Corporate Law: Appointment and Removal of Directors
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Corporate Law: Appointment and Removal of Directors

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Questions and Answers

What is the minimum number of directors required for a public company?

  • 1
  • 2
  • 3 (correct)
  • 4

    • A person under 18 years old can be appointed as a director.

    False

    What is one reason a director can be automatically disqualified?

    Convicted of certain offences

    A proprietary company must have at least one _________.

    <p>director</p> Signup and view all the answers

    Match the following disqualification reasons with their respective periods:

    <p>Bankruptcy = 5 years plus up to 15 years Contravention of civil penalty provisions = Unlimited Management of 2 or more failed companies = 20 years maximum Direct disqualification by ASIC = 5 years maximum</p> Signup and view all the answers

    Who can remove directors in public companies?

    <p>Shareholders</p> Signup and view all the answers

    Replacing a director in proprietary companies cannot be governed by the replaceable rules or constitution.

    <p>False</p> Signup and view all the answers

    Directors must act in ________ and in the best interest of the company.

    <p>good faith</p> Signup and view all the answers

    Under which section must auditors report to ASIC if they suspect a contravention of the Act?

    <p>s 311</p> Signup and view all the answers

    Derivative rights belong to shareholders and are enforceable by them.

    <p>False</p> Signup and view all the answers

    What significant case established the basic principle for derivative actions in company law?

    <p>Foss v Harbottle</p> Signup and view all the answers

    The auditor's relationship with the client generates a duty of _____ towards the client.

    <p>care</p> Signup and view all the answers

    Match the following rights with their descriptions:

    <p>Personal Rights = Belong to shareholders and are enforceable by them Derivative Rights = Belong to the company and involve shareholders acting on the company's behalf Auditor's Duties = Involves reasonable care and skill towards the company AGM Attendance = Required for listed companies to answer written questions</p> Signup and view all the answers

    Which of the following is an exception to the rule established in Foss v Harbottle?

    <p>Fraud on minority shareholders</p> Signup and view all the answers

    Members of public companies cannot sell their shares easily if issues arise within the company.

    <p>False</p> Signup and view all the answers

    What is the term for the duty that auditors owe to the company that engages them?

    <p>contractual duty</p> Signup and view all the answers

    In which case was the non-payment of dividends considered oppression?

    <p>Sanford v Sandford Courier Service Pty Ltd</p> Signup and view all the answers

    An Annual General Meeting (AGM) must be held within 18 months after a public company's registration.

    <p>False</p> Signup and view all the answers

    What percentage of votes is required for a Special Resolution?

    <p>75%</p> Signup and view all the answers

    A director can call an ______.

    <p>Extraordinary General Meeting</p> Signup and view all the answers

    Match the following types of meetings with their descriptions:

    <p>Class Meeting = Members vote on variations or cancellations of rights Annual General Meeting = Must be held annually by public companies Extraordinary General Meeting = Can be called by directors or members Members' Meetings = Types of meetings involving shareholders</p> Signup and view all the answers

    What is the minimum requirement for members to request a general meeting?

    <p>Members with at least 5% of the votes</p> Signup and view all the answers

    A poll in a voting procedure can be demanded by any member.

    <p>False</p> Signup and view all the answers

    What type of resolution is required for a change of company name?

    <p>Special Resolution</p> Signup and view all the answers

    What is the role of an administrator in a company during administration?

    <p>The administrator has wide powers to investigate and control the company.</p> Signup and view all the answers

    During administration, directors can perform functions without seeking consent from the administrator.

    <p>False</p> Signup and view all the answers

    What must directors do if they want to enter a transaction during administration?

    <p>Obtain the administrator's written consent.</p> Signup and view all the answers

    The first meeting in administration must occur within ___ business days after the commencement of administration.

    <p>8</p> Signup and view all the answers

    Which of the following is NOT one of the options available at the creditors' meeting?

    <p>Liquidation</p> Signup and view all the answers

    Match the following sections with their corresponding rules or actions:

    <p>s437A = Functions of the company or officers s198G = Directors' functions with administrator's consent s439A = Timing of company future meetings s436E = First meeting in administration timing</p> Signup and view all the answers

    A company can have total liabilities exceeding $1 million to qualify for Part 5.3B restructuring.

    <p>False</p> Signup and view all the answers

    Who appoints a restructuring practitioner under Part 5.3B?

    <p>The directors of the company.</p> Signup and view all the answers

    Who can bring proceedings for insolvent trading under s588?

    <p>The liquidator or ASIC</p> Signup and view all the answers

    Directors are never personally liable for debts incurred by the company if it is insolvent.

    <p>False</p> Signup and view all the answers

    Name one defence a director can use against insolvent trading.

    <p>Director had reasonable grounds to expect solvency.</p> Signup and view all the answers

    The Safe Harbour Defence is outlined under section ______.

    <p>s588GA</p> Signup and view all the answers

    What must a director do to take advantage of the Safe Harbour Defence?

    <p>Take reasonable steps to address insolvency concerns</p> Signup and view all the answers

    Match the following provisions with their roles:

    <p>s588 = Allows liquidators to bring proceedings s588G = Civil and criminal penalties for dishonest directors s588H = Defences for directors against insolvent trading s588GA = Protection under Safe Harbour Defence</p> Signup and view all the answers

    Directors can be held responsible for debts incurred if they were unaware of any signs of insolvency.

    <p>False</p> Signup and view all the answers

    What is one of the conditions for the Safe Harbour Defence to apply?

    <p>Director takes a course of action likely to lead to a better outcome.</p> 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

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    Week 6: Directors and Corporate Management

    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.

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