Describe about the Corporate Law for Plethora of Rights.
A company consist of various members who have been given has a plethora of rights. These right not only state what they can do but also consist of the various remedies available to them. Whenever the rights of a member of the company are threatened, the members can take these remedial actions to safeguard their interests (Macmillan, 2003). These remedies are in the form of injunction, derivative action, minority oppression actions and even winding up of the company. In the given assignment, the remedies available to Walter and Shirley have been discussed. Also, an explanation has been provided regarding the practical implication of such remedies.
A company can stop paying the dividends, only if it satisfies the conditions laid down in the Corporations Act, 2001 in the section 254T (Corporations Act 2001, 2016). This section contains the conditions to provide a dividend. A company can pay dividends only if the assets of the company exceed the liabilities before any declaration of dividend. Also, such excess have to be sufficient to pay the dividend. The next condition stated in this section is that the payment of dividend should be reasonable and fair for the overall shareholders of the company. The last condition this section states is that the dividend should be paid without any material discrimination to the ability of company to pay off the creditors (Austin & Ramsay, 2014). .
The Corporation Act 2001 gives the directors the power to decide the amount of dividend, the method of such payments and the time for the payment under section 254U. Further, Section 254W (2) of the Act states that the directors of a company, may or may not, pay the dividend. So, even though it is a right of a member to receive dividends, it is up to the discretion of the directors to pay the dividend as they see fit (Corporations Act 2001, 2016).
In the given case, Walter and Shirley have no remedy to force the directors to continue the payment of dividend. A shareholder is only entitled to dividend when it is allowed as per section 254T ad when the directors have decided to pay the dividends. Here, the directors have decided not to pay any dividends so as to retain the earnings for growth of the company. Being the member of the company, Walter and Shirley can only ask for the dividend when it has been declared by the Company. There is no damage or loss in this case and hence, no remedy is available to Walter and Shirley.
Had Walter and Shirley went to Court to seek remedy on the non-declaration of dividend, their application would have been rejected as the directors have been given the power by the Act to declare (or not) the dividend. If the shareholders seek remedy for non-declaration of dividend, a company would not be able to use its funds for the betterment and expansion of the company and hence, the Act provides safeguard to the companies by giving its directors the powers to decide if dividend has to be paid or not.
The Section 180 of Corporations Act provides that the director is bound to discharge his duties in a careful and diligent manner (Campbell, 2007). This section states that when a director makes a business judgment in good faith; does not have any personal interest in the matter; has informed himself about the matter in a reasonable way; and logically believes that the sad judgment is in the best interest of the company, then such a decision cannot be questioned on any basis. The crux of this section is that a reasonable person would make this very logical decision in similar circumstances in the best interest of the company. Section 198A of this act contains that the business of the company has to be managed by (or under) the directions of the directors.
A statutory remedy provided to the members of a company is stated in section 236 of this Act and is known as the Statutory Derivative Action. Under this section, a person who is a member of the company can bring proceedings on behalf of the company. Such person can also intervene in any proceedings where the company is a party so as to take accountability for those proceedings for the company. Lastly, under this section a person can also take part in a specific part of the proceedings.
In the given case, the directors had undertaken a decision to diversify the business by converting the apartment building in downtown Melbourne set up for students to suit the retired people. Here, Walter and Shirley can bring proceedings on behalf of Happy Days Ltd against the directors of this company. As Walter and Shirley consider the diversification a mistake and against the interests of the company, they have the right to initiate the proceedings on behalf of the company to prevent the directors from the diversification activities. In the landmark case of Foss v Harbottle, the court held that when a wrong has been done to a company, the action to recover the wrongs have to be initiated by the company itself (Tomasic, Bottomley & McQueen, 2002). The same verdict was given in the case of Mozley v Alston (Law Teacher. (2016).
Here, the diversification was taken up for growing the company and the directors believe it is in the best interest of the company. When a director of the company takes certain actions which are considered to be in the best interest of the company, a proceeding against such cannot hold. Hence, practically the remedy of Statutory Derivative Action would not be awarded.
When the conduct of business is oppressive or unfairly discriminatory or unfairly biased against a member, in any capacity or when such conduct is contrary to the interests of the members as a whole, then as per Section 232 of this Act, the court can make an order under Section 233 (Boyle, 2002). This order can also be requested for a proposed or actual act or omission by or on behalf of the company and for a proposed resolution or a resolution of members or class of members of the company.
Section 233 contains the various remedies available to a member for the oppressive conduct. Under this section, the Court can make an order for winding up of company; change in constitution of the company; regulation of affairs of the company, purchase of shares (by reducing the share capital or by any member or person to whom the shares have been transmitted by will or by law); for the company to defend, institute, discontinue or prosecute specific proceedings; authorize a person or member to whom shares have been transmitted by will or by law to defend, institute, discontinue or prosecute specific proceedings on behalf of the company; appointment of a receiver for property of the company; restrain a person from undertaking specific conduct or act; and lastly require a person to do certain act (Victorian Law Reform Commission, 2016).
By increasing the fees of the members, the interests of the members have been negatively affected. So, this can be held as an oppressive conduct on part of the directors against such members and these members include Walter and Shirley. So, Walter and Shirley can ask the court to pass an order under Section 233 for winding up of Happy Days Ltd. in this case, the winding up would happen as if the order was made under section 461 of this Act. Alternatively, they can appeal to the court to regulate the business of Happy Days Ltd in the future so that such orders are not passed which are prejudicial for such members.
Winding up of any company is a major step and seldom given in cases of oppressive conduct. A company has various stakeholders and any decision of winding up affects each and every stakeholder (Lexis PSL, 2016). So what may be beneficial order for Walter and Shirley may not be beneficial order for the others. Further, if the company is wound up, even Walter and Shirley would have negated impact as they would receive no dividends in future nor enjoy the various rights by being a member of the company. As long as the company runs in a profit, a winding up order is not passed.
Further, by asking the court to regulate the conduct of affairs of Happy Days Ltd, the relief they actually seek might not be achieved. In other words, the fees may still be increased. The reason behind this is that the contract between Walter and Shirley & Happy Days Ltd. clearly provides that the annual fees can be reviewed. So sensibly, Walter and Shirley cannot claim relief for something that they had already agreed and signed. Unless, Walter and Shirley can prove undue influence while formulation of contract, they have no remedy stated under section 233 available to them.
When a party fails to exercise the necessary care which a reasonable person would exercise in similar circumstances, it is the case of negligence. Negligence is covered under the tort law in Australia. When a person owes a duty of care towards the other person and there is a breach in discharge of such duty and it results in a harm or injury to the other person, then the other person is liable to remedies covered in tort law, in the form of damages. In cases of tort law, the remedies are awarded to the grieving party in form of damages (Harvey & Marston, 2009).
Defamation is also covered under tort law in Australia (Kelly, Hammer & Hendy, 2014). There are three components that have to be fulfilled to institute a claim for defamation. The complained matter has to have a defamatory meaning. A matter is actionable only when the defamatory accusation can be clearly instituted against a specific person. Lastly, the aggrieved party has to establish that the matter was published by the breaching party or that the breaching party was responsible for such publication as held in the case of Dow Jones v Gutnick (2002) CLR 575 (Australasian Legal Information Institute, 2003). As per Section 34 of the Defamation Act, 2005, the court can award damages for defamation of the amount which is considered appropriate for the harm sustained. Further, Section 35 of the Defamation Act, 2005 provides damages for non economic loss up to an amount of $ 250000.
In the present case, due to the negligence of the Chairman, Walter tripped and suffered a knee injury. So, Walter can claim damages under the tort law. Further, he can sue for damage of distress. A landmark case in this regard is Baltic Shipping v Dillon High Court of Australia (1993) 176 CLR 344 where the Plaintiff recovered damages for distress (Australian Contract Law, 2013). Here, Walter and Shirley have been distressed. And so, they can claim monetary damages for the injury and the distress. Further, for the defamation of Walter by the Chairman on Channel 7 news, Walter and Shirley can sue for monetary damages of defamation and even for non economic loss. In order to prove the defamation and injury, Walter and Shirley can take the help of the interview telecasted on Channel 7 news.
In cases of negligence and defamation, this is a practical approach and often such damages are awarded by the court to the aggrieved party. If Walter and Shirley actually move to court, they would definitely be awarded relief in form of monetary damages.
A member of the company has been provided certain rights to safeguard their interests. These rights are given by the Corporation Act, the contract of membership and the constitution of the company (Willcocks, 1991). The membership can be terminated only for a certain reasons. These reasons include transfer of shares by the member; death of the member; bankruptcy of the member and the trustee in bankruptcy holds the shares for the benefits of the creditors; the shares have been forfeited; or the company has been deregistered by ASIC and ceased to exist as a separate legal entity (CCH Australia Limited, 2011). A register of members is maintained under section 168 of Corporation Act 2001. When the name of a member is removed from such register, he/she is ceased from being a member of the company.
Further, the Corporation Act 2001 through section 1324 states that when a person is engaged in or proposing to engage in a conduct which would result in contravention of this act, then the Court may, on application of the person whose interests have been or would be affected as a result of this conduct, grant an injunction (Latimer, 2012). The injunction is granted as per terms that the Court deems fit and restrains the person from engaging in such conduct.
In the given case, Walter and Shirley are the shareholders of the company and hence, the members of Happy Days Ltd. the members of this company are provided various amenities and this includes a range of houses and apartments, membership of a golf club, a gym, yoga classes. As a member of the company, Walter and Shirley have the right to live in the house provided to them. Until they cease to be the member of the company, they cannot be removed from such house. So, the Chairman cannot force them out of the village. Walter and Shirley can apply for an injunction against the Chairman whereby he would be stopped from removing Walter from the village. Being the members of the company, Walter is free to enjoy his rights and a removal from the company restricts Walter as a member from enjoying his rights and results in a contravention of the Corporations Act 2001.
The rights of a member are safeguarded by the court and this has been seen in various cases (Keay, 2011). So when Walter and Shirley would approach the court to safeguard their right to live in the village, the Court would award the injunction against the Chairman as he is in violation of the provisions of the Corporations Act 2001.
Conclusion
Through the given case, an understanding can be made on the various remedies that are available to a member of the company. Further, an analysis of the facts clarified the practical implications of such remedies in the real world. This case clarified how a remedy is applied and how the concerns of an aggrieved party are resolved by use of available remedies. To know the laws and to apply them is a different thing. By carrying out the above analysis, the remedies available to Walter and Shirley have been clarified along with the probable results of such remedy.
References
Austin, R.P., & Ramsay, I.M. (2014). Ford’s Principles of Corporations Law (16th ed.). Australia: LexisNexis Butterworths.
Australasian Legal Information Institute. (2003). Dow Jones and Company Inc v Gutnick [2002] HCA 56; 210 CLR 575; 194 ALR 433; 77 ALJR 255 (10 December 2002). Retrieved on 12/09/16 from: https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/HCA/2002/56.html
Australian Contract Law. (2013). Baltic Shipping v Dillon High Court of Australia (1993) 176 CLR 34. Retrieved on 12/09/16 from: https://www.australiancontractlaw.com/cases/baltic.html
Boyle, A.J. (2002). Minority Shareholders’ Remedies. Cambridge, UK: The Press Syndicate of the University of Cambridge.
Campbell, C. (2007). International Liability of Corporate Directors [2007]. Austria: Yorkhill Law Publishing.
CCH Australia Limited. (2011). Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. Australia: McPherson’s Printing Group.
Corporations Act 2001. (2016). Retrieved on 12/09/16 from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/
Corporations Act 2001. (2016, March 19). Retrieved on 12/09/16 from: https://www.legislation.gov.au/Series/C2004A00818
Harvey, B., & Marston, J. (2009). Cases and Commentary on Tort. (6th ed.). New York: Oxford University Press, p 251-255.
Keay, A.R. (2011). The Corporate Objective. UK: Edward Elgar Publishing Limited.
Kelly, D., Hammer, R., & Hendy, J. (2014). Business Law (2nd ed.). Oxon: Routledge.
Latimer, P. (2012). Australian Business Law 2012 (31st ed.). NSW: CCH Australia Limited.
Law Teacher. (2016). Derivative claims by Members of a Company. Retrieved on 12/09/16 from: https://www.lawteacher.net/free-law-essays/business-law/derivative-claims-by-members-of-a-company-business-law-essay.php
Lexis PSL. (2016). Minority shareholder protection- overview. Retrieved on 12/09/16 from: https://www.lexisnexis.com/uk/lexispsl/disputeresolution/document/393747/58XG-2F51-F18B-7005-00000-00/Minority%20shareholder%20protection%E2%80%94overview
Macmillan, F. (2003). International Corporate Law. Oregon: Hart Publishing.
Tomasic, R., Bottomley, S., & McQueen, R. (2002). Corporations Law in Australia (2nd ed.). NSW: Federation Press.
Victorian Law Reform Commission. (2016). The oppression remedy in the Corporations Act. Retrieved on 12/09/16 from: https://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act#footnote-135972-53-backlink
Willcocks, P.G. (1991). Shareholders’ Rights and Remedies. NSW: Federation Press.
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