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(Download PDF) Company Law An Interactive Approach 1st Edition Wong Solutions Manual Full Chapter
(Download PDF) Company Law An Interactive Approach 1st Edition Wong Solutions Manual Full Chapter
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Instructor manual
to accompany
Company law: an
interactive approach
1st edition
by
Chapple et al.
Students are expected to treat the case study as a real-world business scenario, and David Douglas and
his Racing Parts business as real clients. The case study does not provide all the information needed
for each decision. Students need to develop the skills to know what might not have been said or
provided, and to ask their clients the right questions. It is important to regularly remind students that
they will need to ask their client questions. They cannot rely on the client to know exactly what
information to provide.
Students need to understand what is important to the client and why the client wants things a certain
way. An adviser will not always remember all the information about their client and it is therefore
important to regularly review and reacquaint themself with the client as the case study develops.
The first appearance of the Racing Parts case in each module presents relevant background
information, events that have occurred since the previous module, and an overview of the issues that
will be raised in the current module. The list of issues at the end of the first case box in the module
includes the key considerations/questions to be analysed in order to advise David. By working
through the module and, in particular the Racing Parts Activities and Insights that appear in most of
the learning objective sections of the module, the student should be able to formulate a response to
each of these issues. The more specific questions that are sometimes included are intended to help
students focus on the key information relevant to decisions.
Issues
At this stage, before studying the module, the student will not necessarily be able to advise a
client on these questions, but should be able to think about the issues in more general terms:
• From earlier modules, students should be able to describe the doctrine of separation of
powers and that the role of directors is to manage the company on behalf and for the
benefit of the members. Students should explain how the interests of directors and
members may not be completely aligned. Directors have extensive powers to manage the
company, but are subject to various responsibilities and obligations, as well as measures
put in place by members, to ensure they do manage the company for the benefit of its
members.
• Students should explore the reasons for appointing any directors other than just David
(e.g. to access expertise or reward people involved in the company). Who can be
appointed a company director and how? What are the skills and qualifications required to
be a company director? What are the specific merits or otherwise of appointing the
individual members of David’s family and the individual staff members to be directors?
What about Sarah, David’s business adviser? Students may compare the relative power
and responsibility of directors with other officers.
• Directors exercise their decision-making powers by passing resolutions at a formal
meeting of the board. Students should describe the procedural rules for board meetings,
including the reasons for the rules.
• How does the decision-making process at Racing Parts Pty Ltd potentially affect David’s
ability to retain control of the company? What powers do members have over directors?
How might this affect David’s control of the company now and in the future?
Learning objective 7.1: List the key principles of good corporate governance.
The doctrine of separation of powers refers to the different powers of shareholders and the
directors or managers of the company and the inability of one to interfere in the decisions of
the other. The law in the cases of Cuninghame v Automatic Self-Cleansing Ltd and Shaw v
John Shaw & Son Ltd stated that, even though the actions of the directors affect the
shareholders, if the issue is about the management of the company (which can affect the
balance sheet — assets and as well as liabilities — and the profit and loss account — income
and expenses) it is solely the responsibility of the directors to decide the issues without
interference by the shareholders.
As directors decide on management issues, if David appoints his mother, Helen, and other
staff as directors then he may lose management control. Board meetings of directors should
be held on a regular basis. The directors by majority (more than 50%) agree on management
matters. There are no special resolutions in the case of board meetings.
Can you think of any other ways he may be able to retain control?
Discuss how the measures in figures 7.4 and 7.5 apply to Racing Parts Pty Ltd.
Racing Parts Pty Ltd started out as a single shareholder/director company, which means the
interests of the owner and the manager were the same. Once new directors are appointed, or
new shareholders take up shares, then the scope for their interests to misalign increases. The
company then needs to consider which corporate governance mechanisms may be effective in
constraining managers’ actions to align more closely with shareholders’ interests.
Examine the definition of officer in s 9. Students should assess whether each person in the
Racing Parts case is an officer of the company and explain why/why not. In particular, note
that some aspects of this definition are quite broad. Then students should explain what
powers each officer would have.
Learning objective 7.3: Describe the relative roles and powers of company directors and
company members.
Advise David what matters directors decide, what matters members decide, and what he
decides.
Discuss the doctrine of separation of powers. Directors acting collectively as the board make
management decisions. The members in general meeting have power to make decisions over
specific matters. David, as single director, makes all the decisions. As soon as he appoints
another director, this will change.
In the case of the loan, this is a matter that is usually considered a management decision. Is it
possible to have a clause in the constitution that states any loan in excess of $100 000 must be
approved by the shareholders? This does not stop the directors borrowing (not a restriction on
their powers of management), but it gives the shareholders the right to be made aware of the
matter.
Explain whether David gives up any power or control when another director is appointed.
Appointing more directors will take away some of David’s control of management issues, so
appointing him to managing director (under s 198D) changes his power in the company. As a
member, it may depend on whether there are shares with different rights attaching. David can
control the general meeting by holding a majority stake of share capital or by owning shares
with superior rights.
The rules regarding meetings of directors are in the constitution or the replaceable rules.
Discuss the reasons that directors meet (i.e. their purpose) and why they should meet on a
regular basis. See s 198A. This issue of meeting on a regular basis is discussed in some detail
when we consider the duties and responsibilities of directors and officers to act with care and
skill.
Meetings are usually called by the chair, or the company secretary can send out the notices.
Also, any director is able to call meetings.
The chair, who is appointed by the board of directors, will control the meeting. Generally in
the rules the chair will have the casting vote in the event of a deadlock.
Matters are decided by majority. A note must be kept of how each director voted and the
questions or issues raised. The chair must sign the board minutes as a true copy.
It is important for David to have regular meetings so that he can influence operations.
For David it is a trade-off between control and having other people in the business to help
him grow the business of the company. Go back to the opener and consider the formalities of
appointing directors. Who can be appointed a company director and how? What are the skills
and qualifications required to be a company director? In what circumstances is someone not
eligible or qualified to be appointed a director? To grow the business, the company needs a
board comprising diverse individuals, with complementary skill sets, who have a real interest
in the business and its success.
Learning objective 7.4: Outline how directors are appointed, remunerated and
removed.
1. Check the rules of the company to see that the appointment does not exceed the
maximum number (if any) stated.
2. Have a board meeting take place, with the directors agreeing to appoint Tom as a director
(pass by majority).
3. Ensure that Tom is over 18 (birth certificate).
4. Receive from Tom a letter agreeing to be appointed as a director.
5. Ensure that Tom is not automatically disqualified or that no other person (shareholder,
fellow director or ASIC) is going to apply to have Tom not be appointed as a director.
6. Ensure that the records at the company’s registered office are updated to show that Tom
is appointed as a director.
7. Complete form 484 to notify ASIC that Tom has been appointed as a director (28-day
deadline).
If the director is appointed by fellow directors, check the rules (if a constitution) or ss 201G
and 201H (if the replaceable rules) that state that within 2 months of appointment of a
director by fellow directors the appointment must be approved by the general meeting.
Suggest students set out the framework of the three types of disqualification (automatic; by
court order; by ASIC) and then detail the requirements of each type. This provides a
framework of the relevant law that can be applied to Andy, and indeed all current and future
directors.
As the disqualification rules are designed to protect shareholders, punish improper acts and
deter improper behaviour by others, David should consider these aspects in deciding whether
Andy has the skill set to be a director of Racing Parts.
Suggest that students observe the personal information that ASIC collects about company
directors. Some potential directors might consider this to be quite intrusive.