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Corporate Law > Lecture 3- Decision making in companies > Flashcards

Lecture 3- Decision making in companies Flashcards

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1
Q

What are the two decision-making organs in a company?

A
  1. company in general meeting

2. the board of directors (and the senior management)

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2
Q

What is the section 198 about?

A
  • the distribution of power in the company

- the power of directors and the boundaries of their powers

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3
Q

What does s 198 A (1) state?

A
  • directors have general power of management

- the business of the company is to be directed or managed by the directors

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4
Q

What does s 198 A (2) state?

A
  • the directors may exercise all the powers of directors except for those specified under the CA 2001 (ie RRs) or the company’s constitution as the ones reserved to the members in general meeting
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5
Q

Who runs the company day to day?

A
  • the directors ie the board

- their responsibility is to manage, or direct the management of (or supervise), the company

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6
Q

What does executive mean?

A

-only means someone who works at the company every day, actively working day to day job

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7
Q

Who is the managing director?

A
  • also called the chief executive officer
  • CEO
  • executive director
  • day to day job
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8
Q

What is a non-executive director?

A

-once a month type of director, don’t get paid a salary,
-involvement is confined to the board meeting gets honorarium
have to read board documents and make decisions in board meetings

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9
Q

What is a board committee?

A
  • the board can delegate powers to groups of people that form committeess
  • e.g. renumeration committees= decide pay to employees
  • the committee decides things and then presents it to the board and they agree or disagree
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10
Q

Who is the chairman of the board?

A
  • is voted on by the board, runs the directors meetings, often different person to CEO, = so there is a balance of power
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11
Q

Who is the secretary?

A
  • chief legal officer of the company, responsibility with paperwork, reporting etc.
  • in small companies it won’t be as separated
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12
Q

What does section 9 do?

A

-general definition section, defines terms in the act

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13
Q

Who is a director?

A
  • person appointed to the position of director or

- is appointed to the position of an alternate director and is acting in that capacity

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14
Q

Who is an officer?

A
  • director or a person (not the director) who makes decisions about the company
  • must be decision that significantly affect the business of the company
  • or a person who has the capacity to affect the financial standing of the company
  • not appointed , still makes important decisions
  • can be the director
  • always director and secretary
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15
Q

What do directors do?

A
  • depends on the size of the company
  • in a small company may run the business
  • in a larger company, more of a supervisory, policy centered role
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16
Q

ASIC v Healey facts?

A

–concerned CENTRO shopping centre, expanded to US, the company borrowed heavily, lot of the finance had to be paid back= GFC
-they put 2 billion as non-current liability
-should have been current
= because the director both executive and non-executive directors should have read it! they breached their duty of care
-important as it said that directors have to know what is going on!

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17
Q

What does s 198 D say?

A
  1. -unless constitution provides otherwise the directors of a company can delegate to directors or committees, director, an employee or any other person
    - RR so can change it in a constitution
    - these would be the board committees (auditing etc.)

2: the delegates must exercise the powers in accordance with any directions from the directors
3. the exercise of power by the delegates is the same as if it were done by the directors!

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18
Q

Why is there the s198D (delegation)?

A
  • the board can’t make all the decisions that are within their power as there are too many, so they can delegate to others (the constitution can limits this)
  • what makes company workable
  • the delegation must be recorded in the company’s minute book
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19
Q

What does generally happen in power delegation in companies?

A
  • Generally delegate day-to-day management to the CEO / managing director and he/she then delegates further (RR 198 C)
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20
Q

What does the s198 C do?

A
  • delegating powers to the managing director
    1. the directors of a company can delegate any of the powers the directors can exercise onto the managing director
  1. the directors can revoke or vary a conferral of powers on the managing director
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21
Q

What do directors do?

A
  • depends on the size of the company
  • in a small company may run the business
  • in a larger company, more of a supervisory, policy centered role
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22
Q

ASIC v Healey facts?

A

–concerned CENTRO shopping centre, expanded to US, the company borrowed heavily, lot of the finance had to be paid back= GFC
-they put 2 billion as non-current liability
-should have been current
= because the director both executive and non-executive directors should have read it! they breached their duty of care
-important as it said that directors have to know what is going on!

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23
Q

What does s 198 D say?

A
  1. -unless constitution provides otherwise the directors of a company can delegate to directors or committees, director, an employee or any other person
    - RR so can change it in a constitution
    - these would be the board committees (auditing etc.)

2: the delegates must exercise the powers in accordance with any directions from the directors
3. the exercise of power by the delegates is the same as if it were done by the directors!

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24
Q

Why is there the s198D (delegation)?

A
  • the board can’t make all the decisions that are within their power as there are too many, so they can delegate to others (the constitution can limits this)
  • what makes company workable
  • the delegation must be recorded in the company’s minute book
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25
Q

What does generally happen in power delegation in companies?

A
  • Generally delegate day-to-day management to the CEO / managing director and he/she then delegates further (RR 198 C)
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26
Q

What does the s198 C do?

A
  • delegating powers to the managing director
    1. the directors of a company can delegate any of the powers the directors can exercise onto the managing director
  1. the directors can revoke or vary a conferral of powers on the managing director
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27
Q

What are the rules for calling a board meeting?

A
  • all directors must receive “reasonable notice”
  • may have a quorum requirement
  • voting disqualifications may apply (if material interest in the outcome)
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28
Q

What is a quorum requirement?

A

-when need a certain number of people for the board meeting to be valid (usually 2 members 248F) but it is a replaceable rule so can change it.

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29
Q

What does s248C deal with?

A
  • reasonable notice
  • have to give reasonable notice to all directors to call a meeting
  • this period may vary depending on the situation, if a crisis then may be quite quick
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30
Q

What does s248F deal with?

A

-unless this rule is replaced the quorum for a board meeting to be valid is 2 directors and they have to be present throughout the duration of the meeting

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31
Q

What does s 248D deal with?

A
  • use of technology at board meetings
  • can use whatever technology you want as long as all the directors give consent
  • be aware of the potential disadvantages if you are on the phone/Skype etc.
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32
Q

What does s248A deal with?

A
  • paper meetings
    1) directors can pass a resolution without a meeting being held as long as all the directors sign a document containing a statement that they are in favour of the resolution
    2) separate copies can be used for each signature if the wording is identical in all
    3) resolution is passed when the last director signs
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33
Q

What is a circulating minute?

A

-document containing decision made by the board, becomes a valid resolution as soon as all the directors sign it

34
Q

What is the minimum number of directors for public and proprietary companies and which section deal with this?

A
  • 3 for public
  • 1 for proprietary
  • s201A
35
Q

What does s201A do?

A

-determines number of directors in public and proprietary companies

36
Q

What happens if a public company has 3 directors and the members want to vote one out?

A

-have to vote one out and one in as a public company has to have three

37
Q

What are the 3 types of directors?

A
  • alternate directors
  • de facto directors
  • shadow directors
38
Q

What is an alternate director?

A
  • fills in for a properly appointed director,
    directors are liable for board decisions whether or not they attend the meetings
    -if you’re not going to be at the next meeting= appoint an alternate director in your place and you tell them what you want them to do
39
Q

What is a de facto director?

A

-to try to get around the liability of directors, so you find a company who engineers likedon’t send the notice= try to get out of liability= the act says ‘if you act liek a director you are! = de facto director!
= even if problem with appointment

40
Q

What is a shadow director?

A

-a shadow director: going out of the way to not be called directors, but they tell the company what to do (shadowy people) don’ call themselves directors but the board looks to them in decision

41
Q

What are the facts of Standard Chartered Bank v Antico?

A

-42% was owned by another company= is that company a holding= NO (not more than 50%)
-but the three directors of first company were used to making decision like the directros of teh 42% shareholder company, as the rest of shares= distributed widels
= insolvent trading
- company held to be a director (they were shadow)

42
Q

What are the two ways in which you can determine if variation of class rights has occurred?

A
  • general law test (genuine variation)

- Corp Act= deeming variations (deemed variation)

43
Q

Who can be appointed director?

A
  • someone who consents – s201D
  • human not company – s201B(1)
  • minimum 18 years old – s 201B(1)
  • not disqualified – cannot be bankrupt, convicted of certain offences, or subject to banning order (see below) – s 201B(2)
44
Q

What does s201 D do?

A

-to act as director you have to give consent

45
Q

What does s201 B (1) do?

A
  • must be human not a company to be a director
  • must be at least 18 years old to be a director
  • cannot be bankrupt or banned or convicted of certain offences
46
Q

What can members decide?

A
  • given in the RRs or the constitution
  • Member votes are done in general meetings
  • Internal management rules or the Corporations Act give right to make certain limited decisions about the company to the members
  • Some rules and sections differ for public and proprietary companies
47
Q

What is member approval required for?

A

-adopt, modify or repeal the constitution: s
136(2) (most important! the other two not as much)
-change the company’s name: s 157
-change type (eg from proprietary to public): s 162
-all these have to be special resolutions

48
Q

What are the two ways in which you can determine if variation of class rights has occurred?

A
  • general law test

- Corp Act= deeming variations

49
Q

What is the general law test on class rights variation?

A

-General law test is narrow – effect on enjoyment is not enough; strict legal rights must be varied

50
Q

What is variation in class rights?

A

-when you have shares of one type and the company issues other shares or more shares, if that change meets the requirement of the general law test or the deeming variation of the Corp Act then it is a variation of class rights:

51
Q

What does s250 E do?

A
  • RR
  • in a company with share capital= 1 share has one vote
  • the default rule
52
Q

What is variation of class rights about? (concept)

A
  • when company first set up and shares issued= if only one class= ordinary shares (default = 1 share, 1 vote)=s250E(replacable rule)
  • the one vote 1 share protected as it is in the constitution and the constituition = 136(2) can only change consitution with special resolution
-for these rights to be changed= big deal, goes beyond just changing the constitution
= changing that
=variation of class rights = where company is trying to take away your rights or giving some class more rights that may be bad for you
53
Q

How can you change the constitution?

A

-special resolution (75% vote) 136(2)

54
Q

How is the 1 share 1 vote protected?

A
  • it is the rule in s250E and as replaceable rule it can be replaced but if not it is in the constitution and to change this you have to change the constitution
  • requires special resolution 136 (2)
55
Q

If you had shares, and each carried 5 votes and then company issues shares that each has 1000 votes is that a variation of class rights?

A
  • general law test= no!
  • it decreases your enjoyment of the rights but that is not enough, it has to vary your strict legal rights and here it doesn’t
  • still have 5 votes as before
56
Q

What actions will amount to variation of class rights under the Corp Act?

A
  • Splitting a class into two
  • Varying the rights of some members only
  • Issuing new shares where only one class
  • New preference shares ranking equally
  • Take care to look at precise requirements of each of these as they are very narrow!
57
Q

What does s246C do?

A
  • has 6 sections we only look at 1,2,5 and 6

- defines the conditions under which a deemed variation in class rights has occured

58
Q

What does s246C 1 deal with?

A
  • the 5 share a vote class, half people keep 5 votes and other half from 5 to 10= variation of class rights, the ones who stayed on 5 = varies by CA definition= form a different class= each of the two classes will get to vote on it,
  • even people who have the same rights after and before are varied by CA
  1. : If the shares in a class of shares in a company are divided into further classes, and after the division the rights attached to all of those shares are not the same:
    (a) the division is taken to vary the rights attached to every share that was in the class existing before the division; and
    (b) members who hold shares to which the same rights are attached after the division form a separate class.
59
Q

What does s246C 2 deal with?

A
  • difference to 1 is that rather than splitting into classes, it is only that some of the shareholders get different votes or so. fred gets extra hundred= have to vote as a class
  • If the rights attached to some of the shares in a class of shares in a company are varied:
    (a) the variation is taken to vary the rights attached to every other share that was in the class existing before the variation; and
    (b) members who hold shares to which the same rights are attached after the variation form a separate class.
60
Q

What does s246C 5 deal with?

A
  • company with one class of shares, if issues another class of shares
  • protects you againnst the creation of another class doesn’t protect against dilution,
  • if lodged with ASIC, then not a variation! also if more than one class in the beginning not a variation
  1. (5) If a company with 1 class of shares issues new shares, the issue is taken to vary the rights attached to shares already issued if:
    (a) the rights attaching to the new shares are not the same as the rights attached to shares already issued; and
    (b) those rights are not provided for in:
    (i) the company’s constitution (if any); or
    (ii) a notice, document or resolution that is lodged with ASIC.
61
Q

What does s246C 6 deal with?

A
  • if company issues preference shares that have the same rights, it is a variation, unless you agree, or constitution
  • not a variation if they issue preference shares= that have other rights, super preference shares
  1. If a company issues new preference shares that rank equally with existing preference shares, the issue is taken to vary the rights attached to the existing preference shares unless the issue is authorised by:
    (a) the terms of issue of the existing preference shares; or
    (b) the company’s constitution (if any) as in force when the existing preference shares were issued.
62
Q

How can you vary or cancel class rights?

A
  • either in constitution or 246B
  • need a special resolution of the entire company and then a special resolution of the shareholders in that class that you are affecting
    eg. have a class A, each has 5 votes, then changed 1/2 A1= has 5 votes, 1/2 A2 has 10 votes
  • have at least 3 votes= 1. the company, 2. the A1 vote and the A2 vote
  • all have to be yes to pass the class variation
63
Q

What does s246B do?

A
  • variation or cancellation permitted only:
  • –in accordance with the procedure set out in the constitution, or
  • – where the constitution is silent, by special resolution of the company and a separate special resolution of each of the new classes
  • either constitution
  • or the procedure in corps act 246B, have to have special resolution of the company and the members of the class affected (remember they split into individual classes)
64
Q

What can you do if a variation of class rights goes through the process and you are still unhappy?

A

-s246D
- Members holding at least 10% of the class can apply to the Court for change to be set aside for unfair prejudice
-246D- only applies if all the required votes took place (so all three)
- what if still unhappy? what if A1 voted yes as they had some A2 shares as well! = this is where 246D applies
-then 10% of the class can have it set aside if unfair predjudice, only if thing has gone through, and there is
10-25% of the vote= to go to the court

65
Q

What does s246D do?

A

-what you do if unhappy after variation in class rights has been passed

66
Q

What can board members do if a director dies suddenly?

A

RR s201H
-the board can appoint= casual vacancy
= this has to be approved by the members at the next meeting

67
Q

How do members appoint the directors?

A
  • elect the directors by ordinary resolution

- RR S201G

68
Q

Why do listed companies always have to have director election?

A

-it is RR but it is one of the requirements of the listing on the stock exchange

69
Q

What does RR s201H do?

A

directors can appoint directors but have to be approved at the next meeting
-casual vacancy power= if he dies or sth similiar

70
Q

What does RR s201G do?

A
  • members appoint a director by ordinary resolution

- A company may appoint a person as a director by resolution passed in general meeting.

71
Q

How does the ability of members to remove directors from the board differ in public and proprietary companies?

A

covered by s203D for public and RR s203C for proprietary

-both by ordinary resolution, but replaceable for proprietary companies

72
Q

What does s203C do?

A
  • if you want removal and appointment revision (201C if just appointment) in a proprietary company, remember it is RR
  • A proprietary company:
                   (a) may by resolution remove a director from office; and
               (b) may by resolution appoint another person as a director instead.
73
Q

What does s203D do?

A
  • how to remove a director in a public company
  • non replaceable, so the shareholders can always remove the director (whatever in the constitution)

1) A public company may by resolution remove a director from office despite anything in:
(a) the company’s constitution (if any); or
(b) an agreement between the company and the director; or
(c) an agreement between any or all members of the company and the director.

74
Q

What does s203E do?

A
  • board can’t remove a public company director! (can be that the board and director is disagreeing, over sth in favour of shareholders)
  • public company directors can always be removed, can’t entrench by the shareholders but can’t by the board!
A resolution, request or notice of any or all of the directors of a public company is void to the extent that it purports to:

                 (a) remove a director from their office; or
                 (b) require a director to vacate their office.
75
Q

Can directors of a public company be removed by other directors?

A

no s203E

76
Q

Can directors of a proprietary company be removed by other directors?

A

-not unless 203C is replaced

for pty ltd it is an RR

77
Q

What does s201J do? RR

A
  • directors appoint MD
  • The directors of a company may appoint 1 or more of themselves to the office of managing director of the company for the period, and on the terms (including as to remuneration), as the directors see fit
78
Q

What does s203F do?

A

-directors can revoke appointment of MD

79
Q

What does s201 K do?

A

-rules for how directors can appoint an alternate director for themselves

80
Q

What does s203A do?

A
  • how can a director resign
  • A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office.

Corporate Law (5 decks)

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