CORPORATIONS LAW

 Introduction to Corporation Act

 Nature and formation of companies
 Liability of its agents
 Membership
 Management and control
 Insolvency and winding up
 INTRODUCTION TO CORPORATION ACT

- Legislation: Corporations Act 2001 applies nationally.

- More than 1600 sections

- ASIC: sole responsibility for the administration and enforcement.

INTRODUCTION TO CORPORATION ACT
NATURE AND FORMATION OF COMPANIES
S 124(1): after registration a
company has the full legal
capacity of a natural person.
NATURE AND FORMATION OF COMPANIES

Types of companies:

 Companies limited by shares

 Companies limited by guarantee

 Unlimited companies

 No liabillity companies
 NATURE AND FORMATION OF COMPANIES
Company name:
 Public limited liability: “Ltd”
 Limited proprietary company: “Proprietary Ltd” or “Pty Ltd”
 Unlimited proprietary company: “Proprietary” or “Pty”
 No liability company: “NL”

Company number: ACN

Company seal: no need, but if there is, it must include: “ACN

[register number].
THE ASSUMPTIONS THIRD
PARTIES ARE ENTITLED TO MAKE
s 129 - assumptions can be made that:
• the constitution and replaceable rules have been complied with (s 129(1))
• a person who appears to be a director or a secretary has been duly appointed
and has authority to exercise powers and perform duties of a director or secretary
(s 129(2))
• a person held out by the company to be an agent of the company has been duly
appointed and has authority to exercise powers and perform duties of an agent
(s 129(3); Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992]
2 VR 279;
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971]
2 QB 711)
• officers and agents properly perform their duties (s 129(4))
• relevant documentation is in accordance with the proper procedures (s 129(5),
(6))
• an officer or agent has authority to certify that the document is genuine or a
true copy: (s 129(7))
MEMBERSHIP
• A person is a member of • A company must set up and maintain a
a company if they are register of its members containing:
identified as a member of (a) the member’s name and address; and
the company on its (b) the date on which the entry of the
application for member’s name in the register is made: ss
registration: s 120. 168(1)(a), 169(1).

• Also those whose name is •The register must also show the name and
entered on the company details of each person who stopped being a
register of members. member within the last seven years and the
date on which the person stopped being a
member: s 169(7).
MEMBERS' RIGHTS
Shares grant certain rights to members of company
• The right to vote – to appoint or remove directors; on directors’
remuneration (but this is limited); on any changes to the constitution;
matters specified in the constitution; on financial benefits given by public
companies to the directors and other related parties
• The right to distribution – to receive a dividend if the company makes a
profit and the directors declare a dividend; to receive a share of any
surplus if the company is wound up or capital is returned
• The right to information about the company – to inspect the company
books and receive annual reports; to be notified about company
meetings
• The rights attached to their class of shares
COMPANY DECISION MAKING
Power and control in a company is divided
between the directors and the members

• Directors have the power to manage the day-to-day business of

the company: s 198A and generally members cannot interfere
• Members exercise their control through their rights to elect and
remove directors, to create a board composed of directors the
members consider will create value in the company
• Members do NOT have any rights over the company
property (belongs to the company itself)
COMPANY DECISION MAKING
• Members of a listed public company have the right to
elect director
• Members of public companies that are not listed on the
ASX and members of proprietary companies have rights to
elect directors under s 201G (replaceable rule)
• Members of public companies always have the right to
remove directors: s 203D
• Members of proprietary companies have the right to
remove a director under s 203C (replaceable rule) by
ordinary resolution of the members (ie by 50% majority)
MANAGEMENT AND CONTROL
• Functions & liabilities of director/officers in managing a
company
• The corporations act imposes stringent control and
management to ensure compliance or to impose civil and/or
criminal penalties for non-compliance
DIRECTORS
• The directors are elected
by the members
(shareholders) or appointed
according to the rules of the
company
•The number of directors
depends on the size of the
company –
a proprietary company may
have as few as one director;
public companies must have
at least 3: s 201A.
SECRETARY
• The secretary handles the
administrative affairs of the
company
• Every public company must
have at least one secretary:
s 204A
REGISTERED OFFICE
• Every company must have
a registered office to which
all communications and
notices may be addressed &
must
notify details to ASIC
DUTIES AND LIABILITIES OF
DIRECTORS AND OTHER OFFICERS
• The directors of a company can exercise all the powers of the
company, except for matters that require the authority of the
shareholders

• Directors are under a fiduciary duty towards the company

•Certain statutory duties are imposed on the “officers” of a

corporation: ss 180-184
DUTIES AND LIABILITIES OF
DIRECTORS AND OTHER OFFICERS
• Section 180(1) requires that an “officer” act with care and
diligence.

• Australian Securities and Investments Commission v Healey [2011]

FCA 717; (2011) 196 FCR 291:
- Directors are entitled to rely on others but they must always bring
an independent and enquiring mind to the exercise of their duties
ASIC v Cassimatis [No 8] [2016] FCA 2013.

A director will not avoid liability merely by showing that the likely
profit from the contravention exceeded the final cost of a
contravention.
BUSINESS JUDGMENT RULE
Section 180(2) limited protection for directors against careless conduct

• This rule provides directors and other officers with a presumption

that they have met the requirements of care and diligence in making
a business judgment if they:
• have acted in good faith and for a proper purpose; and
• do not have a material personal interest in their decision; and
• take steps which they believe to be reasonably appropriate to inform
themselves about the subject of the decision; and
• rationally believe that the decision is in the best interests of the
corporation
Relevant cases include:
• ASIC v Rich (2009) 236 FLR 1
• ASIC v Mariner Corporation Ltd [2015] FCA 589
DUTIES AND LIABILITIES OF
DIRECTORS AND OTHER OFFICERS
Section 181
(1) A director or other officer of a
corporation must exercise their
powers and discharge their duties:
(a) in good faith in the best interests
of the corporation; and
(b) for a proper purpose.
Section 182
(1) A director, secretary, other
officer or employee of a
corporation must not improperly
use their position to:
(a) gain an advantage for
themselves or someone else; or
(b) cause detriment to the
corporation
DUTIES AND LIABILITIES OF
DIRECTORS AND OTHER OFFICERS
Section 183
(1) A person who obtains
information because they are,
or have been, a director or
other officer or employee of a
corporation must not improperly
use the information to:
(a) gain an advantage for
themselves or someone else; or
(b) cause detriment to the
corporation
Section 184 (criminal offences)
Good faith – directors and other officers
(1) A director or other officers of a
corporation commits an offence if they:
(a) are reckless; or
(b) are intentionally dishonest;
and fail to exercise their powers and
discharge their duties:
(c) in good faith in the best interests of
the corporation; or
(d) for a proper purpose.
(2) Use of position – directors, other
officers and employees
(3) Use of information – directors, other
officers and employees
DUTIES AND LIABILITIES OF
DIRECTORS AND OTHER OFFICERS
Duty to prevent insolvent trading
Directors are under a duty to
prevent the company from
incurring debts while it is
insolvent: s 588G
ASIC v Plymin, Elliott & Harrison
[2003] VSC 123
• Civil penalty provision
• Defences available under s 588H
Prohibition against Insider
Trading
ss 1042A-1043K civil and criminal
penalties R v Hannes (2002) 173
FLR 1
Penalty provisions
• ss 181, 182 and 183 can be enforced
by a criminal prosecution + civil
penalty
• s 180 - civil penalty only
• s 184 - ASIC can seek criminal
penalties (imprisonment for up to five
years and/or fines of up to $220,000,
or both)
• Part 9.4B - a court may make an
order prohibiting a person from
managing a corporation for a specified
period, or
pecuniary penalty up to $200,000, or
both
INSOLVENCY
Methods:
• Receivership
• Voluntary administration
• Deregistration
• Winding up
• Roles of receivers &
liquidators
WINDING UP BY THE COURT
• Court can order winding up – ss 459a, 459P
• Company is insolvent if it can’t pay its debts as and when they
fall due – s 95A
• Amount owed must be greater than $2000 (but see COVID
temporary changes)
• Company can issue a statutory demand which gives the debtor
21 days to pay
• The liquidator can apply for a court order for winding up after
a dividend is paid (if any) and the rights of contributories have
been adjusted
COVID TEMPORARY CHANGES TO CERP LEGISLATION
• Corporations and Bankruptcy Legislation Amendment (extending on 22 September
2020, relief measures (which came into force on 25 March 2020 in response to the
coronavirus (COVID-19) pandemic) to 31 December 2020.

• These temporary reforms are contained in Schedules 8 and 12 of the Coronavirus

Economic Response Package Omnibus Act 2020 (CERP Legislation) respectively.
• Statutory minimum of a demand from $2000 to $20,000
• Time for demand increased from 21 days to six months

• Changes will now apply from 25 March 2020 to 31 December 2020 and will apply to
statutory demands that are served during this period. The statutory demands can
relate to debts already incurred and due and payable.