Discuss about the Corporations Law for Wambo Coal Pty Ltd v Sumiseki.
The key issue in this case revolves around the actions which can be taken by the Galli’s grandchildren in the matter of non payment of the dividend for this year.
The shareholders purchase the shares of a company to not just be its shareholders but also to earn returns on their invested money through dividends (Latimer, 2012). Under section 254W(2) of the Corporations Act, 2001(Cth) , it is not obligatory to pay the dividends. The company can issue shares only when the requirements covered under section 254T of this act are satisfied (ICNL, 2017). As per this section, the dividend only has to be paid when there is a sufficient amount of profits and where the payment of dividend would not affect the capacity of the company in fulfilling the obligations of the creditors (Federal Register of Legislation, 2017).
Section 232 of this act covers the provisions regarding the oppressive conduct which takes place against the minority shareholders (WIPO, 2015). Under this section, the court can make an order for remedies under section 233 where an oppressive conduct is established or such conduct which is discriminatory in an unfair manner (Austlii, 2017). Under section 233 of Corporations Act, the court can make different orders whereby the aggrieved party is given remedies for the established oppressive conduct, and the remedies which can be offered includes winding up order against the company, amending/ modifying the constitution of the company, applying for the management to purchase the shares of the applicant, refraining the management from doing something particularly an act, transmitting the shares by will or law, discontinuing some events, and even asking the directors to do a particular act (Victorian Law Reform Commission, 2017).
A recent verdict given in Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326 made it an oppressive conduct when there was a failure on part of the company in paying the mandatory dividend (Launders, Hogan and Randall, 2014). Three conditions were laid down in Thomas v H W Thomas Ltd (1984) 1 NZLR 686 for oppressive remedy as per which, it has to be shown that the object for which the act was undertaken was to cause such actions where an oppression took place, or which was unfairly prejudicial/ discriminatory; the second condition is that the reasonable expectation had not been met; and the last condition is that awarding the remedies would be not only equitable but also just and fair (New Zealand Official Law Reports, 2017).
Section 245W(2) of this act provides that the dividend is a choice of the directors. And in this case study, the dividend on A Class Shares is to be issued at discretion and so, on the basis of this section, the Galli can freely deny the dividends to the shareholders. Also, Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd required the oppressive conduct only when it dealt with mandatory dividend. And on the basis of Thomas v H W Thomas Ltd, the three conditions have not been fulfilled as the conduct was not oppressive, but merely to use the profits of the company for expanding the business; also, the discretionary nature of dividends would deny the presence of oppressive conduct; and in case the remedies covered under section 233 are awarded in this case, it would become unfair and unjust.
Conclusion
To conclude, due to the absence of oppressive conduct in this case, the claim of Galli’s grandchildren would not be upheld and the company cannot be forced to pay the dividend.
The key issue in this case revolves around the benefits which revolve around buy back of shares and the conditions which have to be fulfilled for this.
The buyback of shares can be defined as the shares of the company being repurchased by them and the stock of the company being reacquired (Latimer, 2012). There are many benefits of opting for buy back and this includes taking advantage of the undervalued share prices of the company; dropping the dilution; increasing the company’s ownership; increasing the financial ratios particular the return on equity, which plays a crucial role when the shares of the company are being bought back (Kandarpa, 2016). Linking the benefits to the context of the previous case study, by undertaking share buyback, the company can save the costs of litigation in case in the oppressive conduct case, the matter reaches the court and the court ultimately orders the company to buy back the shares of the minority shareholder (WIPO, 2015).
The Australian Securities and Investments Commission along with the Corporations Act provide the statutory requirements for the share buyback in the nation. Division 2 of Part 2J.1 of the Corporations Act provides the requirements which have to be followed when it comes to the buyback of shares. Further, the information which has to be disclosed is covered under section 257A and the requirements of a report of an independent expert for the valuation purpose is given under the ASIC’s Regulatory Guide 75 (ASIC, 2007).
Applying the provisions covered above in the given case study, the company could safeguard from the possible liabilities in case a case of oppressive conduct is deemed successful. Also, it would avoid the company from having to pay dividends to the shareholders of A Class and increase ownership of company. So, after fulfilling the requirements stated above, including the report of independent expert, the buyback should be undertaken by the company.
Conclusion
To conclude, by following the requirements which have been covered above, the buyback of shares can be undertaken by the company.
The key issue in this case revolves around opting for capital reduction instead of buyback of shares for FWLP.
The share capital reduction denotes the process in which the equity held by the shareholder is reduced for the company based on the methods which have been covered under the statue (Dagwell, Wines and Lambert, 2015). By opting for capital reduction, the value of the shareholders can be increased and also leads to the capital structure of the company being more efficient (Nanda, 2015). In order for a capital of the company to be reduced, based on section 256C of the Corporations Act, it has to be reasonable and just for the shareholders as a whole and at the same time, the same should not prejudice the payments which have to be made to the creditors of the company and under this section, there is a need to obtain the approval of shareholders. By redeeming the preference shares of the company, particularly which are redeemable based on section 245J to section 254K and also by cancelling the shares as per section 258A and 258FA of this act (ASIC, 2014). As per section 254Y of Corporations Act, once the shares have been cancelled, there is a need to file Form 484 with ASIC which covers the details of the cancelled shares (Australian Government, 2013).
In the given case study, FWPL should opt for cancellation of shares instead of buying them back as this would have the approval of shareholders which would minimize the chances of a case of oppression being made against the company. However, it would have to be shown that this cancellation is not prejudicial to the creditors and that it is fair.
Conclusion
To conclude, the company should cancel the shares instead of buying back the shares as it would have shareholders approval.
References
ASIC. (2007) Share buy-backs. [Online] ASIC. Available from: https://download.asic.gov.au/media/1240127/rg110.pdf [Accessed on: 01/10/17]
ASIC. (2014) Reduction in share capital. [Online] ASIC. Available from: https://asic.gov.au/for-business/running-a-company/shares/reduction-in-share-capital/ [Accessed on: 01/10/17]
Austlii. (2017) Corporations Act 2001. [Online] Austlii. Available from: https://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/ca2001172/ definitions [Accessed on: 01/10/17]
Australian Government. (2013) Corporations Act 2001. [Online] Australian Government. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 01/10/17]
Dagwell, R., Wines, G., and Lambert, C. (2015) Corporate Accounting in Australia. NSW: Pearson Australia.
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 01/10/17]
ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from: https://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 01/10/17]
Kandarpa, K. (2016) What is the Purpose of a Share Buyback and How can Shareholders Benefit from it?. [Online] Wise Owl. Available from: https://www.wise-owl.com/investment-education/what-is-the-purpose-of-a-share-buyback-and-how-can-shareholders-benefit-from-it [Accessed on: 01/10/17]
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.
Launders, R., Hogan, J., and Randall, S. (2014) When will a dividend be mandatory?: Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326. [Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=e32fb35d-7227-428d-a2d9-435d0e07a28e [Accessed on: 01/10/17]
Nanda, D.S. (2015) Reduction in share capital: Analysis. [Online] Corporate Law Reporter. Available from: https://corporatelawreporter.com/2015/02/23/reduction-share-capital-analysis/ [Accessed on: 01/10/17]
New Zealand Official Law Reports. (2017) Thomas v H W Thomas Ltd – [1984] 1 NZLR 686. [Online] New Zealand Official Law Reports. Available from: https://www.lawreports.nz/thomas-v-h-w-thomas-ltd-1984-1-nzlr-686/ [Accessed on: 01/10/17]
Victorian Law Reform Commission. (2017) The oppression remedy in the Corporations Act. [Online] Victorian Law Reform Commission. Available from: https://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act#footnote-135972-53-backlink [Accessed on: 01/10/17]
WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from: https://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 01/10/17]
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