Corporate Power/Remedies for Maj

REMEDIES

CORPORATE POWER/REMEDIES FOR MAJ

Constitution – power over Con

·  Can amend/repeal Con by special resolution (75% - s9): s136(2)

·  Limited where expropriating (buy min sh) – must be for proper purpose and fair in all circ: Gambotto v WCP

Governance – power to govern comp

·  By appointing Dirs thru a comp resolution in GM: s201 (GG)

·  Dirs have primary grant of power to manage: s198A (RR)

Remedies

·  Can change Con

·  Can remove/appoint Dirs

·  Also corporate/personal remedies BELOW.

CORPORATE REMEDIES FOR MIN

·  Where comp injured (by 3rd party or breach of duty by its Dirs) à min Sh affected

·  Where comp does not sue 3rd party or Dirs à min Sh may have corporate standing:

o  Litigate on behalf of comp (derivative action)

o  Challenge Dirs’ decisions

GENERAL LAW DERIVATIVE ACTION

Prev: General Law – Foss v Harbottle (1843)

·  FACT: 2 Sh sue Dirs for fraud – on behalf of themselves and all other members, except Dirs.

·  HELD: cannot sue

·  LAW: “proper plaintiff” rule

o  Prima facie: where wrong done to comp, rather than individual à comp should sue in its own name and in its corporate character for wrong done to it

§  Comps have own internal processes to resolve – Ct should avoid involvement in conflict within comp

o  Sh can only individually bring action if no internal machinery to supervise Dirs or resort ineffectual

STATUTORY DERIVATIVE ACTION

·  Individual Sh can commence proceedings on behalf of comp, where comp is unable/unwilling to litigate

·  Abolishes general law rights under Foss v Harbottle

Part 2F.1A

Power:

·  Can bring proceedings on behalf of a comp, or intervene/take responsibility in proceedings that comp is party to: s236(1)

Who has power:

·  Member, former member, or person entitled to be registered as a member, of the company or of a related body corporate: s236(1)(a)(i) - Oates v Consolidated Capital Services (2008)

·  Officer or former officer of the company: s236(1)(a)(ii)

·  Excludes ASIC – this is a private remedy

Leave:

·  Must be granted leave under s237: s236(2)

Application for leave to commence proceedings on comp behalf:

·  Leave must be granted if ALL below satisfied: s237(2)

1.  Probable that comp not bring proceedings, properly take responsibility for proceedings etc. (a) - Swansson v Pratt (2002)

2.  Applicant is in good faith (b) - Swansson v Pratt (2002)

3.  It is in best interests of comp (c) - Swansson v Pratt (2002)

4.  Serious question to be tried (d) - Oates v Consolidated Capital Services (2008)

5.  14 days before application, written notice to comp re intention/reasons – or appropriate to grant even if no notice (e)

Ct Orders: s241

·  Ct can make orders/directions during leave application, or after leave granted: (1)

o  Interim order: (a)

o  Directions re conduct of proceedings (inclu requiring mediation): (b)

o  Directing comp/officer to do/not do act (c)

o  Appointing independent person to investigate/report to Ct re financial affair of comp, facts giving rise to action, costs in proceedings: (d)

§  Can, at reasonable notice, inspect comp books: s241(2)

Ct Costs Orders: s242

·  Ct can at any time make any order about costs for A, comp, Def: (1)

o  Can make orders depending on merits of case as it turns out and the outcome of the case.

o  In practice, no A has been granted indemnity against costs from (on behalf) comp

o  In practice, A usually has to indemnify comp against costs of litigation

·  Can order indemnification for costs: (2)

Swansson v Pratt (2002)

·  FACT: S/H prev married. S Dir/Sh (25%) of RAPP (comp), H Dir of RAPP for 5 yrs. H breach Dir duty (own benefit). S want leave to get RAPPA to sue H. Other Sh (held by S’s bro (P) and mum) – oppose litigation. P is other Dir of RAPP. P (acct) say H’s benefit part of family arrangement and had explained to S. These taken into accnt in S/H divorce settlement. S deny this happened.

·  HELD:

1.  Probable that comp not bring proceedings:

§  Usually obvious – Def controls comp or supported by maj Sh/BOD

§  Unclear – if no absolute refusal after specific request, A has onus to establish that in all rel circ, actual/probable refusal can be inferred.

§  A may also prove that comp not likely to litigate because, even if did, insufficient funds

§  APPLY: P and M oppose litigating (75% Sh) and P is only other Dir.

2.  Good faith:

§  TEST 1: A honestly believe that good cause of action exists and reasonable prospect of success.

·  Cannot be mere bald assertion – must not be something that no reasonable person would believe.

§  TEST 2: But if bringing for collateral purpose (believe in it, but intention is to get some advantage that action is not designed for) à amount to abuse of Ct process? à NOT GF.

§  Where A is current Sh/Dir à easy to show GF

·  Current Sh’ shares will increase in action

·  Dir has leg interest in welfare/good management of comp

§  Where A is former Sh/Dir (nothing obvious to gain from action) à Ct scrutinize with care, the purpose of the action

·  Eg. creditor (also former Sh) want action, so comp will be in position to repay debt to creditor à not in GF, trying to vindicate his interest as cred rather than recover prop for comp (true purpose of action)

·  Eg. former Sh with grievances against current maj Sh/BOD à easy to characterize as not GF, satisfying private vendetta

§  Ct should permit – where A would suffer real/substantive injury (related to their status as current/former Sh/Dir) if action not taken, and action is reasonably capable of redressing injury

§  If A, by action, would receive benefit that they shouldn’t receive in good conscience à NOT GF, even if comp would benefit from action.

·  Eg. double recovery by A for wrong

·  Eg. compensation for wrong to comp, where A was direct/knowing participant

§  APPLY: not GF

·  Improbable that S would appoint P as acct to investigate – if she didn’t trust his independence, integrity etc

·  S NOT in GF.

3.  Bests interests of comp

§  Leg does not say “may be, appears to be, likely to be” in bests interest – but that it IS in best interest of comp (high threshold!)

§  Must look at all circ:

·  Character oc comp: small, private, few Sh (look at effect of action on purpose of comp and family members, who are Sh) or large, public comp. Or if JV and venturers locked à would just be vindicating 1 comp’s position rather than achieving anything useful

·  Evidence re business of comp: to see what effects action may have on its conducint of business

·  If A can get redress in any other way: eg. if A can litigate in own name

·  Whether Def can meet at least substantial part of judgment, if comp win à action would be practically beneficial to comp?

§  APPLY:

·  S could apply to Family Ct to revoke divorce settlement – then get adj of rights.

·  Thus, not in best interests.

Oates v Consolidated Capital Services (2008)

·  FACT: O, T, H form comp gp for joint venture. Parent (CC1) incorp in Ireland own 100% of CCAust (incorp in Aus), which owns 100% of CCEng. CC1 fail, dissolved, its holdings in CCAust vested in Irish gov. O (former Dir of CCAust) want to 1) sue TH (continuing Dirs of CCAust and CCEng) for misappropriation of CCAust and CCEng’s opp to other comps they owned.

·  ISSUES/DECISION:

1.  CCEng’s Actions: O (as “former officer” of CCAust) can only bring proceedings on behalf of CCAust, not CCEng (which is where the Dir duty was breached). CCAust can be nominal plaintiff – litigate for CCEng’s interest, through procedural device (CCAust own 100% of CCEng). THUS: can O, with leave of s237, bring proceedings on CCAust behalf to sue NOT for its own benefit and its own action, but as nominal plaintiff for CCEng’s benefit/action?

o  Could only do so under a general law exception to the Foss v Harbottle rule – must be Sh.

§  APPLY: no. O (only former officer of CCAust,) à insufficient in general law.

o  “on behalf of”: action must be something that comp can sue in is own name, A is merely representative, comp is real plaintiff and will recover

§  APPLY: no. CCAust is not “real plaintiff” and cannot sue in its own name to recover remedies (remedies would belong to CCE)

o  “double derivative actions” are possible under s236(1)(a)(i): “member…of a company or of a related body company” can apply for leave

§  APPLY: no. O is only former officer, not Sh.

2.  CCAust’s Actions: O claim CCAust also has claim, because CCEng is agent of CCAust.

o  237(2)(d): serious question to be tried – same test for granting interlocutory inj à

§  A must identify legal/equitable rights to be determined at trial

§  It must be a sufficient colour of right, sufficient likelihood of success

o  APPLY: O had no evidence to show agency (Saloman) à fail s237(2)(d)

CHALLENGING DIRS’ DECISIONS

·  Where Dirs breach duty, individual Sh may have standing to sue in personal capacity

o  Sh affected by exercise of comp’s powers has right to demand/enforce that it should be exercised lawfully: Ashburton Oil NL v Alpha Minerals NL (1971), per Menzies J

o  Sh has equity to restrain Dir’s action in excess of their given powers: Barwick CJ

o  Sh has standing to get Ct to prevent issue of further shares that is not in GF for comp benefit: Windeyer J

Residues Treatment and Trading v Southern Resources (1988)

·  FACT: RTT (min Sh of SR). RTT try takeover SR. SR Dirs frustrate by allotment of shares à Dir breach of duty owed to SR. RTT’s voting power diminished.

·  TRIAL: RTT has no standing – to enforce SR’s rights against its Dirs

·  HELD: RTT has standing – under personal rights.

o  Where Dir action amounts to infringing Sh’s personal rights à Sh will have standing

·  Distinguish between detriment suffered by other Sh from wrong done to comp, and diminution of Sh’s voting power by improper allotment by Dirs as agents to comp

o  Sh have personal right (in equity) to have their voting power (fundamental part of their membership) undiminished by Dir’s improper actions

o  Fact that the Dirs allotment may be ratified by GM (maj voting) does not deprive them of standing.

PERSONAL REMEDIES

·  Where comp is NOT injured, but Sh’s right (personal/individual) has been breached à can litigate on own behalf: s236 (note 3)

·  These are personal (non-corporate) rights.

CONTRACTUAL RIGHTS – in Con

·  Con and any RR have effect of contract between: s140(1)

o  Comp and member

o  Comp and Dir/sec

o  Member and other member

·  Sh have a right to vote, pre-emptive rights, may be granted an inj/decl BUT no right to damages: Re Addlestone Linoleum (1887)

Hickman v Kent [1915]

·  FACT: K (assoc) objects are to encourage sheep breeding and purity of flock. Art 49 – any disputes to go to arbitration. H (member) dispute and want K restrained in various ways from derogating his member rights. Assoc claim – all proceedings stayed, since Art 49 say go to arbitration.

·  HELD: yes - arbitration

·  LAW:

o  General articles dealing with member rights à stat agt between members and comp as well as between themselves inter se

Eley v Positive Life Assurance (1876)

·  FACT: E (sol) draft Con for PLA, with art to say that all future legal business to use E. Incorp, E become member. PLA stopped employing E. E sue for breach of contract.

·  HELD: E fail – not contract between PLA and E (in non-member capacity)

·  LAW:

o  No Art in Con can constitute a contract between comp and 3rd party

o  Right given by Art in Con to person (in capacity not as member eg. solicitor) is not enforceable against comp

o  Articles regulating rights/obligations of members/Dirs DO create rights/obligations between them and comp

WINDING UP – JUST/EQUITABLE s461(k)

·  May be wound up voluntarily by special res (75%) à only maj: s491(1)

ASIC

·  May apply for winding up order: s462(2)(e)

·  Will need leave: s459P(2)(d)

Winding Up Orders: s461(2)

·  Ct may order winding up if:

a)  Comp special res to be wound up by Ct

b)  -

c)  Comp doesn’t start business within 1yrs of incorporation

d)  No members

e)  Dirs acted in own interests, unfair, unjust to other members

f)  Affairs of comp conducted in oppressive, unfairly prejudicial/discriminatory way

g)  Same as above

h)  ASIC says it should – unable to pay debt and in public interest

i)  -

j)  -

k)  just/equitable: s461(1)(k)

“Just/Equitable”

·  A justifiable lack of confidence in conduct/management of comp – rested upon a lack of probity: Loch v John Blackwood Ltd [1924]