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Constitutional Corporation Think Governance

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Question:

Discuss About The Constitutional Corporation Think Governance?

 

Answer:

Introducation

The FWPL constitution submit that the dividends can be paid to the A class shareholders. Dividends are paid to shareholders but, the board decided not gives the dividend because A class shareholders are lazy and undeserving and retain the funds for the development of the organic vineyard at Robinvale.

It is submitted that the ‘A class shareholders’ are the authorized people under section 234 to make an application under section 232. It is submitted that the action of the board of not making dividends is not in favor of the A class shareholders and will unfairly prejudicial as the shareholders live on the dividend that is receive by them from the company.

Now, the board has stopped the dividend on the basis that they are lazy and used for a vine guard.

Thus, the act is contrary to shareholders interest and they are authorized to make an application under section 232 of the Act.

Thus, the A class shareholders is authorized to make an application under section 232 for oppression under section 234 of the Act.

Whether it is feasible for FWPL to carry share buyback under the Corporations Act?

Buy back shares by a company signifies that it is mainly reducing its issued share capital. The aim is to use the funds for its operational use and not to keep it as superfluous.  In this kind of mechanism the shareholders can make a choice to sell the shares or not but it is necessary that if the company ability to pay the creditors or of the provisions of the Act are violated then the share buy backs are not permissible.

The main benefits which can be attained because of buy back of shares include:

  1. The surplus funds can be used as a better investment;
  2. The earnings per share is increased;
  3. The surplus fund are returned to the company;
  1. The instability of the members company register is maintained;
  2. The employees plan shares are reduced;
  3. The odd lot holding are reduced thus the registry cots of a listed company is increased;

Now, buy backs can be done in various forms: (Gates, 2008)

  1. Selective buy back – These are the buy backs which are applicable to every kinds of shares including redeemable preference shares. It is an expensive and time consuming process but is required when the company intends to initiate an exit or a rearrangement of shareholdings. In order to opt for selective buy back:
  2. In this identical offers are not made to every shareholder;
  3. The members must pass a special resolution (75% majority is required). This is required so that the shareholders can be protected from the change in the control of the company and to maintain good terms;
  4. A notice must be send to shareholders which includes statements of all the information.
  5. The other kinds of buy back schemes involve Equal access buy back, Employee share scheme buy-backs, Minimum holding buy-backs, On-market buy-backs,

Now, Mario and Nick Galli feels the dissatisfaction of A Class shareholders and thus they intend to buy out the A Class shareholders at a value to be fixed by an independent expert.

Mario and Nick can buy back the shares so that they can use the funds for better investment and earnings per share are increased. Thus, it is first necessary that A class shareholders must fit in for selective buy back process. Then the directors must pass a special resolution with 75% votes and a notice must be send to A class shareholders of the buy back of their shares.

Thus, Mario and Nick can buy back the procedure by following the procedure.Issue

Reduction of share capital signifies that when money paid to the company regarding the members share is returned to the member. Section 256B (1) of the Act submits that the share capital of the company can be reduced if: (ASIC, 2017)

  1. It is reasonable or fair to the members as a whole;
  2. When it does not hamper the company ability to pay its creditors;
  3. Is approved under section 256C of the Act by the members.
 

The reduction can be made by two methods:

  1. Equal – when the shares are ordinary, the equal reduction method can be used wherein the terms of reduction is equal to the holder’s ordinary shares. In order to apply equal reduction the procedure requires:
  2. Form 2560 must be lodges which are a notification for the reduction in share capital which includes a notice specifying the meeting wherein the resolution is intended to be passed and any additional document that is required.
  3. Then the notice must be sent;
  4. A meeting must be construed wherein the a simple resolution must be passed;
  5. The share capital then be reduced;
  6. The change of detail must be lodge within 28 days after the reduction in the share capital;
  7. Selective – When the conditions set out in equal reduction is not made then the reduction is selective. In this the resolution that needs to be passed in the meeting which can be either special resolution or a resolution by all ordinary members. The change of detail must be lodge within 14 days after the reduction in the share capital by lodging form 2205; then the capital must be reduced and the details must be lodged within 28 days.

Application of law

One of the options that can be avail by FWPL to get rid of the A Class shares is by way of a reduction of capital.

However, FWPL requires the approval of all the members before doing so and must lodge form 2560 and a notice of the same must be sent. A meeting must be held wherein the simple resolution should be passed and the details must be changed within 28 days.

Conclusion

Thus, the company can opt for equal reduction in capital and pay back the money to the shareholders.

 

Reference List

Stephen Bottomley (2016) The Constitutional Corporation: Rethinking Corporate Governance, Routledge.

ASIC (2017) Reduction in share capital (online). Available at: https://asic.gov.au/for-business/running-a-company/shares/reduction-in-share-capital/. (Accessed on 2nd October 2017)

Find law (2017) shareholder oppression explained (online). Available at: https://www.findlaw.com.au/articles/4614/shareholder-oppression-explained.aspx. (Accessed on 2nd October 2017)

Gates (2008) Australia: Share Buy-Backs (online). Available at: https://www.mondaq.com/australia/x/69760/Directors+Officers/Share+BuyBacks. (Accessed on 2nd October 2017)

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