Shareholders Concise Corporations Law †MyAssignmenthelp.com

Question: Discuss about the Shareholders Concise Corporations Law. Answer: Introduction: The shareholders of the company have the explicit right of sharing the profits or the earnings of the company and this sharing is done through the dividend being paid to them (Cassidy, 2006). There are certain conditions laid down in section 254T of the Corporations Act, 2001(Cth), as per which the dividend is not to be paid till the assets exceed liabilities before the dividend is declared and where this excess is sufficient for payment of dividend without prejudicially affecting the companys capability of paying off the creditors (WIPO, 2015). Section 254W(2) of this act provides that the company may or may not pay the dividends (Austlii, 2017). Section 232 of this act provides that where the business of the company is being conducted in a manner which unfairly discriminates, or is oppressive in any capacity, particularly when this conduct is contrary to the interests of the members, then based on this section an application can be made to the court, where the court, based on section 233 of this act can undertake different actions to reverse or remedy such oppressive conduct (Boyle, 2002). Section 233 of this act provides that where an oppressive conduct is established, the court can make an order of winding up, regulate the company affairs, ask the directors or the company to purchase the shares, to change the constitution of the company, to order to do a particular act or to refrain from doing so based on discretion of the court, restrain a person from undertaking explicit behaviour or actions; authorizing an individual to transmit the shares by law or by will, and for the company to discontinue certain proceedings (Victor ian Law Reform Commission, 2017). In Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326 it was held that failure to pay the mandatory dividend could amount to oppressive conduct (Launders, Hogan and Randall, 2014). However, in Thomas v H W Thomas Ltd (1984) 1 NZLR 686 the court presented three conditions which had to be satisfied in order for an oppressive remedy to be allowed. So, there is a need to show that the purpose or the objective of the conducted act was to result in a condition which had been oppressive, unduly discriminatory and unjustly prejudicial; the reasonable expectations which the parties had were not met; and lastly, the use of the remedy under the pertinent sections is equitable and just (New Zealand Official Law Reports, 2017). As has already been explained, giving the dividend is a choice of the directors based on section 254W(2). Hence, Galli had the choice of giving the dividend or not giving the same. However, applying the case of Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd, the failure of paying the dividend would be deemed as an oppressive conduct. But one key thing in this point is that this was not a mandatory dividend which was a requirement of this case. Further, applying the three conditions presented down in the case of Thomas v H W Thomas Ltd, the purpose of this conduct was not oppressive, but just to retain the earnings for developing the vineyard; this was not unduly discriminatory or prejudicial or oppressive as A Class shares had to be issued at discretion. And lastly, the remedies under section 233, if given here, would be unjust as there was no oppressive conduct. Stating that the shares were not paid as some of the plaintiffs were deemed as lazy and undeserving does not amount to opp ressive conduct, till the same can be conclusively establishe Buyback of shares refers to the shares of the company being repurchased by the company where the stock of the company is reacquired by them (Gibson and Fraser, 2014). The buyback of shares is advantageous for the company particular when the share prices of the company are undervalued. It also helps in increasing the ownership of the company and reducing the dilution (Latimer, 2012). It enhances the financial ratios of the company, for instance the Return of Equity, the Return on Asset and the Earnings Per Share (Kandarpa, 2016). Another benefit is that in case litigation is raised pursuant to section 232-233, buying back the shares could become mandatory for the company by court order, and if the same is done before the matter reaches court, the costs of litigation can be saved (ICNL, 2017). In Australia, the Corporations Act and the Australian Securities and Investments Commission, i.e., ASIC provide the rules and regulations for buyback of shares. Pt 2J.1 of this act, particularly its Division 2 covers the buyback provisions where the procedure which the companies need to adopt, along with the required information to be disclosed to the shareholders is covered (Federal Register of Legislation, 2017). Section 257A explicitly covers the details which have to be disclosed and Regulatory Guide 75 of the ASIC provides that an independent experts report is required for the share valuation (ASIC, 2007). In the given case study, buyback would help in avoiding the liabilities which the company would have to face in case, somehow, the oppressive conduct case is deemed as successful. So, apart from the advantages stated above, this is the key point which should lead Maria and Nick Gallii to buy back the shares. And in this regard, the provisions stated above have to be followed. The independent expert report is amongst the requirements stated above. The reduction of share capital refers to the procedure whereby the shareholder equity in the company is reduced, in the methods which have been prescribed under the law (Dagwell, Wines and Lambert, 2015). This not only helps in increasing the value of the shareholders but also produces a capital structure which is more efficient (Nanda, 2015). The company can reduce its share capital only when it is deemed as fair and reasonable for shareholders in entirety, it would prejudicially affect the repayment to creditors and it has been approved by the shareholders of the company, pursuant to section 256C of this act. The capital of the company can also be reduced by adopting section 245J to 254K where the redeemable preference shares are redeemed; by buying back the shares pursuant to section 257A; and by prescribing the share capital reduction in form of cancelling the forfeited shares based on section 258A to section 258F (ASIC, 2014). Under section 254Y of this act, there is a need to f ile an application to the ASIC in Form 484 within a period of one month of share cancellation, clearly providing the details of the shares which have been cancelled (Australian Government, 2013). In this regard, the company can opt for cancellation of the A Class shares and in this regard, they would need the consent of the shareholders of the company and would have to show that the capital reduction is fair, would not prejudicial to the ability of company to repay the creditors and would follow the procedure laid down under Corporations Act. Conclusion Hence, the company should opt for share cancellation so that no disputes arise for the company in future and also, because the same would have the approval of the shareholders. References ASIC. (2007) Share buy-backs. [Online] ASIC. Available from: https://download.asic.gov.au/media/1240127/rg110.pdf [Accessed on: 01/10/17] ASIC. (2014) Reduction in share capital. [Online] ASIC. Available from: https://asic.gov.au/for-business/running-a-company/shares/reduction-in-share-capital/ [Accessed on: 01/10/17] Austlii. (2017) Corporations Act 2001. [Online] Austlii. Available from: https://www6.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/ca2001172/ definitions [Accessed on: 01/10/17] Australian Government. (2013) Corporations Act 2001. [Online] Australian Government. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 01/10/17] Boyle, A.J. (2002) Minority Shareholders Remedies. Cambridge, UK: The Press Syndicate of the University of Cambridge. Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press. Dagwell, R., Wines, G., and Lambert, C. (2015) Corporate Accounting in Australia. NSW: Pearson Australia. Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne, Pearson Education Australia. Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 01/10/17] ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from: https://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 01/10/17] Kandarpa, K. (2016) What is the Purpose of a Share Buyback and How can Shareholders Benefit from it?. [Online] Wise Owl. Available from: https://www.wise-owl.com/investment-education/what-is-the-purpose-of-a-share-buyback-and-how-can-shareholders-benefit-from-it [Accessed on: 01/10/17] Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited. Launders, R., Hogan, J., and Randall, S. (2014) When will a dividend be mandatory?: Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd [2014] NSWCA 326. [Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=e32fb35d-7227-428d-a2d9-435d0e07a28e [Accessed on: 01/10/17] Nanda, D.S. (2015) Reduction in share capital: Analysis. [Online] Corporate Law Reporter. Available from: https://corporatelawreporter.com/2015/02/23/reduction-share-capital-analysis/ [Accessed on: 01/10/17] New Zealand Official Law Reports. (2017) Thomas v H W Thomas Ltd - [1984] 1 NZLR 686. [Online] New Zealand Official Law Reports. Available from: https://www.lawreports.nz/thomas-v-h-w-thomas-ltd-1984-1-nzlr-686/ [Accessed on: 01/10/17] Victorian Law Reform Commission. (2017) The oppression remedy in the Corporations Act. [Online] Victorian Law Reform Commission. Available from: https://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act#footnote-135972-53-backlink [Accessed on: 01/10/17] WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from: https://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 01/10/17]