Corporations Law Moot Attacking Side

Question: Discuss about the Corporations Law for Moot Attacking Side. Answer: Introduction: Whether there has been a breach of constitution by the company by borrowing funds from an overseas financial institution? Whether there has been a proper amending of the constitution to be able to go ahead with the business of casino and borrowing of funds from overseas financial institutions? Whether there has been an oppressive conduct towards Hilary in the given situation. Relevant Law The replaceable rules and the constitution forms contract terms between the parties mentioned below (Woodward Bird, 2005) as mentioned in section 140 of the Constitution Act 2001 ("CORPORATIONS ACT 2001 - SECT 140Effect of constitution and replaceable rules", 2016): Between each member and the company Between the directors and secretaries and the company; and Between each member with the other member. In the case of Hickman v. Kent or Romney Marsh Sheep-Breeders Association (1915), the facts were such that it was provided by the internal rules of the association that any dispute that would be there between the member and the company would be required to be solved by the way of arbitration (Hickman v. Kent or Romney Marsh Sheep-Breeders Association, 1915). The dispute was taken to court by Hickman. The court opined the it was forced for Hickman to be complying with the rules of internal governance as the contract was binding between Hickman as the member and the association. The members can enforce in their capacity. In the case of Rayfields v Hands the directors were required under the Articles to buy at a fair value the shares of the members (Rayfields v. Hands, 1960). It was opined by the court that this could be enforced by the members against the directors who were also a class of members. The qualification shares had to be taken by the Director. In the case of McLaughlin v Dungowan Manly Pty Ltd. if a breach could be showed by the member that the breach of the constitution had caused a loss to be suffered and which was not a loss that the company had suffered, it was then possible that damages can be received (McLaughlin v Dungowan Manly Pty Ltd., 2010). An amendment in the resolution can be brought through special resolution. There may be modification or repealing of the companys constitution by a shareholders special resolution. A special resolution is a resolution when the same is passed by a majority which is not less than 3/4th of the members who are entitled to vote and who are voting in person or in the case where there are proxies which are allowed then through proxies ("Companies Act 1961 - SECT 144Special resolutions", 2016). Further there is also a notice that is required of twenty one day which is to be given which states specifically the intention to propose that the resolution is a special resolution. Thus a special resolution would require atleast 75% of the votes. A dispute will always be there between the companies member and between the management and the members. The minor shareholders in major conflict, especially in closely held, small, private companies where shares are in the hands of few people are vulnerable before the majority. The majority shareholders are able to look at their own benefits. The boards composition can be dictated by it and indirectly the policy of management. If numerous enough, resolutions can be passed by them thereby changing the companys constitution. The matters of oppression are generally very controversial in nature, especially in companies that are closely held. The realities in a company is that the majority decisions are the on which are prevailing usually and the decision making is usually in the hands of the majority of the company. It is not necessary that every complaint which is made should unduly preoccupy the management and inhibit the companys objects proper pursuit (Re Anti-Corrosive Treatment Ltd , 1980). In the case of Foss v Harbottle (Foss v Harbottle, 1843) the concept of majority ratification that is concept which is rough and ready and deals with acts of the management that are wrongful. Challenging of managerial wrongs is often very difficult and obtaining justice in such cases may be difficult. In the case of the philatelist who was 88 years old and who was holding the voting control and who was ignoring the companys procedures finer points, was on the board contemptuous, having told the prospective employees that one of the sons/directors was not right in the head and overrode his two sons persistently who were the majority shareholder beneficiaries. The Corporations Act 2001, Sections 232 and 234 allow that oppression applications be made by the shareholders or shareholders who are formerly part of the company or even people who ASIC has determined will be entitled for doing the same. If there is an application which has been made then the courts would be required to find out that the companies conduct of affairs is oppressive due to the reason that it is contrary to the shareholders interest either as a whole or prejudicial, oppressive or discriminatory unfairly against either a shareholders group or a particular shareholder. The companys affairs terms are defined are very wide and refers basically to anything which the management is involved in and the companys operation and its affairs. The oppression would basically involve the diversion of the opportunities of the corporate, remuneration that is excessive, share issues manipulation, boardroom tactics, withholding of information or company funds misappropriation. Application A constitution and internal rule is a contract between the members and the company. There has been a breach of the constitution and internal rules which provided the company to deal with residential apartments in Sydney, Melbourne or other capital cities for sale. Further it also mentioned that borrowings could only be done with the Australian Financial Institutions. As held in the Hickman case if it is mentioned that borrowings can be done only through Australian Financial institution it would be a breach if the same is not complied with. Thus by borrowing funds from Overseas Financial Institution there has been a breach of the internal rules and the constitution of the company. This further led to there being a breach in the contract that formed under section 140 of the Constitution Act 2001, wherein the contracts formed through the companys constitution. The Directors shall be held responsible for the same as in the Rayfields case. Further if a member can show that the damage that has been caused is a damage which is other than that which has been caused to the company than there may be damages that can be received. The members will be able to enforce in their capacity the internal rules and constitution. Further, in the given situation if there was a requirement for borrowing from an overseas funding company and also entering into the business of casino where the same has not been mentioned in the constitution of the company and it specifically states that the company will be involved only with residential apartments it would be required that the constitution of the company should be amended by at least 75% of the votes. However, here only Bernie and Little Marco have gone ahead with the activities which are not in line with the constitution of the company thus being in breach of the same. It can be stated that the acts of the directors to go ahead with the business of casino in Las Vegas without considering the nuances of the constitution of the company and the fact that Hilary in a weaker position as compared to Donald thereby he got the majority support there is a likely situation of minority oppression wherein the views of Hilary are her benefit in the company are not considered. There has been an act of misconduct and oppression by the remaining directors as they have gone ahead with the casino business and obtaining funds from the overseas financial institution without informing Hilary giving the excuse that they did not want a heated conversation. This has lead to the misappropriation and loss of funds of the corporation. Conclusion There has been a breach of the internal rules and constitution by the Directors when the funds were borrowed from overseas financial institution, since the constitution and internal rules clearly state that it is only through Australian financial institutions that the funds are to be borrowed. There was no special resolution that the company had passed for going ahead with an activity that was against the constitution and internal rules of the company, as under the Corporations Act is requires that there should be at least 75% which not availed before going ahead with the business strategy. Further, there has also been an act of oppression against Hilary, as the business of casino and borrowing of funds was done without making it known to her despite knowing that she was not in the favor of such a business. Also this business led to there being a misappropriation of funds. It can be stated conclusively that the legal position of the Director is weak for breaching the constitution and the internal rules of the corporation and there will be an action that will lie against the directors for the said breach (Ciro Symes, 2012). Further also there has been a breach on the part of the Directors for not availing the requisite resolution for the amendment of the constitution. Also an act of oppression has been made against Hilary by the remaining directors. References Ciro, T. Symes, C. (2012).Corporations law. Pyrmont, N.S.W.: Thomson Reuters (Professional) Australia Limited. Corporations act 2001 - SECT 140Effect of constitution and replaceable rules. (2016). Austlii.edu.au. Retrieved 7 September 2016, from https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s140.html Companies Act 1961 - SECT 144Special resolutions. (2016). Austlii.edu.au. Retrieved 7 September 2016, from https://www.austlii.edu.au/au/legis/vic/repealed_act/ca1961107/s144.html Foss v Harbottle, 67 ER 189 (1843). Hickman v. Kent or Romney Marsh Sheep-Breeders Association, 1 Ch 881 (1915). McLaughlin v Dungowan Manly Pty Ltd. (2010). Rayfields v Hands, Ch 1 (1960). Re Anti-Corrosive Treatment Ltd, ACLC 34,165 (1980). Woodward, S. Bird, H. (2005).Corporations law. Pyrmont, NSW: Lawbook Co.