Академический Документы
Профессиональный Документы
Культура Документы
The liquidator disputed the validity of the debentures on the ground of fraud. The
liquidator sought:
1. rescission of the agreement transferring the business from Mr Salomon to the
company,
2. cancellation of the debenture, and
3. repayment by Mr Salomon of the balance of the purchase money.
‘It never was intended that the company to be constituted should consist of one
substantial person and six mere dummies, the nominees of that person, without any
real interest in the company. The Act contemplated the incorporation of seven
independent bona fide members, who had a mind and will of their own, and were not
the mere puppets of an individual who, adopting the machinery of the Act, carried on
his old business in the same way as before, when he was a sole trader. To legalise
such a transaction would be a scandal’: Lopes LJ at 341.
There is nothing in the Act requiring that the subscribers to the memorandum should
be independent or unconnected, or that they or any one of them should take a
substantial interest in the undertaking, or that they should have a mind and will of
their own, as one of the learned Lords Justices seem to think, or that there should be
anything like a balance of power in the constitution of the company. In almost every
company that is formed, the statutory number is eked out by clerks or friends, who
sign their names at the request of the promoter or promoters without intending to
take any further part or interest in the matter.’
Salomon v Salomon & Co Ltd finally resolved the lingering question of whether a sole
trader could gain limited personal liability by setting up a registered company to
carry on the business.
Related Companies
Where a body corporate is:
(a) a holding company of another body corporate; or
(b) a subsidiary of another body corporate; or
(c) a subsidiary of a holding company of another body corporate;
the first-mentioned body and the other body are related to each other: CA s 50.
CA s 46(a)(iii):
o A body corporate is a subsidiary of another body corporate if it holds
more than one-half of the issued share capital of first body
(excluding any part of that capital that carries no right to participate
beyond a specified amount in a distribution of either profits or capital).
o This test focuses on the percentage of ordinary share capital held and
not on the voting power attached to that holding.
Note:
1. The operation of this provision is somewhat problematic given the demise of the
pre-July 1, 1998 rule that all issued shares must have had a ‘par’ or ‘nominal’
value.
2. Before, July 1 1998, the constitution of a company with share capital had to set
out its authorised share capital. That is, the amount of capital that the company
was authorised to raise by issuing shares. This could, for example, have been
$200m.
3. The legislation then required the stated authorised capital to be divided into one
or more classes of shares of a specified value known as their nominal or par value.
The $200m could, for example, have been divided into 150m ordinary $1 shares
and 500m non-participating $1 preference shares.
4. Assuming that all of these shares had been issued, if a company (Y) held more
than 75m of the $1 ordinary shares in another company (X), X would be a
subsidiary of Y.
2. Australian courts, and in particular the High Court, are very reluctant to imperil
the Salomon principle by lifting the corporate veil. See Redmond p173 Briggs v
James Hardie & Co Pty Ltd (1989) 16 NSWLR 549
Company’s Constitution
1. Almost all companies have a constitution
2. The only companies that must have a constitution are:
a) No liability companies: see CA s 112(2)
b) Charitable companies limited by guarantee that do not want to have ‘Limited’
as the last word of their name: CA s 150
c) Public companies that want to be listed on the ASX: see ASX Listing Rule 1.1
Condition 1A
3. The registration application for a public company must be accompanied by a copy
of its proposed constitution if the company is to have a constitution on
registration: CA s 117(3).
4. A public company must lodge with ASIC a copy of a special resolution adopting or
amending a constitution within 14 days of the resolution being passed: see CA s
136(5).
5. The constitution of a proprietary company does not have to be lodged with ASIC
unless ASIC asks for it under CA s 138.
Note:
1. The registration application for a public company, but not a proprietary company,
must be accompanied by the proposed company’s constitution if it is to have a
constitution on registration: CA s 117(3).
2. Under CA s 150, ASIC has the power to register a company limited by guarantee
without ‘Limited’ in its name, or alter the registration of such a company by
omitting ‘Limited’ from its name, if its constitution:
a) requires the company to pursue charitable purposes only and to apply its income
in promoting those purposes;
b) Prohibits the company making distributions to its members; and
c) Requires the directors to approve all other payments the company makes to
directors.
3. A company must send a copy of its constitution to a member within 7 days if
the member asks the company in writing for one and pays any fee (not exceeding
$10) required by the company: see CA s 139 and Corp Regulations Sch 4 Item
2.
Note:
1. To pass, a ‘special resolution’ requires the support of at least 75% of the votes
cast on it by eligible voters: see CA s 9 definition.
2. ASIC may direct a company to lodge a consolidated copy of its constitution with
ASIC: CA s 138.
3. Where it is proposed to put a special resolution to a meeting of a company’s
members, s 249L(1)(c) requires the notice of the meeting to set out that
intention and to state the proposed resolution.
3. A company cannot contract out of its statutory right to alter its constitution: see,
for example, Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at
479; Russell v Northern Bank Development Corp Ltd [1992] 3 All ER 161;
[1992] 1 WLR 588, HL.
4. A constitution may provide that the special resolution to alter it does not have
effect unless a further requirement in the constitution is complied with: s 136(3).
Note:
1. However, a company’s members may contract with each other not to exercise the
power of alteration in particular circumstances. Such an agreement is an example
of a ‘shareholders’ agreement’. The company is not a party to a shareholders’
agreement: see, for example, P D Finn, "Shareholder Agreements" (1978) 6 ABLR
97 at 101-2.
2. The further requirement could, for example, involve a majority vote of more than
75%, or the consent of a particular member or class of members. Unless the
constitution provides otherwise, the company may modify or repeal such a further
requirement only by complying with it: s 136(4).
5. Existing members are not bound by the following changes to a constitution unless
they consent to them in writing:
a) One which requires a member to take up additional shares;
b) One which increases a member’s liability to contribute share capital, or otherwise
to pay money, to the company;
c) One which imposes or increases restrictions on the right to transfer shares already
Corporate Law #2, 7/11
Replaceable Rules
1. 42 sections of the Corporations Act are labelled ‘replaceable rule’: see the table
in s 141. [see end of document]
2. The ‘replaceable rules’ can only apply to:
a) A company that was first registered after July 1, 1998; and
b) A company registered before July 1, 1998 which has repealed its constitution
since that date: see s 135(1).
In both cases, a company’s constitution can displace or modify a rule: s 135(2).
Note:
1. The rule in s 249X is a replaceable rule for proprietary companies but a
mandatory rule for public companies.
2. Most companies were registered before July 1, 1998 and most of them have not
subsequently repealed their constitution. The replaceable rules do not apply to
these companies. However, the ‘articles’ in Table A [companies limited by
shares] or Table B [no liability companies] of the Schedule to earlier state or
territory companies legislation might apply to them to the extent that they have
not been displaced by the relevant company’s own constitution.
3. Note that s 135(1) does not seem to deal with the position of companies that
were registered on July 1, 1998 (a weekday).
1. Note the absence of contracts between members and directors and members
and secretaries.
2. There is not usually a fiduciary relationship between members and directors or
between members and the company.
3. There is a fiduciary relationship between each director and the company.
4. Members and directors (and secretaries) can only enforce those provisions of
the statutory contract which relate to them as members, directors or secretaries.
What is a ‘General Meeting’? The term ‘general meeting’ in company law means a
meeting of the company’s members.
Shareholder Meetings
See Redmond Chapter 6 for aspects such as who can convene a meeting, the notice
requirements, resolutions, voting and proxies, quorums and disclosure obligations.