statutory remedies

  1. What are the statutory remedies available for members?

The remedies are useful in protecting shareholders from the directors and the minor shareholder from the major shareholder’s activities.

  • Oppression remedy- addresses the conduct of company affairs or any activities carried out in the interest of the company. It looks into complains on oppressive, discriminatory or unfairly prejudicial action against members. Test case is the Wayde case where the director’s action was not justifiable.
  • Court-ordered winding up- The order may be made if it is determined the directors’ action are against the law or unjust to members. A person who feels the company violated their rights, for example removing their names from the company register can apply to court for this remedy. The test of this remedy: Loch v John Blackwood Ltd (1924).
  • Statutory injunction-granted when there are court proceedings or it has been determined the activities of the management are not in the interest of the company. Also, in case it has been determined the activities of the company are no pursued. Test: Re Tivoli Freeholds VR 445

Statutory right to inspect company books- The remedy is sort in case of fraudulent or suspected concealing of information by the company directors. Test Loch v John Blackwood Ltd [1924] AC 783

Other protection:

    • Variation of class rights –some shares have more power than others. For example founder shareholders have more rights and thus protected.
    • transactions affecting share capital
  1. If a company wants to sue, what appropriate statutory remedy is available? Explain with relation to authority.

Member’s derivative action- A member of a limited liability company has power to take a derivative action on behalf of the company. The conditions for the member to qualify for that are:

  1. The member should have been a member of the company when the issue raising the action occurred; or
  2. Has legally acquired status as a member of the limited company through the correct terms of operating agreement from a person who was a member of the company at the conduct of the issue that has led to the action occurrence.

In taking a derivative action on behalf of accompany the plaintiff has to state the date and the content of the member’s demand and the response to the demand, otherwise the demand is deemed as futile.

 

  1. Is there any equitable limitation for majority shareholders acting in an inappropriate manner with the minority shareholders?

In most companies, especially the private companies the minority shareholders can be oppressed by the majority shareholders because of the latter’s right to elect the board and effect constitutional right and capital change. The minority shareholders do not have such assurance of getting proportionate participation in the management of company affairs. To protect the minority, there is equitable limitation/ also called fraud on the minority. It prevents the majorities in general meetings from using powers for an improper purpose or acting oppressively towards the minority.The majority shareholders’ power to amend the constitution with the purpose of expropriating valuable rights like voting rights or shares of the minority shareholders was restricted following the Gambotto v WCP Ltd in the High Court of Australia. From the case, it was passed that for the company constitution to be amended in order to allow expropriate shares of the minority is only allowed if it is for proper purpose and it will not be oppressive to the minority shareholders.

 

 

  1. A group of members at Opti Ltd have been oppressed by the directors of the company. What statutory remedy is available to them? (Refer to the authority when explaining the statutory remedy).

Several solutions have been outlined to handle oppression from company management and directors.

A court order:

  • To have the company wound up
  • The company constitution be repealed or modified
  • Regulating future company affairs
  • Restraining the directors from continuation with oppression

In making the decision, the court should consider the least intrusive remedy that will eliminate the oppression.

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) Hanrahan, Ramsay and Stapledon).

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 information
  • Right not to be forced to sell shares
  1. Explain the remedy that is available to enforce the right of a company. (Refer to authority when explaining the statutory remedy).

There are different remedies to enforce the right of a company. They include:

  • Nominal damages-Tokens awarded to the aggrieved party
  • Statutory remedy – The statute provides for a minimum recovery to the violated party. The plaintiff uses the statute in suing for damages in case they feel their rights have been violated.
  • Liquidated damages –Previously laid out compensation plan in case of breach of contract.
  • Compensatory damages- aims at putting the aggrieved party to the prior condition before damage occurred.

 

  1. Adele is a director of Music Ltd. She is being sued for a breach of duty of care. She wants to argue that she utilized a business judgement. Explain to Adele the requirements of business judgement rule with reference to relevant authority.

As a defence, the business judgment rule is used when a director faces a claim for breach of duty of diligence and care when making a decision that relates to the day today activities of the company. For business judgement rule to be accepted in her defence, Adele must demonstrate that:

  • She made the decision in good faith and for a proper purpose
  • She did not have any personal interests in the matter she made a decision on
  • Rationally believed the decision she made was in the best interest of the company, and
  • Was reasonably informed on the material issue of the decision to the extent she reasonably believed to be appropriate.

 

  1. The majority of members want to pass a resolution to change the constitution of IGA Ltd. This resolution would be harmful to minority of members as the majority members want to exploit the minority shares of the members. Advise whether such a resolution to amend the constitution can be passed.

Amending the constitution of a company by the majority shareholders is restricted by the law. The majority shareholders’ power to amend the constitution with the purpose of expropriating valuable rights like voting rights or shares of the minority shareholders was restricted following the Gambotto v WCP Ltd in the High Court of Australia. From the case, it was passed that for the company constitution to be amended in order to allow expropriate shares of the minority is only allowed if it is for proper purpose and it will not be oppressive to the minority shareholders. In the case of IGA Ltd, the minority shareholders can seek legal remedy against the changing of the constitution.

 

  1. Discuss why might a director argue reliance as a defence to a breach of duty and care?

There are three defenses that a director can utilize in case of breach of duty and care accusations.  They include:

  • the judgment rule
  • Reliance on others; and
  • Use of delegated power.

Reliance on others is a defence is applicable where the directors made a decision based on advice given by a reliable and competent person. For example, in case the advice was from the company lawyer or the company accountant. For this defence to be admissible there should be proof of acting in good faith, reasonability and making proper enquires on the issue.

 

 

  1. Explain the defenses relevant that can be argued for insolvent trading.

In defending themselves against insolvent trading, the company directors can use several defenses:

  • The director can argue they had reasonable grounds to believe the company was solvent at the time of acquiring the debt.
  • The director had information that any reasonable director or person would consider as enough ground for them to believe the company would remain solvent if it incurred the debt.
  • The director took preventive measures to prevent the company from incurring further debt.
  • Prove of reasonable grounds that the director could not partake in proper decision making, for example due to bereavement, illness or mental instability.
  • If the director relied on the advice of qualified professionals in the decision making. In this case, the director must prove the advisor is reliable and competent, the person was fulfilling their responsibilities and at the time of the advice, the company was believe to be solvent and was expected to remain solvent even after the debt.

 

  1. Explain share capital and the different types of shares options available
  • Share capital refers to the shareholders investment into a company, mostly in monetary value. The shareholders gain ownership of the company by owning shares. Types of shares include:
  • Ordinary shares- capital that a business owner receives or gives in exchange of shares
  • Deferred shares-have no right to vote
  • Founder shares- Issued to company founders and have enhanced rights.
  • Preference shares- They have a preferential right to fixed dividend.
  • Redeemable shares- Can be redeemed back by the company

 

 

Get a 10 % discount on an order above $ 100
Use the following coupon code :
SKYSAVE