LAW901 Week 7 Lecture 7: Company Constitutions and Replaceable Rules PDF

LECTURE 7:COMPANY CONSTITUTIONS AND REPLACEABLE RULES WEEK 7 Lecturer and Unit Coordinator: Dr. Mohammed Jahangir Course Coordinator for ALAM Accounting: Associate Professor D...

LECTURE 7:COMPANY CONSTITUTIONS AND REPLACEABLE RULES WEEK 7 Lecturer and Unit Coordinator: Dr. Mohammed Jahangir Course Coordinator for ALAM Accounting: Associate Professor Dr. Philip Lee Email: [email protected] Email: [email protected] LAW901 BUSINESS & CORPORATE LAW  Company Constitutions and Replaceable Rules Topic Overview 2. Topic Overview o Company Constitution o Replaceable Rules o What is Corporate Governance? o Board of Directors o General Meetings Reading: Symes C, Parker D, Fitzpatrick J and Veljanovski A, Business and Corporations Law - Chapter 8 3 @ Dominic Cudmore 2021 Company Constitution A company's constitution is a document containing the rules governing its internal management Until 1 July 1998, a company usually came into being when ASIC registered its memorandum and articles of association and issued a certificate of incorporation - Corporations Law ss 117-121 (repealed) Together the memorandum and articles of association formed a company's constitution - Corporations Law s 9 (repealed) 4 @ Dominic Cudmore 2021 Company Constitution The function of a memorandum of association was to describe a company by reference to its name, its share capital structure, its objects and the personal liability of its members The function of the articles of association was to set out the terms of the contractual relationship between the corporation and its members and senior officers and between the members themselves - see Halsbury's Laws of Australia par 120-3500 5 @ Dominic Cudmore 2021 Company Constitution Instead of preparing Articles of Association, it was possible for a company (other than a no liability company) to adopt the standard articles set out in: o Table A of Schedule 1 to the Corporations Law s 175, and o Small Business Guide Corporations Law s 3 (repealed) 6 @ Dominic Cudmore 2021 Company Constitution Older companies may still be governed by a memorandum of association and articles of association These documents together are taken to be the company’s constitution- Corporations Law s1415 (repealed) and Corporations Act 2001 (Cth) Part 10.1 The Replaceable Rules apply to any company registered before 1 July 1998 that repeals or repealed its constitution after that day - Corporations Act 2001 (Cth) s 135(1)(a)(ii) A constitution may limit powers and set out objects 7 @ Dominic Cudmore 2021 Company Constitution If a company has a Constitution, it may contain an express restriction on, or a prohibition of, the company’s exercise of any of its powers The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company’s constitution - Corporations Act 2001 (Cth) s 125(1) 8 @ Dominic Cudmore 2021 Company Constitution If a company has a Constitution, it may set out the company’s objects An act of the company is not invalid merely because it is contrary to or beyond any objects in its constitution- Corporations Act 2001 (Cth) s 25(2) 9 @ Dominic Cudmore 2021 Company Constitution Corporations Act 2001 (Cth) s 36(1) provides that a company adopts a constitution: (a) on registration - if each person specified in the application for the company’s registration as a person who consents to become a member agrees in writing to the terms of a constitution before the application is lodged, or (b) after registration - if the company passes a special Resolution adopting a constitution or a court order is made under Corporations Act 2001 (Cth) s 233 that requires the company to adopt the constitution 10 @ Dominic Cudmore 2021 Company Constitution If a public company is to have a constitution on registration, a copy of the constitution must be lodged with its registration application - Corporations Act 2001 (Cth) s 117(3) Public companies that wish to be listed on the ASX must have a constitution - ASX Listing Rule 15.11 A no liability company must adopt a constitution as in order to be registered and its constitution must state that its sole objects are mining purposes - Corporations Act 2001 (Cth) s 112(2)(b) 11 @ Dominic Cudmore 2021 Company Constitution Corporations Act 2001 (Cth) s 136(1) provides that a company adopts a constitution: (a) on registration - if each person specified in the application for the company’s registration as a person who consents to become a member agrees in writing to the terms of a constitution before the application is lodged, or 12 @ Dominic Cudmore 2021 Company Constitution Corporations Act 2001 (Cth) s 136(1) provides that a company adopts a constitution: (b) after registration - if the company passes a special Resolution adopting a constitution or a court order is made under Corporations Act 2001 (Cth) s 233 requiring it to adopt the constitution 13 @ Dominic Cudmore 2021 Company Constitution A company may modify or repeal its Constitution, or a provision of its Constitution, by special resolution - Corporations Act 2001 (Cth) s 136(2) A special resolution is a resolution: o of which notice has been given as set out in Corporations Act 2001 (Cth) s 249L(1)(c), and o that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution - Corporations Act 2001 (Cth) s 9 14 @ Dominic Cudmore 2021 Company Constitution The company may need leave of the Court to modify or repeal its constitution if it was adopted as the result of a Court order - Corporations Act 2001 (Cth) s 233(3) 15 @ Dominic Cudmore 2021 Company Constitution A public company must lodge with ASIC a copy of a special resolution adopting, modifying or repealing its constitution within 14 days after it is passed The company must also lodge with ASIC within that period: (a) if the company adopts a constitution - a copy of that Constitution, or (b) if the company modifies its constitution - a copy of that modification Corporations Act 2001 (Cth) s 136(5) 16 @ Dominic Cudmore 2021 Company Constitution ASIC may direct a company to lodge a consolidated copy of its constitution with ASIC - Corporations Act 2001 (Cth) s 138 If, by special resolution, a new constitution is adopted or an existing constitution is modified or repealed, the adoption, modification or repeal takes effect: (a) on the date on which the resolution is passed - Corporations Act 2001 (Cth) s 137(a)(i); or (b) on a date specified in the resolution - Corporations Act 2001 (Cth) s 137(a)(ii) 17 @ Dominic Cudmore 2021 Replaceable Rules The replaceable rules are a series of provisions in the Corporations Act 2001 (Cth) which relate to the management of corporations A replaceable rule may be mandatory for a public company and if so, it cannot be changed or excluded by a public company - Corporations Act 2001 (Cth) s 135(1)(b) At the moment there is only one such replaceable rule, Corporations Act 2001 (Cth) s 249X relating the to appointment of a proxy 18 @ Dominic Cudmore 2021 Replaceable Rules The replaceable rules do not apply to a proprietary company if the same person is both its sole director and sole shareholder - Corporations Act 2001 (Cth) s 135(1) Special provisions apply to a proprietary company where the same person is both its sole director and sole shareholder - Corporations Act 2001 (Cth) ss 198E, 201F and 202C A company may include in its constitution (by reference or otherwise) a replaceable rule that does not otherwise apply to it 19 @ Dominic Cudmore 2021 Replaceable Rules A provision of a section or subsection that applies to a company as a replaceable rule can be displaced or modified by the constitution - Corporations Act 2001 (Cth) s 135(2) A failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of the Corporations Act 2001 (Cth) - Corporations Act 2001 (Cth) s 135(3) 20 @ Dominic Cudmore 2021 Replaceable Rules Corporations Act 2001 (Cth) s 141 contains a table setting out 42 replaceable rules grouped into the following categories: o officers and employees o inspection of books o directors’ meetings o members’ meetings o shares o transfer of shares 21 @ Dominic Cudmore 2021 Replaceable Rules There may be good reasons not to rely solely on the replaceable rules: o a company may need to have a constitution or specific provisions in it (e.g. ASX Listing Rule 15.11 or Corporations Act 2001 (Cth) s 112(2)(b)) o if Parliament amends a replaceable rule then the amended rule will apply to the company (amendments do not occur that often) 22 @ Dominic Cudmore 2021 Replaceable Rules The replaceable rules do not cover certain corporate governance matters that the members may wish to have settled (e.g. rules on partly paid shares, including calls on those shares and when they may be forfeited) The members may want to have all the company's corporate governance rules in one document The members may wish to avoid the risk that decisions made under a replaceable rule might be treated as being made 'under an enactment' and therefore subject to review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) 23 @ Dominic Cudmore 2021 Statutory Contract Corporations Act 2001 (Cth) s 140(1) provides that a constitution (if any) and any replaceable rules that apply to the company have effect as a contract: (a) between the company and each member (b) between the company and each director and company secretary (c) between a member and each other member under which each person agrees to observe and perform the constitution and replaceable rules so far as they apply to that person 24 @ Dominic Cudmore 2021 Statutory Contract However, Corporations Act 2001 (Cth) s 140(2) provides that unless a member agrees to be bound in writing, they are not bound by changes made to the constitution after they become a member that: (a) require them take up additional shares (b) increase their liability to contribute to the share capital of, or otherwise to pay money to, the company 25 @ Dominic Cudmore 2021 Statutory Contract (c) impose or increase restrictions on their right to transfer the shares subject to certain exceptions relating to: o a change from a public to a proprietary company, or o the insertion of proportional takeover provisions 26 @ Dominic Cudmore 2021 Statutory Contract Outsiders cannot enforce the statutory contract regarding a company's governance Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88 Facts Under the company's Articles of Association, Eley was to be its solicitor and conduct all its legal business Eley could only be removed for misconduct 27 @ Dominic Cudmore 2021 Statutory Contract Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88 Facts The company ceased to employ Eley and started employing other solicitors to do its work Eley was not appointed solicitor to the company by any resolution of the directors, nor by any instrument bearing the corporate seal of the company Eley sued for breach of contract based on the articles of association 28 @ Dominic Cudmore 2021 Statutory Contract Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88 Held The articles of association were a contract between the shareholders inter se and did not create any contract between the Eley (who was not a party to them) and the company The fact that Eley later became a member of the company did not change the outcome 29 @ Dominic Cudmore 2021 Statutory Contract Members’ rights under the statutory contract must be in their capacity as a member Hickman v Kent or Romney Marsh Sheepbreeders' Association 1 Ch 881 Astbury J: o No article can constitute a contract between the company and a third person 30 @ Dominic Cudmore 2021 Statutory Contract Hickman v Kent or Romney Marsh Sheepbreeders' Association 1 Ch 881 o No right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as, for instance, as solicitor, promoter,... can be enforced against the company o Articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company 31 @ Dominic Cudmore 2021