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Part A: Changes to Company Constitution

Question 1:

Sammy/ and Huy/ net whist such/ ng an IT owee am: nave psi gra3uatea. Iogether they have cone up with an dee bra subscrbuon bus tress parking highly entertaning podcasts and interviews using a nem 'ape' th3t they have designed fcr smarlphonw. Rather hen sell the app toApple, Google or Samsung,
they deckle to slatt a company (whch they want to register wkh the name 'Gosh Ply Ltir to market and sell the app to end-users.

H.rw, keen :o got stated, approaches Lacey who is a 4.411.1(1)01V11 A JiltKliK, radio hoot how nogotioloo o contact on behalf of .Soch with Grocoy forth oxclmho supply of a weekly podcast lo their law company. T econtract s signed 3y both
partieson the 20th Aori 2018, and arovides that Oracey s o,e paid a fee of $4,000 pet IIKI,11.1 fut the petiud clone yea. In the inwision of weekly MU/ISIS.
Vuhen Sammy aid H.m ga to register WS, Yly 1_0 on the l'Ot May2018, they discover that there is already a co mpetibr ccmpaly that has registered that name. As such, they register the comaany rat lAy Pty _td instead. Oh My Ply Ltd abets a constititian and Sammy and Huy/ are fisted as he twocompans drectors. Oh Mr Men enters into an employment contract with Anaya to act as the ccmpan
actrontant Sammy and How each MIA AS% nt th enpaly's shams and Amaya A give, a 10% sharehold no.
On the 10h of May 2018, Sammy old Kew conve,o their filet ditoctore mooting. Sammy is pleased to heat that [low has aPeady ma egad to sign a contract w th Gtocey tot Itnt weekt, M:aslant, they begin poyity the $4,000 IIK)Ilbly fee.
Un the 1" at July 21.1113 Sawn) and HIM find out that A maya has s woap:ec an accounting position with then cormettor Gosh Ply Ud and s try no to encourage

Gracey to provide her pocasts to Gosh insteac. Sammy and Hue unmecGlely call a members' meetiig and pass a resolution that atlas Oh My's constkiioi lo provide that direct= may detenn ne that the company can buy back shareholcinps of less than 11% at Mei discretion. 01 fAy also refine to cont nue to pay Sway her
mnnthli IPAAdults.):

A. Awls., what the process for altering a company constlirtion Is, and whether she cal prevent the imitation d the Anse allowing the directors to expropriate her shares',

B. Bracey, what recourse, It any, she has for the wort-pa/merit of her monthly lee forthI remainder of her one year cordract?

Question 2:

Dins Lp ty Ltd is a co-npany that s nvohed in hvobusnesses the bolting and marketing of spring %mar, wnlon Is vey progatie and me Sreauceon and marKeting otorgaruc hull jul03SwhIC11 las teen making a loss. I le directors of the Camper/ are Krstoter, Aida and Jaden. Knstoter overts4014 to

• the shares in the company and Aida and „laden owning 20% of the shareseach. The rema fling 20% of sham* are owed by five outside investors (Dhnei. Rose. Neve Timur and Jean-Lia.D

•n< I: Lp las been having financial dificulties with a number of outstanding payments to creditors—part cularly this that s.opply the fruit pica business. Al a board mooting on the 1* of Jut/ 20'8, Kricefor propococ a rosoluton to incorporate a separae oompany, H2O Ply Ltd and to hansforth.5 profitable •..ate• butineca to this company. The resolution is unani-nously passed. On Ste 7" of July 2018,1120 Ply Ltd is incanputaleU We assets retaloU lo Un Springy/alas biStrieSS we transferal t and an customers and suppliers are updated with the new details.

On the 30 of JO, Kastofer had been approathed by Chtuvw•lo had ad<ed f he could puthase additonal sharom in Dink Il Up Phi Ltd Ktisteer agreed to sen thin an Arlditinnal 59e nf the eherec Kilmer. AM they mmpletsel the 721VAdirIll nn the EP Minty
U5o, application by creditors who had not boon paid, the cool orders hat a Squideor be appointed and Drnh It U5 Ply Ltd be would up in insolvency. Lily-Mae is than appointed as ig.neator.

A.Liptilae whether Me dIreCIO'S Of Drink It Up Pty Ltd have breached 8181 of the Corporations Act 2001 (Cth) or their equ valent equtablo duties and what penalties or rened es might be applicaole; and

B.Dhrw whether ne has an action against Kristofer for broach of directors' dialec for eel Ina him the Aherne In Drink It Up Ply I td Joe. hefnre It was going nIn innIdAtim

Part A: Changes to Company Constitution

In this case Sammy and Huw develop an app through which they podcast the interviews and shows, and in this context they register the new company named as Oh My Pty Ltd. For taking the accounting services, they hire Amaya and allot her 10% shareholding in the organization. They also signed contract with the Gracey in terms of giving them weekly podcast and for this they agree to pay $4000 on monthly basis. This answer discusses the regulations related to the changes made in constitution, and regulations related to the expropriation of shares. Second part discusses the contractual remedies and liability in terms of contract.

Part A

It is possible for the organizations to make changes in the organizations constitution, and this authority is stated under section 136 of the Corporations Act 2001. This section states that any changes done by organization in the constitution must be done in terms of the conditions stated under section 136 (CorporationsACT, 2001).

In other words, this section defines such conditions which need to be complied by the board and members of the organization for making any legal changes in the constitution. As stated by this section, any changes made by the company in the constitution must be made by passing special resolution under the organization. However, such special resolution must be favoured by almost 75% shareholders of the organization, which means, any changes made in the constitution of the company must be approved by at least 75% shareholders of the company (Austii, no date).

In section 232 of the Corporation Act 2001, right of the minority shareholders are defined. As stated by this section, power to seek court intervention is given to the minority members of the organization in case members believe that directors and majority shareholders conduct any such action which cause disadvantage to the minority members (CorporationsACT, 2001).

It is not possible for the minority members of the organization to seek any order with the help of which they can change the share capital structure of the organization or prevent the majority shareholders and directors in making the required changes in the constitution of the organization. However, some exceptions related to this are also defined by the Corporation Act 2001, and with the help of these exceptions minority shareholders can prevent the majority shareholders in making changes in the capital structure of the company like they can restrict the share buyback in the organization. (ACL, no date)

Part B: Share Expropriation and Contractual Remedies in Business

This exception mainly aims in providing the power to the minority shareholders to prevent the directors and majority shareholders in making any type of changes in the company’s constitution. Following exceptions are introduced by the common law and statutory law in context of the restrictions-

  • Minority shareholders holds the right to prevent the changes which are made by the majority shareholders and directors in terms of the rights related to the class of shares.
  • Minority shareholders can restrict the changes made by the directors and majority shareholders related to the expropriating of the shares. However, there is an exception also which states that, directors and majority shareholders can expropriating the shares of the organization if such shares result in disadvantage and big loss to the organization.

In this case, Amaya sign the contract with the Gosh (competitors} for providing the similar services to them, and this action of Amaya cause great loss to the organization and this can also threat the survival of the organization. Because of this action of the Amaya Oh My suffers great loss and risk at its survival. As per the law it is not possible for the organization to expropriate the shares of the minority shareholders, but there is an exception also which states that, directors and majority shareholders can expropriating the shares of the organization if such shares result in disadvantage and big loss to the organization. In case Gambotto v WCP Limited (08 March 1995) - [1995] HCA 12 (08 March 1995) (Gambotto v WCP Limited, 1995), court consider the question related to the expropriating of the shares. Therefore, both Sammy and Huw hold the right to expropriate the shares of the Amaya because these shares cause huge loss to the organization. (Mitcchell, 1994)


Pre-incorporation contracts are deemed as those contracts which are entered by the promoter on the behalf of organization before the organization is registered, and these contracts are bound on the organization only in case such contracts are ratified by the organization after the registration of the company (Hambrook, no date). Section 131 of the Corporation Act 2001 defines the regulations related to the contract enter between the parties before the registration. It must be noted that, those contracts which are entered by the promoter on behalf of the organization which is not yet registered needs to be ratified by the organization, which means, in case organization fails to ratify the contract within the time period specified by the parties of the contract or in case not specified by the parties then within the reasonable time period.  

Clause 4 of this section states that, in case company after ratification of the contract fails to perform the obligation stated under the contract then Court order the organization to pay all the damages that can be order to any individual who breach the contract (CorporationsACT, 2001).

Both Sammy and Huw signed the contract with the Gracey before the registration on the company for giving the weekly podcast, and in exchange organization pay him $4000 on monthly basis. In this case, contract signed by organization is ratified by the organization, and as stated by section 131 in case company ratified the contract then company becomes liable to perform all the obligations of the contract. Therefore, there is valid contract between the Gracey and organization.

Conclusion

It can be said that this contract is bound on the organization, and also on Sammy and Huw. After that, Amaya encourage the Gracey also to join the hands of the competitors and because of this both Sammy and Huw restrict the payment of $4000 to the Gracey. This restriction can be considered as the breach of contract and this breach provide contractual remedies to the Gracey.  Common law introduces damages and liquidated claims as the remedies for the contractual breach.

Therefore, both Sammy and Huw hold the right to expropriate the shares of the Amaya because these shares cause huge loss to the organization.

In this case, contract signed by organization is ratified by the organization, and as stated by section 131 in case company ratified the contract then company becomes liable to perform all the obligations of the contract. Therefore, Gracey can seek remedies in terms of the contractual breach that are damages, specific performance, and injunction.

This section of the report discusses the duties of the directors in terms of the given scenario. In this case, two businesses are conducted by the four directors of the Drink It Up Pty Ltd. In this directors take some action which result in breach of director’s duties such as directors separate the profitable venture from the company and form new company in this context. Later, Kristopher transfers his shares to the Dhruv by using that information which he received in the capacity of director. This answer discusses the duties imposed by Corporation Act 2001 on the directors of the company under section 180-184 of the Act.

Part A

Both common law and Corporations Act 2001 introduce number statutory and fiduciary duties for the directors of the organization and some of these duties are stated below-

Section 180 of the Act defines the duty of director of taking the relevant care and diligence while conducting any action of the organization. As stated by this duty, director needs to take care and evaluate each and every aspect related to the decision before taking any action. In other words, director needs to take that much care and diligence while taking action which can be taken by any reasonable person in the similar situations.

This section further defines the business judgment rule, and as per this rule directors need to take the business judgment with good faith, and if directors take the decision in good faith and after considering all the aspects then such decision is considered as decision in good faith. However, this rule also provides protection to the directors of the company by securing them in those situations when directors take decision in good faith. In other words, if directors of the organization take their decision in good faith but decision goes wrong then they are not liable for such decision and it is not considered as breach of duty.  

Section 181 defines another duty of the director and as per this section directors needs to conduct their action in the good faith and in the best interest of the organization. In other words, any action taken by the director must be taken in the best interest of the organization, and directors also avoid the conflict of interest with the organization. This duty of the directors also deemed as the fiduciary under the common law.

In case law ASIC v Adler (Asic v Adler and 4 Ors, 2002), case stated that all the directors of the organization not only breach the fiduciary duties under the common law but also breach section 180, 181, 182, and 183 of the Corporation Act 2001.

In the resent case, while taking the decision directors fail to consider the best interest of the organization and business judgment taken by them is not taken in good faith. While taking the decision director consider their personal interest over the interest of the organization and because of this decision taken by them is considered as decision taken in bad faith. This is the reason because of which it can be said that directors breach their duties.

In this case, directors of the Drink It Up Pty Ltd fail to consider the best interest of the organization and also fail to take their action with due care and diligence. Therefore, it can be said that directors breach their duty under section 180 and 181 of the Act.


Part B

Section 182 of the Act states that, directors must not use the position held by them in the organization for the benefit of their own and the third person. This section states that directors of the organization must use their position only for the benefit of the organization, and not for their own benefit. It impose obligation on the directors to consider the best interest of the organization and its shareholders also.

Section 182 of the Act states, directors must not use the information get by them in terms of position held as director in the organization for the benefit of their own and the third person. In other words, if director got any information in their capacity of the directors, then it is the duty of the director to use that information only for the benefit of the organization and not for benefit of their own. This duty of director can be understood with the help of case law ASIC v Vizard (ASIC v Vizard, 2005). In this case, court held that directors of the organization breach their duty under section 183 of the Act.

By transferring the shares to the Dhruv on the basis of the information received by Kristopher in the capacity of director, cause lot of damage to the Dhruv and organization. It can be said that, Kristopher must not use the information get by them in terms of position held as director in the organization for the benefit of their own and the third person. It is clear that, Kristopher breach section 182 and 183 of the Act by using both position and information in improper manner.

In this director breach both section 182 and 183 of the Act because he use the position held by him in the organization for the benefit of his own.

Conclusion

Directors of the Drink It Up Pty Ltd fail to consider the best interest of the organization and also fail to take their action with due care and diligence. Therefore, it can be said that directors breach their duty under section 180 and 181 of the Act.

By transferring the shares to the Dhruv on the basis of the information received by Kristopher in the capacity of director, cause lot of damage to the Dhruv and organization. In another scenario, Kristopher breach section 182 and 183 of the Act.

Gambotto v WCP Limited, 12 (HCA March 08, 1995).

Asic v Adler and 4 Ors, 171 ( NSWSC 2002).

ASIC v Vizard, FCA 1037 145 ( FCR 57 2005).

CorporationsACT. (2001).

Hambrook, J. (no date). Retrieved September 17, 2018, from Pre-incorporation contracts and the national companies code: what does section 81 really mean?.: https://classic.austlii.edu.au/au/journals/AdelLawRw/1982/7.pdf

Mitcchell. (1994). Gambotto and the Rights of Minority Shareholders. Bond Law Review, 6(2). .

ACL. (no date). Retrieved Setember 17, 2018, from https://www.australiancontractlaw.com/law/remedies.html

Austii. (no date). Retrieved September 17, 2018, from Oppression of Majority Shareholders by a Minority? Gambotto v WCP Ltd: https://www.austlii.edu.au/au/journals/SydLRev/1996/6.pdf

Legal service commission. (no date). Retrieved September 17, 2018, from Remedies for Breach of Contract: https://www.lawhandbook.sa.gov.au/ch10s02s11.php

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My Assignment Help. (2019). Legal Issues In Business: Changes To Company Constitution And Share Expropriation. Retrieved from https://myassignmenthelp.com/free-samples/acc520-legal-regulation-of-business-structures.

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[Accessed 22 July 2024].

My Assignment Help. 'Legal Issues In Business: Changes To Company Constitution And Share Expropriation' (My Assignment Help, 2019) <https://myassignmenthelp.com/free-samples/acc520-legal-regulation-of-business-structures> accessed 22 July 2024.

My Assignment Help. Legal Issues In Business: Changes To Company Constitution And Share Expropriation [Internet]. My Assignment Help. 2019 [cited 22 July 2024]. Available from: https://myassignmenthelp.com/free-samples/acc520-legal-regulation-of-business-structures.

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