LAW201 Lecture 1 - Australian Corporate Law PDF

WEEK 1 LECTURE 1 THE HISTORY OF CORPORATE LAW IN THE AUSTRALIAN LEGAL FRAMEWORK LAW201 CORPORATE LAW  Incorporation and corporate personality Separate legal entity doctrine Consequences of the separate legal entity doctrine Departure from the separate legal enti...

WEEK 1 LECTURE 1 THE HISTORY OF CORPORATE LAW IN THE AUSTRALIAN LEGAL FRAMEWORK LAW201 CORPORATE LAW  Incorporation and corporate personality Separate legal entity doctrine Consequences of the separate legal entity doctrine Departure from the separate legal entity doctrine Types of companies Registration process Setting up a company 2 CROWN INSTITUTE OF HIGHER EDUCATION  What is Company and a corporation? A company is an incorporated body it can be created by registration with ASIC. Company and corporation is a term used interchangeably. Corporation can refer to anybody corporate or an incorporated association. A corporate body refers to an artificial entity, a legal person other than a natural person eg a government department. Corporation is defined as: § ‘a legal entity created by charter, prescription, or legislation’ by Butterworths Encyclopaedic Legal Dictionary § ‘a large company’ by Pocket Oxford English Dictionary. Contrast these definitions with the one in the Corporations Act: § Section 57A defines a corporation as including a ‘company’. 3 CROWN INSTITUTE OF HIGHER EDUCATION Historical development of corporate law Emergence of ‘corporation aggregate’ and the concept of joint stock South Sea Bubble — led to Bubble Act 1720 1844 Act (UK) — provided a right to incorporate for private purposes for a fee Introduction of limited liability under Limited Liability Act 1855 (UK) Consolidation of corporate laws in the Companies Act 1862 (UK). 4 CROWN INSTITUTE OF HIGHER EDUCATION Introduction of corporate Law into Australia Who has the power to legislate in relation to corporate law? Section 51(xx) of the Constitution of the Commonwealth of Australia Huddart Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330 Uniform Companies Acts 1961 National Co-operative Scheme. 5 CROWN INSTITUTE OF HIGHER EDUCATION Changing role of corporations Corporate social responsibility? Different theoretical perspective of corporations 6 CROWN INSTITUTE OF HIGHER EDUCATION Incorporation If an application is lodged under Corporations Act 2001 (Cth) s117, ASIC may: (a) give the company an Australian Company Number (ACN) (b) register the company (c) issue a certificate that states: (i) the company’s name, ACN and type (ii) that the company is registered as a company under the Corporations Act 2001 (Cth) (iii) the State or Territory in which the company is registered (iv) the date of registration – Corporations Act 2001 (Cth) s118 CROWN INSTITUTE OF HIGHER EDUCATION Regulating corporations Regulators § ASIC: companies and financial services § ASX § ATO § AUSTRAC § APRA § ACCC § RBA § FIRB. Reforming corporate law. 8 CROWN INSTITUTE OF HIGHER EDUCATION Fcxd fT”? By the late 1700s corporations had acquired various powers at common law including: o the ability to sue or be sued in the corporate name o to take in new members until dissolved (perpetual succession) o to have a common seal to show assent o to hold property o to establish own internal governance rules CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers The old Corporations Law s123(2) specified that a company could: o perform all the functions of a body corporate o sue and be sued o enjoy perpetual succession o acquire, hold and dispose of property It also provided that a company should have a common seal CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers Is this a common seal? CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers No – this is a common seal J CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers The current Corporations Act 2001 (Cth) states that a company: o possesses the powers of an individual and a body corporate - Corporations Act 2001 (Cth) s124 o no longer needs to have a common seal, but it may do so - Corporations Act 2001 (Cth) s123 CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers The Corporations Act 2001 (Cth) also says that a company: o has the legal capacity and powers of an individual Corporations Act 2001 (Cth) s124(1) o all the powers of a body corporate, including (among other things) the power to: q issue and cancel shares in the company q issue debentures q grant options over unissued shares in the company q distribute any of the company’s property among the members, in kind or otherwise Corporations Act 2001 (Cth) ss 124(1)(a)-(d) CROWN INSTITUTE OF HIGHER EDUCATION Statutory Powers A company limited by guarantee does not have the power to issue shares - Corporations Act 2001 (Cth) s124(1) CROWN INSTITUTE OF HIGHER EDUCATION Power to Sue and be Sued Generally, any cause of action that is available to a natural person available to a company, whether in tort, contract or otherwise However, a company is only entitled to sue for injury to its own interests - see dicta of Palmer J in Benward v Metal Deck Roofing NSWSC 1053 A company cannot sue for defamation that has hurt its feelings and, in some cases, statutes have limited other defamation claims by trading companies - Defamation Act 2005 (NSW) CROWN INSTITUTE OF HIGHER EDUCATION Power to Sue and be Sued Corporations Act 2001 (Cth) s109X deals with the service of documents on a company The ways to serve a document on a company include: o leaving it at, or posting it to, the company’s registered office, or o delivering a copy of the document personally to a director of the company who resides in Australia or in an external Territory CROWN INSTITUTE OF HIGHER EDUCATION Power to Sue and be Sued A court may, if it appears by credible testimony that there is reason to believe that a plaintiff corporation will be unable to pay the costs of the defendant if successful in their defence, require sufficient security to be given for those costs and stay all proceedings until the security is given - Corporations Act 2001 (Cth) s1335(1) CROWN INSTITUTE OF HIGHER EDUCATION Perpetual Succession Perpetual succession is an attribute of a company by virtue of Corporations Act 2001 (Cth) s119 This section states that, upon registration, a company comes into existence as a body corporate To say that a company has perpetual succession means that the company is a continuing entity in law with its own identity regardless of changes in its membership The death of some members, or the sale of their shares, does not affect the identity of the company or its rights CROWN INSTITUTE OF HIGHER EDUCATION Perpetual Succession Example o X makes a contract with Widgets Limited at a time when Widgets Ltd has as its members A, B, C, D and E o Before the completion of performance of the contract, the contract remains as a contract between X and Widgets Ltd even though A, B, C, D and E have been replaced as members by F, G, H, I and J CROWN INSTITUTE OF HIGHER EDUCATION Perpetual Succession Even if a company loses all its members, it can still exist as a company In Re Noel Tedman Holdings Qd R 561 the only shareholders and directors of a company (a husband and wife) both died in an accident The company's Constitution required its directors to approve any transfer of shares by the legal personal representative of a shareholder to beneficiaries under a will There were no directors or members to convene a general meeting of members to elect directors CROWN INSTITUTE OF HIGHER EDUCATION Perpetual Succession The Constitution allowed legal personal representatives to attend and vote at general meetings in the place of a deceased member The executors of the husband's will obtained an order from the Supreme Court of Queensland (under the old equivalent of Corporations Act 2001 (Cth) s49G) calling a meeting of members CROWN INSTITUTE OF HIGHER EDUCATION Perpetual Succession A Court may order the winding up of a company if it has no members Corporations Act 2001 (Cth) s461(1) and ASIC can apply for such an order - Corporations Act 2001 (Cth) s462(2A) CROWN INSTITUTE OF HIGHER EDUCATION Ownership of Property A registered company has the power to own property because: o Corporations Act 2001 (Cth) s119 provides that on registration the company comes into existence as a body corporate o Corporations Act 2001 (Cth) s124(1) gives a company the capacity and powers of an individual and the powers of a body corporate CROWN INSTITUTE OF HIGHER EDUCATION Ownership of Property A company can acquire the full legal beneficial ownership of a particular item of property either as absolute owner or as an owner of any lesser interest A company can acquire equitable interests and take security If property is transferred to a company without any restrictions imposed by the transferor, the company takes the property as absolute beneficial owner, not as a trustee Bowman v Secular Society Ltd AC 406 at 440-1 and Re Pyke VR 788 CROWN INSTITUTE OF HIGHER EDUCATION Corporate Personality We tend to think of a company as similar to a human being However, this is not quite so as a company does not have all the rights of a humans being At common law, a person is entitled to refuse to provide information that could tend to expose that person to a criminal charge or to a civil penalty (this is known as the privilege against self incrimination) The High Court of Australia held in Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 that a corporation is not entitled to the privilege against self-incrimination CROWN INSTITUTE OF HIGHER EDUCATION Corporate Personality When a statute uses the word person it can include corporations The Acts Interpretation Act 1901 (Cth) s2C provides that in any Commonwealth Act, unless a contrary intention appears, person shall include a "body politic or corporate as well as an individual" See also Interpretation Act 1987 (NSW) s21 CROWN INSTITUTE OF HIGHER EDUCATION Corporate Personality In University of Melbourne v Robinson 2 VR 177, a reference in the Freedom of Information Act 1982 (Vic) s 33(1) to the personal affairs of any person was held to be inapplicable to a corporation The reason was that personal affairs suggested it was limited to individuals CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity It is a basic doctrine of company law that a company is a legal entity separate from its members It is as if there is a screen or a veil around the company's members and its directors This is known as the corporate veil To say a company is a separate legal entity implies that rights and duties attaching to the company are not the rights and duties of its directors or members CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity The separate entity doctrine existed before registered companies and applied to common law corporations R v Arnaud (1846) 9 QB 806 Facts An English chartered corporation applied for the registration of a ship owned by it Registration was refused on the ground that the shipping registration legislation excluded foreigners from the privileges of British shipowners (several of the company's members were foreigners) CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity R v Arnaud (1846) 9 QB 806 Held The court ordered the registering authority to grant the application The owner of the ship was the corporation and not the members CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Parliament may intend to create rights or duties affecting persons behind the corporate screen - Merchandise Transport v British Transport Commission 2 QB 173, 202 (Devlin LJ) The presumption will be that parliament did not intend that the screen should be lifted CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Facts Aron Salomon had a business selling boots Under the Companies Act 1862 (UK), 7 members were required to register a new company Aron Salomon, with his wife and 5 children, registered a new limited company under the Companies Act 1862 (UK) which he called Salomon & Co Ltd Aron Salomon sold his business to Salomon & Co Ltd for £38,782 in exchange for shares and a debt due from the company CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Facts Aron Salomon was appointed managing director and controlled the company The business eventually went bankrupt and it a few creditors including two secured creditors (one of them being Mr Salomon himself) In the winding up, the assets were insufficient to meet Aron Salomon's secured debt and the claims of the unsecured creditors CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Facts The liquidator tried to get money back from Mr Salomon to pay the creditors and argued that the company was really a fraud i.e. he argued that the company was really just an agent for Mr Salomon to reduce his liability Held The Court reject the arguments of fraud and agency CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Held The Court said that the company was duly constituted in law, and it was not the function of judges to read limitations into statutes The company was a separate legal entity and there was a corporate veil between the company and its shareholders The shareholders were also limited in liability Mr Salomon could not be pursued personally for the debts of the company CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Held Lord Haldane stated that he "must decline to insert into [the Companies Act 1862 (UK)] limitations which are not to be found there" CROWN INSTITUTE OF HIGHER EDUCATION Separate Legal Entity Salomon v Salomon & Co Ltd AC 22 Consequences Salomon's case led to the development of what is known in Australia as the $2 company i.e. a proprietary company with only two members, subscribing $1 each Now it is possible to have a $1 company, with one incorporator subscribing for 1 share for $1 and being the sole director Corporations Act 2001 (Cth) s114 (member) and Corporations Act 2001 (Cth) s201A (director) CROWN INSTITUTE OF HIGHER EDUCATION NEXT WEEK 39 CROWN INSTITUTE OF HIGHER EDUCATION