Podcast
Questions and Answers
What is the minimum number of directors required for a public company?
What is the minimum number of directors required for a public company?
A person under 18 years old can be appointed as a director.
A person under 18 years old can be appointed as a director.
False
What is one reason a director can be automatically disqualified?
What is one reason a director can be automatically disqualified?
Convicted of certain offences
A proprietary company must have at least one _________.
A proprietary company must have at least one _________.
Signup and view all the answers
Match the following disqualification reasons with their respective periods:
Match the following disqualification reasons with their respective periods:
Signup and view all the answers
Who can remove directors in public companies?
Who can remove directors in public companies?
Signup and view all the answers
Replacing a director in proprietary companies cannot be governed by the replaceable rules or constitution.
Replacing a director in proprietary companies cannot be governed by the replaceable rules or constitution.
Signup and view all the answers
Directors must act in ________ and in the best interest of the company.
Directors must act in ________ and in the best interest of the company.
Signup and view all the answers
Under which section must auditors report to ASIC if they suspect a contravention of the Act?
Under which section must auditors report to ASIC if they suspect a contravention of the Act?
Signup and view all the answers
Derivative rights belong to shareholders and are enforceable by them.
Derivative rights belong to shareholders and are enforceable by them.
Signup and view all the answers
What significant case established the basic principle for derivative actions in company law?
What significant case established the basic principle for derivative actions in company law?
Signup and view all the answers
The auditor's relationship with the client generates a duty of _____ towards the client.
The auditor's relationship with the client generates a duty of _____ towards the client.
Signup and view all the answers
Match the following rights with their descriptions:
Match the following rights with their descriptions:
Signup and view all the answers
Which of the following is an exception to the rule established in Foss v Harbottle?
Which of the following is an exception to the rule established in Foss v Harbottle?
Signup and view all the answers
Members of public companies cannot sell their shares easily if issues arise within the company.
Members of public companies cannot sell their shares easily if issues arise within the company.
Signup and view all the answers
What is the term for the duty that auditors owe to the company that engages them?
What is the term for the duty that auditors owe to the company that engages them?
Signup and view all the answers
In which case was the non-payment of dividends considered oppression?
In which case was the non-payment of dividends considered oppression?
Signup and view all the answers
An Annual General Meeting (AGM) must be held within 18 months after a public company's registration.
An Annual General Meeting (AGM) must be held within 18 months after a public company's registration.
Signup and view all the answers
What percentage of votes is required for a Special Resolution?
What percentage of votes is required for a Special Resolution?
Signup and view all the answers
A director can call an ______.
A director can call an ______.
Signup and view all the answers
Match the following types of meetings with their descriptions:
Match the following types of meetings with their descriptions:
Signup and view all the answers
What is the minimum requirement for members to request a general meeting?
What is the minimum requirement for members to request a general meeting?
Signup and view all the answers
A poll in a voting procedure can be demanded by any member.
A poll in a voting procedure can be demanded by any member.
Signup and view all the answers
What type of resolution is required for a change of company name?
What type of resolution is required for a change of company name?
Signup and view all the answers
What is the role of an administrator in a company during administration?
What is the role of an administrator in a company during administration?
Signup and view all the answers
During administration, directors can perform functions without seeking consent from the administrator.
During administration, directors can perform functions without seeking consent from the administrator.
Signup and view all the answers
What must directors do if they want to enter a transaction during administration?
What must directors do if they want to enter a transaction during administration?
Signup and view all the answers
The first meeting in administration must occur within ___ business days after the commencement of administration.
The first meeting in administration must occur within ___ business days after the commencement of administration.
Signup and view all the answers
Which of the following is NOT one of the options available at the creditors' meeting?
Which of the following is NOT one of the options available at the creditors' meeting?
Signup and view all the answers
Match the following sections with their corresponding rules or actions:
Match the following sections with their corresponding rules or actions:
Signup and view all the answers
A company can have total liabilities exceeding $1 million to qualify for Part 5.3B restructuring.
A company can have total liabilities exceeding $1 million to qualify for Part 5.3B restructuring.
Signup and view all the answers
Who appoints a restructuring practitioner under Part 5.3B?
Who appoints a restructuring practitioner under Part 5.3B?
Signup and view all the answers
Who can bring proceedings for insolvent trading under s588?
Who can bring proceedings for insolvent trading under s588?
Signup and view all the answers
Directors are never personally liable for debts incurred by the company if it is insolvent.
Directors are never personally liable for debts incurred by the company if it is insolvent.
Signup and view all the answers
Name one defence a director can use against insolvent trading.
Name one defence a director can use against insolvent trading.
Signup and view all the answers
The Safe Harbour Defence is outlined under section ______.
The Safe Harbour Defence is outlined under section ______.
Signup and view all the answers
What must a director do to take advantage of the Safe Harbour Defence?
What must a director do to take advantage of the Safe Harbour Defence?
Signup and view all the answers
Match the following provisions with their roles:
Match the following provisions with their roles:
Signup and view all the answers
Directors can be held responsible for debts incurred if they were unaware of any signs of insolvency.
Directors can be held responsible for debts incurred if they were unaware of any signs of insolvency.
Signup and view all the answers
What is one of the conditions for the Safe Harbour Defence to apply?
What is one of the conditions for the Safe Harbour Defence to apply?
Signup and view all the answers
Study Notes
Appointment of Directors
- Public companies must have at least 3 directors
- Proprietary companies must have at least one director
- Directors must be individuals, at least 18 years old, and consent to appointment
- Directors must not be disqualified from being a director
Removal of Directors
- Directors can be removed by shareholders in a general meeting
- Proprietary companies can entrench directors, making removal difficult
- Public companies can remove directors regardless of any provisions in the constitution
Director Disqualification
- Automatic disqualification occurs for convicted offenses, bankruptcy, or entering a personal insolvency agreement
- Disqualification period is 5 years with a potential extension of up to 15 years
- Court-ordered disqualification can also occur for various reasons, including:
- Contravention of civil penalty provisions
- Managing 2 or more failed companies within 7 years
- Repeated contraventions of the Corporations Act
Director's Duties
- Director's duties arise from general law, the Corporations Act, and the company's constitution and replaceable rules
- Fiduciary duties include:
- Acting in good faith and in the best interests of the company
- Complying with accounting standards
- Providing accurate financial information
- Reporting to members
- Attending AGMs and answering written questions for listed companies
- Complying with auditing standards
- Reporting contraventions of the Act to ASIC
Auditor's Duties
- Auditors have duties to the company to use reasonable care and skill
- Auditors have a contractual duty to the company that engages them
- Auditors have a duty of care towards the client based on tort law
- Auditors may also have duties to outsiders, depending on "proximity"
- Section 185 of the Corporations Act allows ASIC to pursue statutory and fiduciary penalties
Member's Rights
- Member's rights are divided into personal rights, belonging to each shareholder, and derivative rights, belonging to the company
- Personal rights are enforceable by shareholders
- Derivative rights are used when the company's problem is not the shareholder's personal problem
- Public companies can sell shares if there is an issue, but private companies cannot
Derivative Rights - General Law
- Derivative rights originally arose as an exception to the rule in Foss v Harbottle
- The rule in Foss v Harbottle restricted shareholders from bringing proceedings on behalf of the company
- The exceptions to the rule in Foss v Harbottle include:
- Fraud on minority shareholders
- Infringement of personal rights
- Actions not bona fide for the benefit of the company
- Expropriation of members’ property
- Expropriation of the company's property
Examples
- Gambotto v WCP - constitution was amended to force the sale of shares
- Cook v Deeks - one shareholder was frozen out, causing the business to be taken from the company
- Morgan v 45 Flers Avenue Pty Ltd - restricted dividend payments were not considered oppression
- Sanford v Sandford Courier Service Pty Ltd - minority shareholder oppressed due to self-interest of majority shareholders and directors
- Scottish Co-operative Wholesale Soc Ltd v Meyer - transferring business opportunity to another company was considered oppressive to minority shareholders
Members' Meetings
-
Three types of members meetings:
- Class Meeting - for voting on variations or cancellations affecting a specific class of shareholders
- Annual General Meeting (AGM) - compulsory for public companies, held annually within 5 months after the end of the financial year
- Extraordinary General Meeting (EGM) - called by directors, the court, or members
Resolutions
-
Resolutions are made at meetings:
-
Ordinary resolutions require more than 50% of votes
-
Special resolutions require at least 75% of votes
Voting Procedures
- Voting typically occurs via a show of hands (one vote per member) or a poll (one vote per share)
- A poll can be demanded by at least 5 members, members with at least 5% of the votes, or the chair
Administrators
- Appointed to manage insolvent companies
- Can exercise company functions and investigate issues
- Cannot destroy property rights that existed before administration
- During administration, directors' powers are limited and require administrator consent for transactions
Schedule of administration
- First meeting in administration occurs within 8 business days
- At this meeting, the creditors appoint a committee of inspection
- A meeting to decide the company's future occurs within 5 business days before or after the 20 business day "convening period"
- Three options for the future of the company:
- Deed of Company Arrangement - restructuring
- Winding Up - appointing a liquidator
- End of administration without any action
Restructure (Part 5.3B)
- Used by insolvent companies to retain control while repaying debts
- Total liabilities must not exceed $1 million
- Directors appoint a restructuring practitioner
Insolvent Trading
- Proceedings can be brought by the liquidator or ASIC
- Director may be personally liable for debt incurred by an insolvent company if they had:
- Reasonable grounds to suspect insolvency
- Were aware of grounds for suspecting insolvency
- Would have been aware if a reasonable person in a like position would have been
Defences to Insolvent Trading (s588H)
- Director had reasonable grounds to expect and did expect solvency
- Reliance on a competent and reliable person
- Absence of management due to illness or other good reason
- Director took reasonable steps to prevent debt being incurred
Safe Harbour Defence (s588GA)
- Provides protection from insolvent trading for a particular debt if:
- Director suspects insolvency and takes a course of action likely to lead to a better outcome
- Particular debt is incurred in connection with the course of action
- Advice from a suitably qualified entity was obtained
Directors involved in Part 5.3B Restructure
- Section 588GAAB and 588GAAC protect directors from insolvent trading liability in the context of restructurings
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz covers the key aspects of the appointment, removal, and disqualification of directors in corporate law. Learn about the minimum requirements for directors in public and proprietary companies, the process of removal by shareholders, and the grounds for disqualification. Test your knowledge on these essential components of corporate governance.
