Corporations Act 2001

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Corporations Act 2001

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Corporations Act 2001

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Question:
Describe about the Corporations Act 2001?

Answer:
Constitution means the internal rule of the company. Company is bound by its constitution. If it is mentioned that the existing members will given preferences then it is mandatory for the company. So director cannot take the decision with ultra vires to the constitution.

Constitution has a contractual effect. So if it is mentioned in the constitution that A. Harris will remain sales manager for next 10 years then the company must comply with it. Otherwise it will be treated as breach of contract.

It is clearly mentioned in the constitution of the company that the directors may force to transfer of the shares held by any member who is involved or concerned in a business which give competition to the business of the company or conflict with the in with the interest of the company. In such a case the shares will be transferred to the members nominated by directors and at a price determined by the directors. Brown is engaged with a business which conflicts with the interest of the company; directors can compel him to transfer his share.

Brown can claim that clause 3 is invalid because constitution of a company is like a contract so as a member brown must know all rules written in constitution so he could not take this defense that clause 3 is void.
Lollipop Pty Ltd co. is bound by the constitution. According to section 136 of Corporations Act 2001[1], a company is bound by the constitution unless otherwise it was amended by the special resolution. So here in the given context it is mentioned in the constitution that after years of work the art designer of the company will receive 30% of their annual salary. But constitution of the company is silent about the matter relating to profit or loss. So even if the company has not been making a profit for the last few years, Ryan can enforce his claim according to the Constitution of the company.

Section 140 refers the provision of effect of constitution and replaceable rules. It clearly states that a company’s constitution relate to the company as a legal contract between the company with its each members and directors. So it clearly shows that company and its members are bound by the constitution. Member of the company are the partners in case of profit or loss gained by the company. But if the constitution specifically mentioned that the art designer will get specific remuneration after a specific period of time then he is entitled to get otherwise it will be a breach of contract.

2
Gambotto v WCP Ltd[2] was one of the most contentious corporate law judgments in Australia. In this case, High Court of Australia dismissed an alteration to a constitution.The High Court found that where change in constitution affected a minority it was valid if it is for a proper by purpose and fair in all the circumstances. In this case the Court said altering constitution for tax benefit purposes was not a proper purpose and therefore the alteration was void. But this decision of the High court is criticized.
The given case is also indicates the same scenario like the above mentioned case. In the given case Super Cup company has come to the notice of global coffee giant Starbucks. Starbucks acquired 85% shares of Super Cup in takeover action. After that Starbucks would like to acquire the outstanding 15% shares of Super Cup. But the outstanding shares are hold by Abe, Baker, and Charlie. The constitution of Super Cup does not permit for expropriation of member shares. So as a remedy Starbucks decides to gain these shares by a special resolution altering of the constitution. Starbucks wants to justify this alteration by claiming it will result in managerial savings and tax advantages for the company.
Section 137 of Corporations Act 2001 clearly mentioned the procedure for alteration of constitution of a company. So the Starbuck can alter the constitution with proper procedure. If we take the decision of Gambotto case[3] then the alteration is inappropriate. But the decision of the case is criticized because is effects are mainly negative.
So according to my point of view if the procedure is according to law then the Starbuck can change the constitution and expropriate the shares held by Abe, Baker and Charlie.

Bibliography:
Case law: Gambotto v WCP Ltd (1995) 182 CLR 432; 127 ALR 417; 16 ACSR 1; 13 ACLC 342
Statute: Corporations Act 2001, Act No. 50 of 2001 as amended
Article: Ramsay, I. and Saunders, B., What Do You Do With a High Court Decision You Don’t Like? Legislative, Judicial and Academic Responses to Gambotto v. WCP Ltd. SSRN Journal.
[1] Corporations Act 2001, Act No. 50 of 2001 as amended
[2] Gambotto v WCP Ltd (1995) 182 CLR 432; 127 ALR 417; 16 ACSR 1; 13 ACLC 342
[3] Gambotto v WCP Ltd (1995) 182 CLR 432; 127 ALR 417; 16 ACSR 1; 13 ACLC 342

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