Corporate Law For Associted Dividends Under Section 254SA

Rules

Describe about the Corporate Law for Associted Dividends under Section 254SA.

Walter and Shirley Tate are retired people who have invested in a retirement savings company called Happy Days Ltd and are enjoying all the services that are provided by them. However, certain changes in the policies of Happy Days have been brought about by them, and this has been detrimental to the best interest of Walter, Shirley and other aged personnel using the services of Happy Days. These issues shall be analyzed in this paper by taking reference of the Australian Case laws and the Corporations Act 2001 (Cth).

The rules associated with the Corporations Law shall be discussed first to understand the statutory requirements in each case. These rules shall be discussed in the subsequent paragraphs.

The Corporations Act 2001 deals with the payments of dividends and about dividends in general in Part 2H.5, Sections 254SA to 254W. It is essential to note the contents of each of these sections. Section 254T provides the circumstances in which dividend is supposed to be paid by a company to its shareholders or investors. A company is not liable to pay a dividend unless a few circumstances. These are:

The assets of the company exceed its liabilities before the declaration about the payment of dividends is made and at the same time, the exceeding amount of assets should suffice to pay for the dividend;

When the dividend is being paid, its payment should be fair and reasonable to all classes of shareholders in the company;

The fact that the organization is giving a dividend to the shareholders should not be prejudicial for the company towards its eligibility to pay the creditors.

Further, in Section 254U, it has been stated that it is entirely for the directors to decide to determine whether a dividend shall be paid or not. It is also the discretionary power of the directors to fix the amount that shall be paid, the time when the payment shall be made and the method of making the payments.

In the case of Industrial Equity Ltd v Blackburn, (1977), it was ruled by the High Court of Australia that the payment of dividend is a discretionary right in the hands of the company. There is also no liability on the company that they have to continue with their payment of dividends only because it has paid them once (Vickery & Pendleton, 2006). The benefit can be called back at any point by the company unless there is anything contrary available in writing.

Application

Further, in the case of Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Ltd (in liquidation), (2005), the High Court of Australia ruled that calling back the payments of dividends is a right held by the company and can be executed even without taking consent of the shareholders.

It is a general principle in corporate law that the business should work according to the wish of the shareholders. However, if the directors of a company, in the course of its operation realize that a particular strategy is for their benefit, and that is not acceded to by its shareholders, then the directors can either call for a meeting of the shareholders. Then he can decide on the wish expressed by the majority or can take a suo moto decision for the best interest of the company (Lowry & Dignam, 2006).

Two case laws can be cited in this regard. In the case of Astley v Austrust Ltd, (1999), it was ruled by the High Court that where the directors want to expand their business for the best interest of the company, they can go ahead with the decision provided it does not bring upon bigger liabilities on the company thereby making the shareholders lose their interests with the company (Hawk, 2005).

Further, in the case of Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Ltd (in liquidation), (2005), the High Court ruled that even when a particular class of shareholders does not agree with any decision of the management, the management is at liberty to choose the decision that they wish to take provided the decision is in the best interest of the company (Gibson & Fraser, 2013).

As far as the increased fees and the revised rates of the company are in question, it should be noted that this is governed by the rules laid down in the agreement between the company and the party. In this regard, certain case laws can be discussed that uphold this view of the judges. The case of Copyright Owners Reproduction Society Ltd v EMI (Australia) Pty Ltd, (1958) should be discussed firstly. In this case, the Copyright Owners claimed for a certain amount from the plaintiff for rendering services for the first two years. However, from the third year, the rates were revised, and they started charging an extra amount. This led to differences between the plaintiff and the defendant (Ferrara, 2013). However, the High Court ruled that where the contractual agreement states that the rates can be revised based on the terms and policies of the company, there is nothing that can prohibit the Copyright Owners from doing so (Gibson & Fraser, 2007).

Another case that has to be discussed is that of R v Associated Northern Collieries, (2011). In this case, the court ruled that unless there is any expressed written agreement, on the contrary, a contractor is eligible to revise rates of rendering services with an increase in taxes and standards of living (Dine & Koutsias, 2007).

The Corporations Act provides that the authorities should take due diligence in the dissipation of their duties in the everyday schemes. However, it also provides that, in case, they commit any negligence in the course of their everyday activities, then the company remains liable in those circumstances (Brudner, 2014). However, there is a general defense available in the hands of the companies in this regard. If any person contributes towards the negligence of the company, then the company can claim immunity under the same.

In the case of Joslyn v Berryman, (2003), the High Court gave the ruling that when a bystander in a wrestling match in spite of knowing that he is incapable of running away in case of scuffle, chose to keep standing there, cannot claim for a compensation later because of his losses suffered in the matter. Again, in the case of Liftronic Pty Ltd v Unver, (2001), the High Court gave the ruling that contribution in any negligence does not bring any liability on the tortfeasor. Rather, the other party remains liable in such matters (Boros & Duns, 2010).

Defamation is said to have been done when one person or entity makes false or derogatory remarks about another person in front of a third person. There are certain defenses available against defamation. These defenses include the speaking of truth or expressing an honest opinion regarding any person, publication of the matter in the case of public interest or absolute privilege in the thing or case of innocent dissemination (Bainbridge & Bainbridge, 2009). The case of Theophanous v Herald & Weekly Times Ltd, (1994) can be taken in this regard. In this case, it was said that where genuine or honest interpretations are provided, then the offense of defamation is not committed against the individual. However, hatred or hate speech does amount to defamation, and this was substantiated by the ruling of the High Court in the case of Dow Jones and Company Inc. v Gutnick, (2002).

Happy Days in the given scenario is a company that used to pay dividends to the investors on a yearly basis. However, recently, it has decided that it would not pay the dividends and use the money generated by expansion and growth of the company. There is no law that Happy Days is bound to keep paying dividends to the investors over a continuous period. Expansion and growth of a business are one of the most important aspects of making a business successful. Thus, to maintain this success, if Happy Days tries to stop making payments of dividends and utilizes that money generated for the said purpose, there is nothing that should stop them from doing this. Walter and Shirley cannot claim that the company is bound to pay them dividends. Moreover, the relied on the money for funding their yearly trip to New Zealand to meet their son which is entirely their personal trip. Happy Days is under no obligation to prepare funds for their individual investors’ personal trips. Hence, it can be said that there is no obligation on the part of Happy Days to keep their payments of dividends.

As far as the second issue is concerned, it can be said that Happy Days is free to choose any locality where they wish to expand their business. Till the time they are not causing any disturbance or imposing any obligation on the present residents to move to their new locality, there is no law that can ask them not to buy any expansion project. As such, in the present scenario, it can be said that as far as Walter and Shirley are in question, if they are allowed to retain their living place, they cannot ask Happy Days to revise any of their decisions. Neither Walter nor Shirley can compel Happy Days to revise any of their decisions. They are not bestowed with the responsibility of making sure whether older Australians would prefer staying there or not. Hence, it is not justified on their part to ask Happy Days to make changes accordingly.

Coming to the third issue, it is well established in the factual background that the contract between Happy Days Ltd and the residents allowed for reviewing the annual fees. As such, it can be said that the residents were aware that the fees could be renewed at any point in time, and they had, in fact, agreed to this. Hence, they cannot state that the 30% increase in the annual fees is against their interest. Whatever the reasons in the hands of Happy Days may be, the residents cannot claim otherwise. If they feel that the hike is unreasonable, they can approach the appropriate authorities howsoever.

Walter and Shirley in the given situation can claim for an annual review for their losses. However, they cannot resort to any other means at this point. Nevertheless, it should also be noted that Walter is an aged individual and the Chairman of Happy Days did owe certain responsibilities while entering into heated discussions with him. This breach on the part of the Chairman was not a welcome move. However, Walter can on these grounds claim for compensation from Happy Days because of his miserable condition and the upcoming knee replacement surgery. Nevertheless, the courts shall take into account if there was any contribution towards the act by Walter.

Howsoever, the defamatory statements made by the Chairman in this regard are not acceptable in the matter, and Walter can claim for compensation in this regard.

Conclusion

The matter can be concluded on the following points:

That Happy Days can call back its payment of dividends;

That Walter cannot stop Happy Days from the expansion project;

That Happy Days can increase their fees. However, the same can be revised;

Walter can claim for compensation because of the defamatory statements made against him by the Chairman of Happy Days.

References

Astley v Austrust Ltd, HCA 6 (1999).

Bainbridge, S. & Bainbridge, S. (2009). Corporate law. New York, N.Y.: Foundation Press.

Boros, E. & Duns, J. (2010). Corporate law. South Melbourne, Vic.: Oxford University Press.

Brudner, A. (2014). The unity of the common law. Oxford: Oxford University Press.

Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Ltd (in liquidation), HCA 70 (2005).

Copyright Owners Reproduction Society Ltd v EMI (Australia) Pty Ltd, HCA 54 (1958).

Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW), HCA 22 (1958).

Dine, J. & Koutsias, M. (2007). Company law. Basingstoke: Palgrave Macmillan.

Dow Jones and Company Inc. v Gutnick, HCA56 (2002).

Ferrara, M. (2013). Gale business insights handbook of global business law. Detroit: Gale.

Gibson, A. & Fraser, D. (2007). Business law. Frenchs Forest, N.S.W.: Pearson/Prentice Hall.

Gibson, A. & Fraser, D. (2013). Business law 2013. Frenchs Forest, N.S.W.: Pearson Australia.

Hawk, B. (2005). Annual proceedings of the Fordham Corporate Law Institute. Huntington, NY: Juris Pub.

Industrial Equity Ltd v Blackburn, HCA 59 (1977).

Joslyn v Berryman, HCA 34 (2003).

Liftronic Pty Ltd v Unver, HCA24 (2001).

Lowry, J. & Dignam, A. (2006). Company law. Oxford: Oxford University Press.

R v Associated Northern Collieries, HCA 73 (2011).

Theophanous v Herald & Weekly Times Ltd, HCA 46 (1994).

Vickery, R. & Pendleton, W. (2006). Australian business law. Frenchs Forest, N.S.W.: Prentice Hall/Pearson Education Australia.