor who has an unsatisfied judgment for 250 or more, ss. 198, 201. At the meeting the company must submit a statement of affairs, s The meeting may also appoint a committee of management, s On appointment, the official manager has the powers of the directors who thereupon cease to hold office, s As to the termination of appointment of an official manager, see ss. 203, 209. The duty of an official manager is, generally, to manage the company in the most economic and beneficial manner to the interests of the members and creditors, s Section 206 applies the bankruptcy law in relation to undue preferences mutatis mutandis to dispositions of property made by a company under official management. An official manager may not without the leave of the Court or the committee or the company in general meeting, dispose of assets save in the ordinary course of business, s Subject to a right of appeal a resolution for placing a company under official management binds the company, members and creditors, s Note the restriction upon Court action after service of the notices convening the meeting of creditors imposed by s Winding Up The provisions as to winding up are set forth in Part X. Winding up may be by the Court, ss ; or voluntary, ss Certain provisions (ss ) are applicable to all modes of winding up. The winding up of unregistered companies is provided for by ss It should be noted that winding up subject to the supervision of the Court, which could be obtained under the Acts 1931 to 1960, is not a mode of winding up under the Act of The Court may, within two years of the dissolution of a company, declare the dissolution void, s The Registrar has power to strike a defunct company off the register, s Various Types of Companies Sections contain special provisions relating to no-liability companies; ss relate to investment companies; ss relate to foreign companies. Note that separate provision is no longer made for mining companies or British companies, as in the Acts 1931 to General In Part XII are to be found general provisions relating to the enforcement of the Act, ss ; offences under the Act, ss ; and other miscellaneous provisions, ss

7 PRELIMINARY NOTE 29 Schedules The First Schedule sets forth the repealed Acts. The Second Schedule sets forth prescribed fees. The Third Schedule sets forth the powers imported by virtue of s. 19. The Fourth Schedule comprises Tables A and B. The Fifth Schedule prescribed the matters to be included in prospectuses. The Sixth Schedule prescribes the matters to be included in statements in lieu of prospectuses. The Seventh Schedule prescribes the content of the statement required pursuant to Division 5 of Part IV and the reports to be set out therein. The Eighth Schedule prescribes the form and contents of the annual return. The Ninth Schedule prescribes the content of the profit and loss account and balance sheet. The Tenth Schedule, with s. 184, regulates take-over offers. Regulations Regulations have been gazetted, see Table of Contents, p. 11 ante. Rules The Companies Rules 1963, which repealed the several Rules referred to in Rule 2 thereof, came into force on 1 May Unfortunately, while it has been possible to print the Rules, post, they were not promulgated in time to allow for annotation and cross reference to and from the relevant sections of the Act. References to previous State Acts and Imperial Act Noted immediately after each section of the Act are to be found references to corresponding Or similar sections of the now superseded State Companies Acts and the Companies Act 1948 (Imperial). It is hoped that this will facilitate reference to authorities.

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