Understanding company law

1113 Pages·2018·3.721 MB·English

by  Phillip Lipton, Abraham Herzberg, Michelle Welsh

understanding
company law
Phillip Lipton
Affiliate,
Department of Business Law and Taxation, Monash University
Abe Herzberg
Affiliate,
Department of Business Law and Taxation, Monash University
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se
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aila NINETEENTHEDITION
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LAWBOOKCO.2018
PublishedinSydneyby
ThomsonReuters(Professional)AustraliaLimitedABN64058914668
19HarrisStreet,Pyrmont,NSW
Firstedition 1984 Ninthedition 2000
Secondedition 1986 Tenthedition 2001
Thirdedition 1988 Eleventhedition 2003
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second impression with Thirteenthedition 2006
supplementarychapter 1992
Fifthedition 1993 Fourteenthedition 2008
Sixthedition 1995 Fifteenthedition 2010
Seventhedition 1998 Sixteenthedition 2012
Eighthedition 1999 Seventeenthedition 2014
Eighteenthedition 2016
NationalLibraryofAustralia
Cataloguing-in-Publicationentry
Lipton,P(Phillip),author.
Understandingcompanylaw/PhillipLipton,AbeHerzberg,MichelleWelsh.
19thedition.
9780455240213(pbk)
Includesindex.
Corporationlaw—Australia.
Herzberg,A(Abraham),author.Welsh,Michelle,author.
©2018CorporateEducationServicesPtyLtd
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Ilana,Evelyn,Rob,Natalie,Jack,Sam,MatteaandSophia
Nan,Jessica,AdamandQuincy
EllenandMolly
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preface
This edition has been updated throughout to include discussion of the most recent relevant legislative
developmentsandsignificantcases.Thelegislativedevelopmentsincludethefollowing.
The Insolvency Law Reform Act 2016 (Cth) is the most comprehensive reform of bankruptcy and
corporateinsolvencylawsinmorethan20years.ItinsertedintotheCorporationsActanews600Kwhich
incorporatestheInsolvencyPracticeSchedule(Corporations)whichsetsoutthemainprovisionsrelatingto
companies under voluntary administration; subject to a deed of company arrangement; in liquidation or
provisionalliquidation.
AccordingtotheExplanatoryMemorandumthethreemainobjectivesoftheInsolvencyPracticeSchedule
(Corporations)are:
(cid:0) toensurethatanypersonregisteredasaliquidator;
(cid:0) hasanappropriatelevelofexpertise;
(cid:0) behavesethically;and
(cid:0) maintainssufficientinsurancetocoverhisorherliabilitiesinpracticingasaregisteredliquidator;
(cid:0) to regulate the external administration of companies (voluntary administrations, deeds of company
arrangement, liquidations and provisional liquidations) consistently, unless there is a clear reason to
.d treatamatterthatarisesinrelationtoaparticularkindofexternaladministrationdifferently;and
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vrese (cid:0) toregulatetheexternaladministrationofcompaniestogivegreatercontroltocreditors.
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g Amongothermatters,theInsolvencyPracticeSchedule:
ir llA .d (cid:0) removesthedistinctionbetweenofficialandregisteredliquidators;
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timiL (cid:0) introduces new rules for the registration, regulation, discipline and deregistration of registered
ytP liquidators;
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ilartsu (cid:0) creates general rules that set out the requirements for conducting external administrations including
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rP (cid:0) thedutiesoftheexternaladministratorinhandlingthepropertyofthecompany;
( sretu (cid:0) conflictsofinterest;
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no (cid:0) external administrators’duties in relation to record keeping, reporting toASIC and information
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administratorandappointanother;
(cid:0) thereviewoftheexternaladministrationbythecourt.
ThislegislationisdiscussedinChapters22to25.
understandingcompanylaw
8
The Corporations Amendment (Crowd-sourced Funding) Act 2017 (Cth) established a new regulatory
framework to facilitate crowd-sourced funding by small unlisted companies. This legislation replaces the
provisions dealing with prospectuses and other fundraising disclosure documents in relation to crowd-
sourcedfundingoffers.Itsetsouteligibilityrequirementsforacompanythatwishestomakeanofferunder
this new regime and regulates such offers and intermediaries including rules dealing with defective
disclosuredocumentsandadvertisingrestrictions.TheCorporationsAmendment(Crowd-sourcedFunding
for Proprietary Companies) Bill 2017 proposes to extend the CorporationsAmendment (Crowd-sourced
Funding) Act 2017 to enable proprietary companies to access crowd-sourced funding (CSF) without
requiringthemtoconverttopubliccompanies.TheActandtheBillarediscussedinChapter7.
The Treasury Laws Amendment (2017 Enterprise Incentives No 2) Act 2017 introduces two important
reforms. These included the creation of a safe harbour insolvent trading defence for directors and a new
ipso facto regime. The safe harbour defence protects directors from personal liability where they start
developing one or more courses of action that are reasonably likely to provide a better outcome for the
companythananimmediateliquidationoradministration.Theipsofactoregimepreventsacreditorfrom
using the company’s financial position at the time of a scheme of arrangement, administration or
receivershiptotriggerthecreditor’srighttoenforcetheloan.Thesafeharbourdefenceandtheipsofacto
regimearediscussedinChapters13.5and24respectively.
TheCorporationsAmendment(ProfessionalStandardsofFinancialAdvisers)Act2017(Cth)(Cth)aimsto
raise the education, training and ethical standards of financial advisers who provide personal advice on
morecomplexfinancialproductstoretailclients.ThisisdiscussedinChapter19.
InSeptember2017thegovernmentreleasedforpubliccommentapackageofreformsCombattingIllegal
Phoenixing to crack down on illegal phoenix activity; the stripping and transfer of assets from one
company to another to avoid paying liabilities. Amongst other things the proposals foreshadow the
.de introduction of a Director Identification Number to identify directors. The proposals are principally
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( sre approach in assessing whether there had been misleading or deceptive conduct in relation to a financial
tu product.ThisisdiscussedinChapter19.
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preface
9
We have been very grateful for the work of our longstanding editor, Corina Brooks. Unfortunately, she
tookillbeforecompletingtheeditorialproduction.Wewishheraspeedyrecovery.WethankLaraWeeks
for stepping in to complete the editorial production and are appreciative of her efforts. We also
acknowledge the work of Elizabeth Gandy, theThomson Reuters product developer who shepherded the
publicationofthisedition.
Last but by no means least we would like to extend special thanks to our families who, as always, have
provideduswithgreatsupportandencouragement.Thisworkisdedicatedtothem.
PHILLIPLIPTON
ABEHERZBERG
MICHELLEWELSH
Melbourne
27October2017
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Table of Contents
preface.........................................................................................................................................................................................vii
1 regulatory framework ...................................................................................................................................................... 1
2 registration and its effects ......................................................................................................................................... 25
3 types of companies ......................................................................................................................................................... 79
4 constitution and replaceable rules..................................................................................................................... 105
5 the company's relations with outsiders.......................................................................................................... 129
6 promoters and pre-registration contracts ..................................................................................................... 169
7 fundraising ....................................................................................................................................................................... 181
8 share capital.................................................................................................................................................................... 213
9 membership..................................................................................................................................................................... 257
10 dividends........................................................................................................................................................................... 285
11 debentures and personal property securities ............................................................................................ 293
12 directors ............................................................................................................................................................................ 321
13 overview and summary of directors' duties................................................................................................. 361
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tue 23 receivership .................................................................................................................................................................... 837
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girypo ttaabblleeooffCthoerpCoorraptoiornatsioRnesgAulcatt.i.o..n..s......................................................................................................................................................................................................................................................................................11002619
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tableoftheAustralianSecuritiesandInvestmentsCommissionAct..................................................................................1071
tableofCodes..........................................................................................................................................................................1073
tableofstatutes.......................................................................................................................................................................1075
index........................................................................................................................................................................................1079
chapter 1
regulatory
framework
[1.05] whatisacompany?........................................................................................................3
[1.10] historyofcompanylaw..................................................................................................5
[1.10] earliestcompanies....................................................................................................... 5
[1.15] earlycompanieslegislation........................................................................................ 6
[1.20] caselawandlegislation.............................................................................................. 7
[1.25] developmentofAustraliancompanylaw........................................................................7
[1.25] constitutionalposition................................................................................................ 7
[1.30] previousregulatoryschemes...................................................................................... 8
[1.62] CorporationsAct2001.................................................................................................10
[1.65] AustralianSecuritiesandInvestmentsCommission......................................................10
[1.70] objectivesofASIC..................................................................................................... 11
[1.75] functionsandpowersofASIC................................................................................. 11
.d [1.80] registeringcompanies...................................................................................... 12
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ser sthg [[11..8950]] nreagtuiolantaiolndaotafbfiansaen.c..i.a..l..s..e..r.v..i.c..e..s...a..n..d...m...a..r..k..e..t.s...................................................................................................1132
ir llA [1.95] takeovers...........................................................................................................13
.de [1.100] powersofinvestigation................................................................................... 13
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ytP [1.110] educationrole.................................................................................................. 14
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rtsuA [1.120] theASX......................................................................................................................14
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understandingcompanylaw
2
key points
(cid:1) Acompanyisanartificialentityrecognisedbythelawasalegalpersonwithitsownrights
and liabilities. It is regarded as an entity that is separate and distinct from its owners (its
shareholdersormembers)andmanagers(itsdirectorsandofficers).
(cid:1) Company law is a combination of case law and legislation largely contained in the
CorporationsAct2001(Cth).TheCorporationsActschemewasdevelopedtomeettheneed
foruniformAustralia-widecorporationslegislation,administeredbyasingleCommonwealth
authority,theAustralianSecuritiesandInvestmentsCommission(ASIC).
(cid:1) Companiesvarygreatlyinthescaleoftheirbusinesses,theirobjectivesandtheirnumbers
ofshareholders.ThelargestcompaniesinAustraliachoosetohavetheirshareslistedonthe
AustralianSecuritiesExchange(ASX)whichoperatesthelargestAustralianstockmarketin
which shares of listed companies and other entities can be bought and sold. Listed entities
mustcomplywithdetaileddisclosureobligationsandotherrequirementsimposedbytheASX
ListingRulesaswellastheCorporationsAct.
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chapter1 regulatoryframework
3
what is a company?
[1.05] A company is an artificial or fictitious entity recognised by the law as a legal
person with its own rights and liabilities. The terms “company” and “corporation” are
oftenusedinterchangeably.TheCorporationsAct2001(Cth)s9definitionofacompany
includesacompanyregisteredundertheActoritspredecessors.Acompanyisonetypeof
corporation: s 57A.Acorporation also includes any body corporate formed under other
legislation and unincorporated bodies that may sue and be sued or hold property in the
nameofanofficeholderappointedforthatpurpose.
Companies are a widely used form of business organisation. There are more than 2.5
millioncompaniesregisteredinAustraliaandtheyvarygreatlyinthesizeofbusinessthey
conduct and the number of shareholders they have. The overwhelming majority of
companiesoperatesmallbusinessenterprisesandaretypicallycontrolledbyanindividual
personorafamily.
Afundamentalcharacteristicofacompanyisthatithasitsowncorporatepersonality Acompanyisa
and is a separate entity distinct from its shareholders, its directors who control its separateentity
distinctfromits
management, and its officers and employees. The fact that a company is regarded as an shareholders,
entity separate from its shareholders, directors and others means that the company may directors,officers
andemployees.
ownproperty,enterintocontractsandsueandbesuedinitsownname.
Aconsequenceoftheseparatelegalentityconceptisthatacompanyhasalifespanthat
ispotentiallyunlimited.Itsdirectorsandshareholdersmaychangebutthisdoesnotaffect
thecompany’sexistenceasalegalperson.Eventhoughacompanyisinasenseafictitious
entity,ithasthesamelegalcapacityandpowersasahumanbeing.Itisthereforeableto
.de engageinanybusinessoractivityandmayacquireandexerciserightsinthesamewayas
vrese anindividual.
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tim businesses. Limited liability means that shareholders are not personally liable for their Limitedliabilityis
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rtsu implicationsofacompanybeingaseparatelegalentityandlimitedliabilityarediscussed
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thg transferability of shares facilitates stock exchange share trading. Most closely held
irypo companieswithfewshareholdersrestrictthetransferoftheirsharesbyprovisionsintheir
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constitutionswhichrequireapprovalofthedirectorsbeforesharescanbetransferred.The
proprietarycompanyreplaceableruleins1072Gisanexampleofsuchaprovision.
Some companies, particularly those that operate large businesses, frequently organise
their affairs in a corporate group structure with a holding company that controls a