1.Richard has an extensive olive grove in the Hunter Valley region of NSW. He has around 12,000 trees established and has recently purchased his neighbour’s adjoining property with a view to expansion.
His business is flourishing and his two sons, David and Liam, have recently moved from Sydney to help him expand the business. They see opportunities opening up in new markets and would like to become further involved in the business. They want the family business to be in a form that would allow it to expand as necessary and also make it easier to raise the capital required for this expansion. They have also heard that there are tax benefits in operating a business through a company structure rather than as a sole trader or partnership. They persuade their father to take advice on turning the family business into a family-run company. There is some contention regarding the naming of the company. Richard prefers to name the company after themselves – “Ridali” – whereas David and Liam prefer the name “Rich’s Guaranteed Olives”, in honour of their father.
Advise Richard and his sons of the steps that need to be taken to incorporate and register a company.
2.Terry was an employee of Cosmo Mining Services Pty Ltd (CMS). CMS is a subsidiary of Cosmo Mine Ltd (CM) as CM owns 120 of the 200 issued shares in CMS. CMS owns and operates a lead, zinc and copper mine at Gunbarrel, Western Queensland. CM has an arrangement with the New Vision Bank Ltd whereby it leases all of the mining equipment and then subleases the equipment to CMS which pays CM a leasing charge per annum equal to the bank’s leasing costs plus 10 per cent.
Recently, CMS has attracted considerable media attention as scientists have discovered that CMS’s mining activities have contaminated a nearby river which supplies the water to the
mine and Gunbarrel. A number of Gunbarrel residents and former employees, including Terry, have contracted cancer because they drank the contaminated water. The CMS shareholders call a general meeting for the purpose of addressing CMS’s potential liability to its employees (current and former) as well as the residents of Gunbarrel. The CMS shareholders unanimously vote in favour of selling CMS’s business to a newly formed company, Lazarus Pty Ltd, and winding up of CMS.
Advise Terry if he can take action against Lazarus Pty Ltd, CMS and/or CM.
The issue here is to advice Richard on the steps to be taken in order to register a company.
In order to register a company, the steps laid down in Chapter 2A of the Corporations Act, 2001 needs to be followed. Section 117 of the act lays down provisions for the application to ASIC for the incorporation of a company. The company must apply to the ASIC that with an application that contains all the requisites prescribed under Section 117 (2) (a) to (n). Section 117 (3) of the act further provides that where the company wishes to be incorporated as a public company a copy of its company constitution must also be provided with the application to ASIC under Section 117 (1) (Hanrahan, Ramsay and Stapledon 2013). The provisions of Section 118 of the Corporations Act, 2001 prescribes the various steps that the ASIC is required to take facilitate incorporation of the company. This section states that once a company has made an application under Section 117 (1) of the Corporations Act, 2001 the ASIC may give the company an ACN number as per Section 118 (1) (a) of the act, it may register the company as provided for in Section 118 (1) (b) of the act and issue a share certificate for the company as provided for in Section 118 (1) (c) of the act. The section also provides that the ASIC must keep a record of such registration at subsection 118 (2) of the act (Sealy and Worthington 2013).
Section 119 of the Corporations Act, 2001 provides that on the ASIC registers the company under the provisions of Section 118 (1) (b) of the act the company becomes an incorporated body from the date specified in the certificate of registration (Hannigan 2015). Thus that brings an end to the incorporation process. The provisions of Section 120 state that from the date of registration of a company the members and directors (as specified in the application to ASIC under the provisions of Section 117) effectively become members and directors of the company (Parker 2013).
Section 121 of the Corporations Act, 2001 provides that the registered office of the company as specified in the application to ASIC commences functioning as the registered office of the company from the date of registration mentioned in the certificate of registration (Ferran and Ho 2014). Section 123 of the Corporations Act, 2001 further lays down that a company may have a common seal.
Thus from the given set of facts and circumstances we see that Richard wants to incorporate a company. Thus, in order to do the same he would first have to apply to the ASIC under the provisions of Section 117 (1) of the Corporations Act, 2001 and ensure that all the requisites prescribed under Section 117 (2) are included in the application these are (Finch and Milman 2017):
- The type of company it would be registered as.
- The proposed name of the company or the ACN.
- The name and address of all individuals who would become member of the company.
- The family name and place of birth and other details of all individuals who would become directors of the company.
- The same details for all individuals who would be company secretaries for the company.
- The address of all individuals who consent to being a director of the company.
- Address of the proposed registered office of the company.
- If the company would have a holding company when it comes into existence then the name of the holding company, the ABN/ACN/ ARBN of the holding company and the place where the holding company is registered if it is not Australia.
- The state or territory under whose jurisdiction the company is to be registered must also be mentioned.
These would ideally cover all the requisites for a proprietary company which Richard seeks to incorporate. Thus, once these details are added to the application it would form a complete and accurate application to be considered by then ASIC when granting a certificate of registration to the company.
Thus following this application under Section 117 (1) of the Act the ASIC would be obliged to issue an ACN number for the company as provided for in Section 118 (1) (a) of the act, issue a certificate of registration under section 118 (1) (b) of the act and issue a share certificate under Section 118 (1) (c) of the act (McKendrick 2014). Thus in effect the company would become an incorporated entity as provided for in Section 119 of the act from the date mentioned in the certificate of incorporation. As stated in Section 120 of the act the members and directors begin to act as members and directors from the date specified in the certificate of registration and the proposed registered office commences operations as the registered office (Section 121 of the act) (Bevan 2014). The company may have a common seal as provided for in Section 123 of the Corporations Act, 2001.
Thus to incorporate the company under the provisions of the Corporations Act, 2001 Richard would have to apply to the ASIC as per the provisions of Section 117 (1) of the act. The ASIC would then register and incorporate the company as per the provisions of Section 118 of the act and would be allowed to carry on business activities as a separate legal entity.
CMS a subsidiary of CM has acted in ways that has contaminated a water-body. This contamination has lead to many residents of the area contracting cancer including Terry, who was an employee of CMS. The directors of CMS have sold all shares in the company to a company called Lazarus Pty Ltd. The issue here is to determine if Terry can initiate legal proceedings or legal actions against CMS, CM or Lazarus Pty Ltd.
Corporations functioning within the jurisdiction of the Australian commonwealth are governed and regulated by virtue of the provisions of the Corporations Act, 2001. Section 124 of the act defines the legal capacity and powers of a body corporate. This section states that a body corporate has the powers of an individual both in and outside the jurisdiction of the Australian commonwealth. This thus means that a company can sue and be sued in its own name and can issue shares and raise capital on its own (Whincop 2017). However, in exercising this right the liabilities of a company is separate from the liability of its owners. Thus the liabilities of a company are different from its owners and its owners cannot be legally pursued for the same.
It has been judicially decided that where a separate legal entity has been incorporated its debts and liabilities are separate from its owners and in fact even the owners can proceed with an action against it in terms of recovery of debts. This was laid down in the landmark judgment in Solomon V A Salomon And Co Ltd  (Chia and Ramsay 2015). Thus a company is responsible for its own actions.
It has been laid down in Andar Transport Pty Ltd v Brambles Ltd (2004) that a company is a separate legal entity and can enter into contracts in its own name (Humphery-Jenner 2014). This case also discussed an employer’s duty of care and stated that a company is responsible for providing an environment that does not cause harms or compel employees to work under hazardous circumstances (Tomasic 2018). Thus an injury or harm caused to an employee would make a company liable for the same however this does not mean that the owners of the company can be legally pursued for the same.
It has been laid down in Lee v Lee’s Air Farming Ltd (1961) that once a company has been registered as a separate legal entity it thus enters into a contractual relationship with various officers and other individuals who are tasked with the administration of the same on a day-to-day basis (Deegan and Shelly 2014). However, the company is liable for the decisions taken by the administration and the individuals cannot be legally pursued for the same. This is thus a veil that absolves the individuals who are actually responsible for the decision making process from all responsibility for the decisions taken by them in relation to the same. This safeguard is known as the corporate veil and the same must be pierced in order to attribute responsibility to the individuals originally responsible for the same (Bone 2014). However, piercing of the corporate veil is only permitted in a few circumstances and the same must be established (Hanrahan, Ramsay and Stapledon 2013).
In order to establish that the corporate veil must be established the liability of the company in relation to any such injury or damage can be directly attributed to an individual who was at that time responsible for the decision making process. This has been reiterated in Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) (Hess 2014). In this case it was held that the corporate veil can be lifted for an ill defined, inconsistent and reasonably unpredictable circumstance. Thus, in such a case the court would look beyond the corporate veil and attribute liability directly on the individual involved in the decision making process.
Under the given set of facts and circumstances it can be inferred that the acts of the company (CMS) contaminated the water body by releasing industrial waste into it. This would mean that the environmental degradation caused the contamination and resultantly the cancerous effects that the water body had. There were individuals who contracted cancer due to the same which included an employee named Terry (Hanrahan, Ramsay and Stapledon 2013). Thus the contamination of water can be directly attributed to CMS and its holding company CM. However, the directors of CM resolved to sell all shares in CMS to another company named Lazarus Pty Ltd. Thus in effect CMS ceased to exist and was now part of a newly incorporated company Lazarus Pty Ltd.
Following the provisions of Section 124 of the Corporations Act, 2001 we find that the acts of environmental degradation due to release of industrial wastes can be attributed to CMS and not its owners as it is a separate legal entity and has all rights and powers that are attributed to a body corporate. This thus means that the acts of company do not impose any liability on the owners or the administration. Thus, following the provisions of Section 124 of the act the only entity responsible for the cancerous effects of the water body is CMS.
CMS however is longer in existence and its shares are now owned by a newly incorporated company which is Lazarus Pty Ltd. However the acts of CMS are not binding on Lazarus. This follows the judgment in Solomon V A Salomon And Co Ltd  and thus absolves Lazarus Pty Ltd of any responsibility for the same. This means that no action now lies against Lazarus Pty Ltd (Hanrahan, Ramsay and Stapledon 2013). Thus CMS is responsible for its own actions and by virtue of the fact that it does not exist anymore, Terry cannot initiate an action against a company that does not exist. Its holding company and the new company that has acquired its shares are separate legal entities on their own and their liabilities cannot be equated to CMS’s liabilities.
To conclude, Terry cannot initiate any action against CM or Lazarus due to the existence of separate legal entity. Terry cannot initiate any legal action against CMS as the company no longer exists
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