Members Rights and Remedies in Company Law, Lecture notes of Remedies

Download Members Rights and Remedies in Company Law and more Lecture notes Remedies in PDF only on Docsity! Members Rights and Remedies 4 types of remedy: 1. Member  statutory  remedies   2. General  Law  ‘Fraud  on  the  Minority’   3. Member  personal  action     4. Member  derivative  action   Statutory Remedies − A statutory derivative action is a right to pursue someone else’s right- so it’s double. The derivative action is an individual shareholder or a directors right to force the company to sue, so it derives- the right to sue derives from the right of the company − All the other are rights which belong to the member Oppression Remedy – s232 Remedy available where – – Conduct of co; – Actual or proposed act or omission of co; OR – Resolution of members of co is EITHER • Contrary to interests of members as a whole; OR • Oppressive  to  or  unfairly  prejudicial  to  or  unfairly  discriminatory   against  a  member  or  members   • This is much wider these days, it is oppression and unfairness • The oppression remedy came in at about 1948 • Then they threw in unfairness as a criteria to broaden it out • Remedy is available to certain people, mainly the members, its not only that the directors do, it’s also what he members do • You can see that this criteria gives a pretty wide discretion Oppression  Section  234:   Action can be brought by – • Member of co (whether or not an oppressed member) • Person who has been removed as a member because of selective capital reduction • Person who won’t be a member any more if oppressive conduct allowed • Person who owns shares by inheritance or operation of law • Person who ASIC thinks appropriate 2. ‘Affairs’ is defined very broadly in CA s 53. The definition effectively includes almost all activities of a company: ASC  v  Lucas  (1992)  7  ACSR  676. 3. Oppression can be found in a single act or event or a series of acts or events; Oppression:  ‘oppressive,  unfairly  prejudicial  or  unfairly  discriminatory’   − These three terms are regarded as one concept. They convey the idea of a significant lack of fairness to a member or members; − Oppressive conduct has been described as conduct that is ‘burdensome, harsh and wrongful’: § Scottish  Co-­‐operative  Wholesale  Society  Ltd  v  Meyer  [1959]  AC  324;   In determining unfairness, an objective test is used: § Wayde  v  NSW  Rugby  League  Ltd  (1985)  180  CLR  459;     a. We don’t look at whether they feel oppressed, we look at whether it is oppressive objectively b. You can further articulate to say that a member just not liking the decision is not sufficient, and being dissatisfied is not sufficient c. There must be some objective sense that this is causing them harm − If a member is simply dissatisfied with company management, that will not constitute oppression: § Wayde  v  NSW  Rugby  League  Ltd   THE LEGAL TEST • The legal test – Wayde  v  NSW  Rugby  League  Ltd – was the decision one that no board of directors acting reasonably would have made? If yes – oppressive (s232 breached) • HELD: not oppressive in this case • Another way of stating test is – have the “reasonable expectations” of members been met? Reasonable expectations include – • Inclusion in co management • Provision of info • Right not to be forced to sell shares § Failure  of  substratum:  Re  Tivoli  Freeholds  Ltd  {1972]  VR  445   • The reason for the company’s existence is no longer being pursued • The company owned the theatre • The theatre burnt down and so the company claimed the insurance and then turned out to just be sitting there with a pack of money • A person purchased the shares and there were a number of people who refused to sell or he couldn’t find, but he used that company as a vehicle for takeovers, this is where you buy the shares in the company and then you asset strip it, so you get all the assets and then you work out what they are worth and you sell them off as much as you can • Then you have made a whole lot of money and then you get rid of all the money by declaring dividends and capital reductions • It’s called equity finance • The little rump of actors said we don’t like being part of an asset stripping company, this company has lost its way, we want it wound up and we want it wound up because it no longer is what its document say it is, the whole purpose and reason for existence of this company was to run a theatre and its not running a theatre so its not doing what its suppose to be doing • This is called ‘failure of substratum’ and they won in that case • Except the J said ‘ok I’m going to order that the company be wound up but I am going to delay the order for one week, if the party come up with an acceptable compromise, then ill strike out the order • An offer was made to the rump of actors which was accepted by them and the order was struck out • That is how the winding up remedy is usually used • These days the courts want you to use oppression so there is a problem of the ‘clean hands’ rule Breakdown in mutual trust:     § Ebrahimi  v  Westbourne  Galleries  Ltd  [1973]  AC  360,  per  Wilberforce  LJ   Winding Up remedy – s461 § Court reluctant to wind up solvent co where there is another remedy that will do the job § Can be limited in effectiveness; see especially s 467(4) § EXAMPLE: So if you could use the oppression remedy and you use the s 461 instead, the court will refuse to use the s 461 Members § Members no longer make decisions unless asked by the court § Dividends are no longer payable § Members are liable for unpaid amount of their shares Directors § Directors do not lose office however no longer take part in decision making § Type can’t act without approval have of liq or of the court § May be liable for insolvent trading s588G and to any other breaches of duty Creditors § Creditors- floating charges that may crystallised § Cannot enforce judgements or orders § Legal processes can be brought by the court s471B § Some transactions are voidable s5.7B Employees § Employees- winding up of order § Order itself serves as notice of dismissal § If voluntary winding up, possible they are not dismissed Company § Company- ceases to carry on business although it remains in existence until it is deregistered § Any docs must bear the words ‘in liquidation’ after company name § The co is not managed by liquidators rather then di and s/h Who may be appointed as liquidator? § Appointed by the court § Must be registered by court s1283 § ASIC keeps register § S 473 provides for resignation removal and remuneration Duties of liquidators 1. Collect all co assets 2. Disown onerous property and sell the rest 3. Pursue claims they may have against directors for insolvent trading and other breaches of duty 4. Review all pre-liquidation transactions to determine whether any are voidable 5. If liq is court appointed, they need to report to creditors and ASIC 6. Need to work out or ascertain what is owed to claimants 7. The pool of funds they have to pay creditors in the order of priority s556 a. Secured creditors b. Preferred creditors- incl. employees and liquidator remuneration s556 c. To unsecured creditors equally s 555 d. Any left over funds (doubtful) will be distributed to shareholders equally 8. Liquidator now will apply for de-registration