CLAW2201 NOTES
TABLE OF CONTENTS
INTRODUCTION TO CORPORATIONS LAW: CH1. 3-5, CH2. 53-59............................................................ 5
BUSINESS STRUCTURES ....................................................................................................................................... 5
ESSENTIAL FEATURES ......................................................................................................................................... 6
SOLE TRADER .....................................................................................................................................................................6
PARTNERSHIP .....................................................................................................................................................................6
UNINCORPORATED JOINT VENTURE ...................................................................................................................................7
INCORPORATED JOINT VENTURE ........................................................................................................................................7
TRUST.................................................................................................................................................................................8
CORPORATION ....................................................................................................................................................................8
INCORPORATION AND THE CORPORATE VEIL: CH2. 28-53, 59-72.......................................................... 9
INCORPORATION ................................................................................................................................................. 9
CORPORATE VEIL ............................................................................................................................................... 9
SALOMON V A SALOMON & CO LTD ...............................................................................................................................10
LEE V LEE’S AIR FARMING ..............................................................................................................................................10
MACAURA V NORTHERN ASSURANCE .............................................................................................................................10
EXCEPTIONS TO THE CORPORATE VEIL – LIFTING/PIERCING............................................................................ 11
TYPES OF COMPANIES: CH3. 80-99............................................................................................................. 13
LIMITED BY SHARES .......................................................................................................................................... 13
LIMITED BY GUARANTEE ................................................................................................................................... 13
UNLIMITED LIABILITY ...................................................................................................................................... 13
NO LIABILITY.................................................................................................................................................... 13
PUBLIC COMPANIES .......................................................................................................................................... 14
PROPRIETARY COMPANIES................................................................................................................................ 14
SMALL PROPRIETARY COMPANIES ...................................................................................................................................14
LISTED COMPANY .............................................................................................................................................. 14
CHANGE OF STATUS .......................................................................................................................................... 14
CORPORATE GROUPS ........................................................................................................................................ 15
PRE-INCORPORATION CONTRACTS, PROMOTERS AND DIRECTORS: CH6. CH12. 324-347.............. 16
PROMOTERS ...................................................................................................................................................... 16
OBLIGATIONS OF PROMOTERS .........................................................................................................................................17
DUTY OF DISCLOSURE .....................................................................................................................................................18
REMEDIES FOR BREACH ...................................................................................................................................................18
PRE-INCORPORATION CONTRACTS .................................................................................................................... 18
DIRECTORS ....................................................................................................................................................... 20
DEFINITION ......................................................................................................................................................................20
1
,FUNCTION.........................................................................................................................................................................20
NUMBER AND QUALIFICATIONS ......................................................................................................................................21
TYPES ...............................................................................................................................................................................21
APPOINTMENT ..................................................................................................................................................................22
REMOVAL .........................................................................................................................................................................22
DISQUALIFICATION ..........................................................................................................................................................22
COMPANY CONSTITUTIONS AND LIABILITY IN CONTRACT: CH4. CH5. 140-165 .............................. 24
CONSTITUTION .................................................................................................................................................. 24
COMPANY CONSTITUTION ................................................................................................................................................24
SOURCE ............................................................................................................................................................................25
REPLACEABLE RULES ......................................................................................................................................................25
CONSTITUTION .................................................................................................................................................................25
COMBINATION ..................................................................................................................................................................25
CHOICE OF CONSTITUTION ..............................................................................................................................................25
AMENDING CONSTITUTION ..............................................................................................................................................26
COMPANY LIABILITY IN CONTRACT .................................................................................................................. 26
HOW DO COMPANIES CONTRACT? ....................................................................................................................................26
GENERAL LAW .................................................................................................................................................................26
ACTUAL AUTHORITY .......................................................................................................................................................27
RATIFICATION ..................................................................................................................................................................28
OSTENSIBLE AUTHORITY .................................................................................................................................................28
INDOOR MANAGEMENT RULE..........................................................................................................................................28
EFFECT OF FORGERY ........................................................................................................................................................29
STATUTORY ASSUMPTIONS..............................................................................................................................................29
NOTICE OF PUBLIC DOCUMENTS .....................................................................................................................................30
STATUTORY ASSUMPTIONS – ONLY FOR BENEFIT OF THIRD PARTY ................................................................................30
EFFECT OF FRAUD OR FORGERY .......................................................................................................................................30
COMPANY LIABILITY IN CONTROL ..................................................................................................................................30
SUMMARY ........................................................................................................................................................................30
MEMBERS AND SHAREHOLDING: CH. 7 183-196, CH. 8 216-233, CH.9 259-261; 269-280, CH. 10 ........... 31
MEMBERSHIP .................................................................................................................................................... 31
ISSUE OF SHARES............................................................................................................................................... 31
TRANSFER OF SHARES ....................................................................................................................................... 31
TYPES OF SHARES ............................................................................................................................................. 32
ORDINARY SHARES ..........................................................................................................................................................32
PREFERENCE SHARES .......................................................................................................................................................33
DIVIDENDS ........................................................................................................................................................ 33
DISCLOSURE...................................................................................................................................................... 33
EQUITY CROWDFUNDING .................................................................................................................................. 34
TYPES OF MEMBERS’ MEETINGS ....................................................................................................................... 34
NOTICE OF MEMBERS’ MEETINGS..................................................................................................................... 35
QUORUM AND LOCATION FOR MEMBERS’ MEETINGS......................................................................................... 35
RESOLUTIONS – MEMBERS’ MEETINGS .............................................................................................................. 35
EFFECT OF IRREGULARITIES ............................................................................................................................. 35
2
,INTRODUCTION TO SECURITIES MARKETS: CH. 18 708-722, CH. 19 765-782 ....................................... 36
REGULATION OF SECURITIES MARKETS ............................................................................................................ 36
TAKEOVERS ...................................................................................................................................................... 36
REGULATION OF TAKEOVERS ..........................................................................................................................................37
RESTRICTIONS OF TAKEOVERS ........................................................................................................................................37
EXCEPTIONS .....................................................................................................................................................................37
TAKEOVER PROCEDURE .................................................................................................................................... 37
OFF-MARKET BIDS ...........................................................................................................................................................37
ON-MARKET BIDS ............................................................................................................................................................38
INFORMATION REQUIREMENTS ........................................................................................................................................38
COMPULSORY OFFERS .....................................................................................................................................................38
COMPULSORY ACQUISITIONS ..........................................................................................................................................38
OBLIGATIONS OF DIRECTORS............................................................................................................................ 39
MARKET MISCONDUCT ..................................................................................................................................... 39
INSIDER TRADING ............................................................................................................................................. 39
ELEMENTS OF INSIDER TRADING .....................................................................................................................................39
WHEN IS INFO GENERALLY AVAILABLE? .........................................................................................................................40
WHEN DOES INFORMATION HAVE MATERIAL EFFECT ON PRICE ......................................................................................40
EXCEPTIONS/DEFENCES ...................................................................................................................................................40
PENALTIES AND CONSEQUENCES ....................................................................................................................................41
OTHER SECURITIES INDUSTRY OFFENCES ......................................................................................................... 41
DIRECTORS’ DUTIES – BEST INTERESTS; PROPER PURPOSE: CH. 13.0 363-370, CH. 13.2.................. 42
INTRODUCTION TO DIRECTORS’ DUTIES............................................................................................................ 42
SOURCES OF DIRECTORS’ DUTIES ..................................................................................................................... 42
WHO OWES DUTIES? ......................................................................................................................................... 42
CATEGORIES OF DUTIES.................................................................................................................................... 43
DUTY TO ACT IN GOOD FAITH IN BEST INTERESTS OF COMPANY ..................................................................................43
DUTY TO EXERCISE POWERS FOR A PROPER PURPOSE ....................................................................................................44
DIRECTORS’ DUTIES – CONFLICT OF INTEREST; CARE AND DILIGENCE: CH. 13.0 370-376, 13.3,
13.4 ................................................................................................................................................................... 45
CATEGORIES OF DUTIES.................................................................................................................................... 45
CONFLICTS OF INTEREST .................................................................................................................................. 45
DUTY TO EXERCISE REASONABLE CARE AND DILIGENCE.................................................................................. 49
RELIANCE ON INFORMATION / ADVICE ............................................................................................................................50
RESPONSIBILITY FOR ACTIONS OF DELEGATE ..................................................................................................................50
RESPONSIBILITY FOR ACTIONS OF DELEGATE .....................................................................ERROR! BOOKMARK NOT DEFINED.
RELIANCE ON MANAGEMENT ...........................................................................................................................................50
3
, DIRECTOR’S DUTIES: CONSEQUENCES OF BREACHES OF DUTY: CH. 13.0 366-367, CH. 13.6 .......... 52
RATIFICATION................................................................................................................................................... 52
WHO ARE DUTIES OWED TO? ........................................................................................................................... 52
BREACH OF GENERAL LAW DUTIES .................................................................................................................. 53
BREACH OF STATUTORY DUTIES ....................................................................................................................... 54
ADDITIONAL STATUTORY OBLIGATIONS – CONSEQUENCES OF BREACH............................................................ 55
DUTIES .............................................................................................................................................................. 55
COMPANIES’ LEGAL RIGHTS AGAINST OTHERS: CH. 13.0 363-364 CH16 ............................................ 56
SOURCE OF LEGAL RIGHTS ................................................................................................................................ 56
CONTRACT .......................................................................................................................................................................56
FIDUCIARY DUTIES ...........................................................................................................................................................56
DUTY OF CARE .................................................................................................................................................................56
STATUTORY RIGHTS ........................................................................................................................................................57
HOW A COMPANY’S RIGHTS MAY BE ENFORCED ................................................................................................ 57
SOME RELATIONSHIPS WHICH GIVE RIGHTS TO THE COMPANY .......................................................................................58
OVERVIEW OF LEGAL ACTIONS BY COMPANIES ...............................................................................................................58
WHY DOES THE EXISTENCE OF VARIOUS DUTIES MATTER? ................................................................................ 58
SPECIAL ROLE OF AUDITORS ............................................................................................................................. 58
AUDITORS’ INDEPENDENCE .............................................................................................................................................58
AUDIT REPORT.................................................................................................................................................. 59
THE AUDIT ........................................................................................................................................................ 59
MEMBERS’ RIGHTS AND REMEDIES: CH. 17.0 ......................................................................................... 60
WHO ARE DUTIES OWED TO? ............................................................................................................................. 60
DERIVATIVE RIGHTS ......................................................................................................................................... 60
PERSONAL RIGHTS ............................................................................................................................................ 61
OPPRESSION ...................................................................................................................................................... 61
WINDING-UP ORDER .......................................................................................................................................... 63
INJUNCTION ...................................................................................................................................................... 63
INSPECTION OF BOOKS ...................................................................................................................................... 63
WHICH ACTION FOR MEMBER TO TAKE? .......................................................................................................... 64
PRACTICAL ISSUE .............................................................................................................................................. 64
INSOLVENCY: CH. 13.0 367-369, CH. 13.5, CH. 22 798-804 .......................................................................... 65
WHAT IS INSOLVENCY? ..................................................................................................................................... 65
DIRECTORS’ DUTIES AND INSOLVENCY ............................................................................................................. 66
EFFECT OF INSOLVENCY ..................................................................................................................................................66
DUTY TO AVOID INSOLVENT TRADING .............................................................................................................. 68
TYPES OF INSOLVENCY REGIMES ...................................................................................................................... 69
ADMINISTRATION.............................................................................................................................................................69
LIQUIDATION....................................................................................................................................................................70
4
TABLE OF CONTENTS
INTRODUCTION TO CORPORATIONS LAW: CH1. 3-5, CH2. 53-59............................................................ 5
BUSINESS STRUCTURES ....................................................................................................................................... 5
ESSENTIAL FEATURES ......................................................................................................................................... 6
SOLE TRADER .....................................................................................................................................................................6
PARTNERSHIP .....................................................................................................................................................................6
UNINCORPORATED JOINT VENTURE ...................................................................................................................................7
INCORPORATED JOINT VENTURE ........................................................................................................................................7
TRUST.................................................................................................................................................................................8
CORPORATION ....................................................................................................................................................................8
INCORPORATION AND THE CORPORATE VEIL: CH2. 28-53, 59-72.......................................................... 9
INCORPORATION ................................................................................................................................................. 9
CORPORATE VEIL ............................................................................................................................................... 9
SALOMON V A SALOMON & CO LTD ...............................................................................................................................10
LEE V LEE’S AIR FARMING ..............................................................................................................................................10
MACAURA V NORTHERN ASSURANCE .............................................................................................................................10
EXCEPTIONS TO THE CORPORATE VEIL – LIFTING/PIERCING............................................................................ 11
TYPES OF COMPANIES: CH3. 80-99............................................................................................................. 13
LIMITED BY SHARES .......................................................................................................................................... 13
LIMITED BY GUARANTEE ................................................................................................................................... 13
UNLIMITED LIABILITY ...................................................................................................................................... 13
NO LIABILITY.................................................................................................................................................... 13
PUBLIC COMPANIES .......................................................................................................................................... 14
PROPRIETARY COMPANIES................................................................................................................................ 14
SMALL PROPRIETARY COMPANIES ...................................................................................................................................14
LISTED COMPANY .............................................................................................................................................. 14
CHANGE OF STATUS .......................................................................................................................................... 14
CORPORATE GROUPS ........................................................................................................................................ 15
PRE-INCORPORATION CONTRACTS, PROMOTERS AND DIRECTORS: CH6. CH12. 324-347.............. 16
PROMOTERS ...................................................................................................................................................... 16
OBLIGATIONS OF PROMOTERS .........................................................................................................................................17
DUTY OF DISCLOSURE .....................................................................................................................................................18
REMEDIES FOR BREACH ...................................................................................................................................................18
PRE-INCORPORATION CONTRACTS .................................................................................................................... 18
DIRECTORS ....................................................................................................................................................... 20
DEFINITION ......................................................................................................................................................................20
1
,FUNCTION.........................................................................................................................................................................20
NUMBER AND QUALIFICATIONS ......................................................................................................................................21
TYPES ...............................................................................................................................................................................21
APPOINTMENT ..................................................................................................................................................................22
REMOVAL .........................................................................................................................................................................22
DISQUALIFICATION ..........................................................................................................................................................22
COMPANY CONSTITUTIONS AND LIABILITY IN CONTRACT: CH4. CH5. 140-165 .............................. 24
CONSTITUTION .................................................................................................................................................. 24
COMPANY CONSTITUTION ................................................................................................................................................24
SOURCE ............................................................................................................................................................................25
REPLACEABLE RULES ......................................................................................................................................................25
CONSTITUTION .................................................................................................................................................................25
COMBINATION ..................................................................................................................................................................25
CHOICE OF CONSTITUTION ..............................................................................................................................................25
AMENDING CONSTITUTION ..............................................................................................................................................26
COMPANY LIABILITY IN CONTRACT .................................................................................................................. 26
HOW DO COMPANIES CONTRACT? ....................................................................................................................................26
GENERAL LAW .................................................................................................................................................................26
ACTUAL AUTHORITY .......................................................................................................................................................27
RATIFICATION ..................................................................................................................................................................28
OSTENSIBLE AUTHORITY .................................................................................................................................................28
INDOOR MANAGEMENT RULE..........................................................................................................................................28
EFFECT OF FORGERY ........................................................................................................................................................29
STATUTORY ASSUMPTIONS..............................................................................................................................................29
NOTICE OF PUBLIC DOCUMENTS .....................................................................................................................................30
STATUTORY ASSUMPTIONS – ONLY FOR BENEFIT OF THIRD PARTY ................................................................................30
EFFECT OF FRAUD OR FORGERY .......................................................................................................................................30
COMPANY LIABILITY IN CONTROL ..................................................................................................................................30
SUMMARY ........................................................................................................................................................................30
MEMBERS AND SHAREHOLDING: CH. 7 183-196, CH. 8 216-233, CH.9 259-261; 269-280, CH. 10 ........... 31
MEMBERSHIP .................................................................................................................................................... 31
ISSUE OF SHARES............................................................................................................................................... 31
TRANSFER OF SHARES ....................................................................................................................................... 31
TYPES OF SHARES ............................................................................................................................................. 32
ORDINARY SHARES ..........................................................................................................................................................32
PREFERENCE SHARES .......................................................................................................................................................33
DIVIDENDS ........................................................................................................................................................ 33
DISCLOSURE...................................................................................................................................................... 33
EQUITY CROWDFUNDING .................................................................................................................................. 34
TYPES OF MEMBERS’ MEETINGS ....................................................................................................................... 34
NOTICE OF MEMBERS’ MEETINGS..................................................................................................................... 35
QUORUM AND LOCATION FOR MEMBERS’ MEETINGS......................................................................................... 35
RESOLUTIONS – MEMBERS’ MEETINGS .............................................................................................................. 35
EFFECT OF IRREGULARITIES ............................................................................................................................. 35
2
,INTRODUCTION TO SECURITIES MARKETS: CH. 18 708-722, CH. 19 765-782 ....................................... 36
REGULATION OF SECURITIES MARKETS ............................................................................................................ 36
TAKEOVERS ...................................................................................................................................................... 36
REGULATION OF TAKEOVERS ..........................................................................................................................................37
RESTRICTIONS OF TAKEOVERS ........................................................................................................................................37
EXCEPTIONS .....................................................................................................................................................................37
TAKEOVER PROCEDURE .................................................................................................................................... 37
OFF-MARKET BIDS ...........................................................................................................................................................37
ON-MARKET BIDS ............................................................................................................................................................38
INFORMATION REQUIREMENTS ........................................................................................................................................38
COMPULSORY OFFERS .....................................................................................................................................................38
COMPULSORY ACQUISITIONS ..........................................................................................................................................38
OBLIGATIONS OF DIRECTORS............................................................................................................................ 39
MARKET MISCONDUCT ..................................................................................................................................... 39
INSIDER TRADING ............................................................................................................................................. 39
ELEMENTS OF INSIDER TRADING .....................................................................................................................................39
WHEN IS INFO GENERALLY AVAILABLE? .........................................................................................................................40
WHEN DOES INFORMATION HAVE MATERIAL EFFECT ON PRICE ......................................................................................40
EXCEPTIONS/DEFENCES ...................................................................................................................................................40
PENALTIES AND CONSEQUENCES ....................................................................................................................................41
OTHER SECURITIES INDUSTRY OFFENCES ......................................................................................................... 41
DIRECTORS’ DUTIES – BEST INTERESTS; PROPER PURPOSE: CH. 13.0 363-370, CH. 13.2.................. 42
INTRODUCTION TO DIRECTORS’ DUTIES............................................................................................................ 42
SOURCES OF DIRECTORS’ DUTIES ..................................................................................................................... 42
WHO OWES DUTIES? ......................................................................................................................................... 42
CATEGORIES OF DUTIES.................................................................................................................................... 43
DUTY TO ACT IN GOOD FAITH IN BEST INTERESTS OF COMPANY ..................................................................................43
DUTY TO EXERCISE POWERS FOR A PROPER PURPOSE ....................................................................................................44
DIRECTORS’ DUTIES – CONFLICT OF INTEREST; CARE AND DILIGENCE: CH. 13.0 370-376, 13.3,
13.4 ................................................................................................................................................................... 45
CATEGORIES OF DUTIES.................................................................................................................................... 45
CONFLICTS OF INTEREST .................................................................................................................................. 45
DUTY TO EXERCISE REASONABLE CARE AND DILIGENCE.................................................................................. 49
RELIANCE ON INFORMATION / ADVICE ............................................................................................................................50
RESPONSIBILITY FOR ACTIONS OF DELEGATE ..................................................................................................................50
RESPONSIBILITY FOR ACTIONS OF DELEGATE .....................................................................ERROR! BOOKMARK NOT DEFINED.
RELIANCE ON MANAGEMENT ...........................................................................................................................................50
3
, DIRECTOR’S DUTIES: CONSEQUENCES OF BREACHES OF DUTY: CH. 13.0 366-367, CH. 13.6 .......... 52
RATIFICATION................................................................................................................................................... 52
WHO ARE DUTIES OWED TO? ........................................................................................................................... 52
BREACH OF GENERAL LAW DUTIES .................................................................................................................. 53
BREACH OF STATUTORY DUTIES ....................................................................................................................... 54
ADDITIONAL STATUTORY OBLIGATIONS – CONSEQUENCES OF BREACH............................................................ 55
DUTIES .............................................................................................................................................................. 55
COMPANIES’ LEGAL RIGHTS AGAINST OTHERS: CH. 13.0 363-364 CH16 ............................................ 56
SOURCE OF LEGAL RIGHTS ................................................................................................................................ 56
CONTRACT .......................................................................................................................................................................56
FIDUCIARY DUTIES ...........................................................................................................................................................56
DUTY OF CARE .................................................................................................................................................................56
STATUTORY RIGHTS ........................................................................................................................................................57
HOW A COMPANY’S RIGHTS MAY BE ENFORCED ................................................................................................ 57
SOME RELATIONSHIPS WHICH GIVE RIGHTS TO THE COMPANY .......................................................................................58
OVERVIEW OF LEGAL ACTIONS BY COMPANIES ...............................................................................................................58
WHY DOES THE EXISTENCE OF VARIOUS DUTIES MATTER? ................................................................................ 58
SPECIAL ROLE OF AUDITORS ............................................................................................................................. 58
AUDITORS’ INDEPENDENCE .............................................................................................................................................58
AUDIT REPORT.................................................................................................................................................. 59
THE AUDIT ........................................................................................................................................................ 59
MEMBERS’ RIGHTS AND REMEDIES: CH. 17.0 ......................................................................................... 60
WHO ARE DUTIES OWED TO? ............................................................................................................................. 60
DERIVATIVE RIGHTS ......................................................................................................................................... 60
PERSONAL RIGHTS ............................................................................................................................................ 61
OPPRESSION ...................................................................................................................................................... 61
WINDING-UP ORDER .......................................................................................................................................... 63
INJUNCTION ...................................................................................................................................................... 63
INSPECTION OF BOOKS ...................................................................................................................................... 63
WHICH ACTION FOR MEMBER TO TAKE? .......................................................................................................... 64
PRACTICAL ISSUE .............................................................................................................................................. 64
INSOLVENCY: CH. 13.0 367-369, CH. 13.5, CH. 22 798-804 .......................................................................... 65
WHAT IS INSOLVENCY? ..................................................................................................................................... 65
DIRECTORS’ DUTIES AND INSOLVENCY ............................................................................................................. 66
EFFECT OF INSOLVENCY ..................................................................................................................................................66
DUTY TO AVOID INSOLVENT TRADING .............................................................................................................. 68
TYPES OF INSOLVENCY REGIMES ...................................................................................................................... 69
ADMINISTRATION.............................................................................................................................................................69
LIQUIDATION....................................................................................................................................................................70
4
