SEMINAR 5- LIFTING THE CORPORATE VEIL, PROMOTERS AND

INTERNAL GOVERNANCE RULES

LIFTING THE CORPORATE VEIL
Rule: In accordance with Saloman v Saloman and ss119 and 124 of the
Corporations Act, A company is a separate legal entity and as such is distinct
from the directors and shareholders of the company.
Company is treated as an individual
Thus it is the company rather than the shareholders or the management that
should e sued or e sued.
Excepti!": !owever a numer of e"ceptions apply to this principle where
the courts have power to #li$e t%e c&p&'te (eil), which essentially allows the
courts to loo# eyond the protection of the company name to see who Is in
control of the usiness. These people may then e considered responsile for
the company$s conduct. %hile courts are reluctant to lift the corporate veil, it
may e lifted common law or statutory grounds.
- C**! L'+ excepti!"
o Avoidance of legal oligation
o &raud or improper purpose.
o Agency
o Involvement of reaches of director$s duties
o Corporate groups
- St'tut&, Excepti!"
o 'ets and other oligations incurred as trustee (s197 CA)
o Insolvent trading) directors e"posed to personal liaility for those
dets where they #new or ought have #nown of the insolvency-
."5//G CA0
o %here the company is a susidiary of another company, that
holding company may e made liale in relation to those dets
where it #new r ought to have #nown of the state of its financial
affairs* s+,,-)+,,.
COMMON LA1 E2AMPLE: F&'u3 & i*p&pe& C!3uct
- the court will lift the corporate veil and refuse to apply principle of separate legal
entity if the company is a sham) that the company is created for fraud or improper
purpose) Gilford, Jones v Lipman
Gilford Motor Co Ltd v Horne 456778- the court will lift the corporate veil if the
company is created to avoid legal oligation.
- &ACT/* !orne was managing director of 0ilford 1otor. !is employment contract
included a restraint of trade clause for a period of + yrs after leaving the company.
2nce he left, !orne registered a company with his wife and friends as
shareholders. The new company engaged in a similar usiness as 0ilford 1otor Co
3td and the company, through !orne, targeted
-
- the customers of 0ilford 1otor Co 3td. 0ilford 1otor Co 3td sought an
in4unction to restrain !orne. He +'" i! c*plete c!t&l $ t%e c*p'!,-
- C256T* The company created y !orne was a sham)incorporated to allow
!orne to escape his legal oligation imposed y his employment contract.
Accordingly, the court lifted t%e c&p&'te (eil '!3 c!"i3e&e3 H&!e '!3 t%e
c*p'!, '" !e- H&!e +'" %el3 &e"p!"i9le $& c!3uct $ t%e c*p'!,
'!3 '" ' &e"ult H&!e '!3 t%e c*p'!, 9ec'*e !e-
- !orne argued company is a separate legal entity and that the company is not
ound y the employment contract ecause this.
- Nee3 t p&(e t%'t it i" t%e *'i! &e'"! '!3 p&9'9l, t%e !l, &e'"! +%,
t%i" c*p'!, i" c&e'te3- it i" ' "%'* '!3 it %'" ' $&'u3ule!t '!3 i*p&pe&
pu&p"e-
- %ife and friend had no input in the company) all controlled y !orne.
Jones v Lipman
&ACT/* 3ipman contracted to sell land to the ut efore sa#e completed, 3
transferred the land to a company. /hareholders were 3 and a solicitor$s cler#. Aim*
to prevent purchasers from eing ale to compel 3 from transferring the land,
although entitled to sue for damages.
C256T* Treated contractual oligation on 3 to transfer the land as also inding on
the company. 6ussel 7 ordered specific performance against the company and
against 3. Court considered 3 using company as a 8sham$ to avoid his contractual
oligations.
Use of the corporate form to perpetuate fraud
Re D'&9, (see 6edmond note 1 p 1,9:
'ary was one of two undischarged an#rupts with convictions for fraud who
registered a company in the Channel Islands. They were the only directors and the
seven shareholders included these directors and five nominees. The court found that
they had formed the company as part of their fraudulent plan. The company floated
an ;nglish company and sold it a <uarrying licence and plant at a gross overvalue.
The ;nglish company failed and commenced to wind up. The li<uidator claimed in
the an#ruptcy of 'ary the secret profit made y 'ary. The court re4ected an
argument that the profit was made y the company in the Channel Islands rather than
y 'ary and considered 'ary was one of the promoters of the ;nglish company and
ecause they had not made ade<uate disclosure to the shareholders of the ;nglish
company aout their profits the li<uidator could share in 'ary$s an#rupt estate.
Use of the company as an agent
Re FG Fil*" Lt3 (6edmond p 1,9:
A large American company agreed with an ;nglish registered company to ma#e a
film. The president of the American company held 9=> of the shares in the ;nglish
company. The ;nglish company had a capital of :1== employed no staff and had no
place of usiness apart from its registered office. The ;nglish company sought
registration of the film y the ?oard of Trade as a ?ritish film under Cinematographic
&ilms on the asis that it was the ma#er of the film. The court held that the ?oard of
Trade could refuse registration ecause the ;nglish company could only have een
ta#en as agent of the American company which was the real ma#er of the film. (/ee
&ord @4.2+=A:
CORPORATE GROUPS
- CORPORATE GROUPS- %here control of one or more companies is held y
another company.
- The principle of separate legal entity applies in case of corporate
group-Walker v Wimborne (1976).
o Each company in a group is treated as a single entity.
o Walker- the fact that a parent company eercises control
o!er a company does not mean that the acts of the
su"sidiary should "e regarded as the acts of the parent
company.
o EXCEPTIONS: #ourt $ill lift the corporate !eil under grounds
found "oth under common la$ and statute
Statutory example:
%ection &''( of the Corporations Act 2001 (#th)- lia"ility
of a holding company for insol!ent trading "y a su"sidiary.
common law)
if there is an agency the court $ill lift the corporate !eil
and the companies in the group $ill "e considered as one as a
result- Smith Stone and Knight Ltd v Birmingham Corp *19+9,
o -n England. su"sidiaries ha!e "een treated as
agents or partners- %mith / 0night.
Smith Stone and Knight Ltd v Birmingham Corp [1939] #ourt may lift the
corporate !eil if there is agency "et$een the holding company and the
su"sidiary.
12#T%) %mith. %tone and 0night 3td $as the holding company of
4irmingham Waste. 4 $as conducting "usiness on the property o$ned "y
%mith. %tone and 0night. The good$ill of the "usiness $as ne!er transferred
to the su"sidiary nor did the su"sidiary ha!e staff. -t had no "ooks of account
and paid no rent for the premises. The person running the "usiness $as
appointed "y %. the council ac5uired the land on $hich the "usiness $as
running. 6o$e!er. the su"sidiary $as not a"le to claim compensation for the
distur"ance to its "usiness. -nstead. the parent company. s. sued the council
for compensation and distur"ance of the "usiness. The council argued that
due to the principle of separate legal entity the holding company and the
su"sidiary $ere different companies and as a result the holding company
could not sue.
!t"#n$on % element$ to &eterm#ne w'et'er a $u($#&#ary #$ an #mpl#e&
agent o) t'e parent company* Te$t )or agency -f all ans$ered yes then the
su"sidiary is conducting the parent7s "usiness.
- Were the profits treated as the profits of the parent8
- Were the persons conducting the "usiness appointed "y the
parent8
- Was the parent the head and the "rain of the trading
!enture8
- 9id the parent go!ern the ad!enture. decide $hat should "e
done and $hat capital should "e em"arked on the !enture8
- 9id the parent make the profits "y its skill and direction8
- Was the parent in effectual and constant control8
+E,-: The su"sidiary conducted "usiness as agent of 6olding company and
conse5uently lifted the corporate !eil and treated "oth companies as one.
+O.E/E0: the test for agency is highly critici:ed and are contro!ersial)
- %u$t (ecau$e t'e 1 element$ are t'ere2 t'e court$ may not l#)t
t'e corporate 3e#l (ecau$e )actor$ t'at con$t#tute an agency
relat#on$'#p )or purpo$e$ o) 3e#l l#)t#ng are currently un$ettle&
an& a$ $uc' #t &oe$ not pro3#&e a &e)#n#t#3e te$t o) agency*
%a$on 'arr#$ l#)t#ng t'e corporate 3e#l 4 5#r& Cameron*
- The argument for lifting the corporate !eil $ould only "e likely to "e
considered in a case that has an identical set of facts to the %%0
case.
- The & of the 6 elements largely focus on control and control of itself
cannot "e a decisi!e indicator of agency.
o #omplete control of a company is not sufficient to create an
implied agency "et$een the company and the controller and the
"asis for !eil piercing- Briggs v James Hardie & Co Pty Ltd
!CN 007 528 207 Pty Ltd (in i!" v Bird Cameron (#eg" 67889: 91 S!S0 9;8:*
Court: ;efused to find an agency "et$een the partners and the company on the
"asis that the company operated its o$n independent "usiness despite the
control eercised "y the partners. This $as "ecause the profits made "y the
company $ere not o$ned "y the partners in the firm. "ut rather $ere o$ned "y
the company and distri"uted as di!idends.
Important #n&#cator o) an agency relat#on$'#p: Where the pro)#t$ of the
"usiness are treated as the profits of the parent company. -f they are not. most
likely not an agent.
BUT- IS THE COMPANY A GHOST COMPANY? The elements can be used to
determine the existence of a sham between separate entities- ghost companies with
no assets, no employees and no real independent identity. Lack of resources indicates
that the companies were never intended to be separate legal entities- this justifies a
lifting of the veil- Jason Harris.
PROMOTERS
P&*te&"- 5nder C3 defined Bone who underta#es to form a company with
reference to a given pro4ect and to set it going, and who ta#es the necessary steps to
accomplish that purpose.C Twycross v Grant and accepted in the Australian decision
Tracy v Mandalay Pty Ltd .
Do definition in CA.
A promoter is involved in the formation of a usiness and estalishes a
company to operate it. The creators of a company.
P&*te&" c'! 9e- Tracy v Mandalay Pty Ltd *
Acti(e P&*te&"- A&e i!(l(e3 i! t%e &e;i"t&'ti! $ t%e c*p'!,-
T%e, '&e t'<i!; '!3 3i!; 'll t%e $&*'litie" !ee3e3 t &e;i"te& '
c*p'!,- Those that ta#e an active part in the formation of the company
and the raising of the necessary share capital to enale it to carry on
usiness.
o ;g. planning the company, preparing registration, arranging for
directors, searching finance, arranging lease contracts, paying for
things incidental to the creation
P'""i(e P&*te&"- ;lements*
o 'on$t ta#e an active part in the creation of the company, ut rather
leave it to others
o ?enefit with the profits of the company
Excepti!": Erofessionals providing professional services such as
3awyers and Accountants.
Du&'ti! $ t%e p&*ti!: Twycross v Grant- so long as the wor# of formation
continued, those who carry out the wor# are promoters. If directors ta#e what remains
to e done in a way of forming the company, into their own hands, the functions of
the promoter are at an end.
If the directors permit the promoters to carry on the wor# of the formation, the
directors remaining passive, would e deemed promoters.
PROMOTERS DUTIES:
- &iduciary duties imposed on promoters. Glucstein v !arnes"
o &iduciary oligations of good faith.
- P&*te&" "%ul3 'ct i! t%e 9e"t i!te&e"t" $ t%e c*p'!, t%e&e '&e
$&*i!;- T%e, "%ul3 '(i3 c!$lict $ i!te&e"t '!3 t%e, "%ul3 !t
*'<e '!, "ec&et p&$it $&* t%ei& p"iti!- Glucstein v !arnes"
o If they do, they will e held liale.
o If promoters are to ma#e a secret profit, t%e, !ee3 t 3i"cl"e t%'t
p&$it t t%e i!(e"t&" & +%e! c*p'!, i" $&*e3, !ee3 t 3i"cl"e
it t t%e i!3epe!3e!t 9'&3 $ 3i&ect&"-
o T&'ce, ( M'!3'l',- Eromoters may sell their property to the new
company ut they are under a fiduciary duty to disclose to the new
company that they are doing so and under a duty to place it in a proper
position to decide whether to accept the offer or not y appointing an
independent oard and disclosing the whole position to that oard.
- &iduciary duties present under e<uity) need to refer to case law.
Glucstein v !arnes
- &ACT/* 0luc#stein and F
others purchased a property which they sold to a company they created. The
secret profit they made from the sale was not disclosed. The company
sought to recover the undisclosed profit made y the promotoers.
- !;3'* The 4 promoters
had reached their fiduciary duty and were liale to account to the company
for the secret profit that was made.
- P&*te&" %'(e
$i3uci'&, 3utie" i*p"e3 ! t%e* '!3 t%e, "%ul3 !t *'<e "ec&et
p&$it- I! c'"e p&$it i" *'3e 9, p&*te&", t%e, !ee3 t 3i"cl"e t%ei&
i!te&e"t t '! i!3epe!3e!t 9'&3 $ 3i&ect&"-
- !onest disclosure is #ey)
needs to e full and fran#.
- If the company 3e" !t
%'(e '! i!3epe!3e!t =OD, 3i"cl"u&e $ t%e p&$it made y the promoter
has to e made t t%e exi"ti!; & pte!ti'l "%'&e%l3e&") Aequitas v
AEFC
- %here a promoter has
derived a profit from the sale, not fully disclosed in the prospectus, the
courts loo# s#eptically at the promoter$s defence of disclosure to the oard
whom he has installed, particularly if he is on the oard) Glucstein v
!arnes
Re*e3ie"
) remedies availale in case of reach of duties*) Jaco#us Marler $states Ltd %
Marler
If company ac<uired property after the promotion of the company has commenced the
Eromoter may e treated as trustee for the company and made to account for the profit
realiGed on selling to the company.
o 6ecission of the promoters contract) co gets moneys ac# and assets
returned to promoter.
2nly availale where company has not affirmed the contract
recission of promoter$s contract will only e availale if no
innocent party is affected.
o If recission not
availale) damages may e recovered.
1easure of damages will e the principle$s loss in the whole
transaction. If he has suffered no such loss there can e no
damages.
%here the prices of the property efore it was sold may e
determined.
- Tracy v Mandalay - !C referred to the duty upon promoters selling their
property to the company to ma#e disclosure of their interest to an
independent oard of directors.
PRE-REGISTRATION CONTRACTS
P&e-&e;i"t&'ti! c!t&'ct - c!t&'ct "i;!e3 ! 9e%'l$ $ ' c*p'!, 9e$&e t%e
c*p'!, i" 'ctu'll, c&e'te3-
R'i"e" i""ue: %ho is liale for this contractH Company or person who signedH
- The company comes into e"istence only from registration and derives
powers and capacity only upon incorporation) s119,124
OLD POSITION- At C3, promoters were held liale for contracts entered into prior
to the company eing registered) company was non)e"isting entity
Ne+ p"iti!
Secti! 575.50- p&(i3e" t%'t ' c*p'!, +ill 9e li'9le $& ' p&e-&e;i"t&'ti!
c!t&'ct, '" l!; '":
- T%e c*p'!, i" &e;i"te&e3> '!3
If not, promoterI person who signed contract is liale (s1F1(2:
- T%e c!t&'ct i" &'ti$ie3 +it%i! ';&ee3? &e'"!'9le ti*e-
If not, promoter is liale (s1F1(2::.
6egistration and ratification oth need to e within agreedIreasonale time.
6easonale amount of time* not defined y the courts. It will e decided ased
of the facts of each case.
o To determine if contract is signed within a reasonale amount of time*
Chec# o4ect of contract
Is o4ect perishaleH 6e purchasing mangos, ratified
after 1 month of signing the contractJ not reasonale)
too long.
Don perishaleH ;g lease for 2 years) signed within 1
month of signing the contract J reasonale time ecause
duration is 2 years.
I$ t%i" p&ce3u&e i" $ll+e3, t%e c*p'!, i" 9u!3 9, t%e c!t&'ct '!3 t%e
p&*te& i" t&e'te3 '" '! ';e!t $ t%e c*p'!,- Accordingly, if the company is not
registered or does not ratify the contract y the time agreed or within a reasonale
time, the promoter will e held personally liale for damages (s1F1(2:.
S575.70- If the company does not ratify the contract, the court may still hold the
company liale if*
The company is 9e!e$iti!; from the contract or
The company is refusing to e ound y the contract after ad fait!"
S575.@0- even if the company is ound y the contract, the person who signed the
contract may still e held liale.
- can e used where in cases where company reaches contract and has no
money to pay you damages
"575- Eerson who signed the contract can escape liaility K
- if the company sustitutes the contract that the person signs then the
person escapes liaility or
- under "57A) if the outsider decides to release the person who signed the
contract from liaility.
SECT 575 -C!t&'ct" 9e$&e &e;i"t&'ti!
(1: If a person enters into, a contract on ehalf or for the enefit of, a
company efore it is registered, the company ecomes ound y the contract and
entitled to its enefit if the company, is registered and ratifies the contract*
(a: within the time agreed to y the parties to the contractL or
(: if there is no agreed time))within a reasonale time after the
contract is entered into.
(2: The person is liale to pay damages to each other party to the pre)
registration contract if the company is not registered, or the company is registered ut
does not ratify the contract or enter into a sustitute for it*
(a: within the time agreed to y the parties to the contractL or
(: if there is no agreed time))within a reasonale time after the
contract is entered into.
The amount that the person is liale to pay to a party is the amount the company
would e liale to pay to the party if the company had ratified the contract and then
did not perform it at all.
(F: If proceedings are rought to recover damages under susection (2:
ecause the company is registered ut does not ratify the pre)registration contract, the
court may do anything that it considers appropriate in the circumstances, including
ordering the company to do 1 or more of the following*
(a: pay all or part of the damages that the person is liale to payL
(: transfer property that the company received ecause of the contract
to a party to the contractL
(c: pay an amount to a party to the contract.
(4: If the company ratifies the pre))registration contract ut fails to perform
all or part of it, the court may order the person to pay all or part of the damages that
the company is ordered to pay.
C26E26ATI2D/ ACT 2==1 ) /;CT 1F2
Eerson may e released from liaility ut is not entitled to indemnity
(1: A party to the pre))registration contract may release the person from all
or part of their liaility under section 1F1 to the party y signing a release.
(2: 'espite any rule of law or e<uity, the person does not have any right of
indemnity against the company in respect of the personMs liaility under this Eart.
This is so even if the person was acting, or purporting to act, as trustee for the
company.
INTERNAL GOVERNANCE RULES
CONSTITUTION AND REPLACEA=LE RULES
The internal governance rules are rules that govern the internal administration of the
company. The rules may consist of a constitution or the replaceale rules in the
Corporations A#t (s1F4:, or a comination of the 2.
- C!"tituti!- a document that sets out the internal rules and organiGation
of a company. Also outlines fundamental matters.
o 1% !ee3" t %'(e ' c!"tituti!B
3isted companies) As the A/. listing rules re<uire certain
provision to e contained within a company$s constitution,
these companies cannot rely soley on 66
o If a company chooses to adopt its own constitution, that will displace
the application to the company of any inconsistent rule.
;.C;ETI2D* Eulic companies) a rule which is e"pressed to
e mandatory operates as an ordinary provision of the Act of
the company.
- Repl'ce'9le &ule"- A series of provisions in the Corporations A#t which
any company may use to regulate its internal proceedings and
management.
o If a company decides not to have a constitution, the 66 provide the
asic standards re<uired for a company to function.
o 1%e&e '&e t%e, $u!3B In s141 and s1F+
EFFECT OF CONSTITUTION AND REPLACEA=LE RULE
S5@C.50- T%e c*p'!,)" c!"tituti! '!3 '!, RR t%'t 'ppl, t it %'(e t%e e$$ect
$ ' c!t&'ct 9et+ee! .IT IS ENFORCEA=LE =ET1EEN0
1: The company and each memer
2nly e a contract if it affects the memer in their capacity as
memers only and not in their capacity as outsiders. $i#%man v
&ent or 'omne( )ars! S!eep- *reeders+ Asso#iation @191+A,
Ele( v -ositive Government Se#urit( Life Assuran#e Co (1,N+:
Are you a memerH If yes
Is the constitution affecting the person in their capacity
as a memer, or in their capacity as an outsider.
is the constitution providing rights that come
with the shares or notH
- If the constitution is
giving rights that come with shares) the
constitution is a contract etween company
and memer
E;: -oting power, attending meetings,
receiving dividends) if constitution has a
clause in relation to these) these are rights that
comes with shares)+ill 9e c!"i3e&e3 '
c!t&'ct-
- If the constitution is
giving me a right that does not come with
the shares) the constitution effects person
in their capacity as an outsider
constitution not a contract etween
company and each memer.
E;: If constitution says* 8person A, who is a
memer of the company, will also e the
solicitor of the company$. Ouestion to as# )
whether eing an employee of the company is
a right that comes with the sharesH %hen uy
shares in the company, does that mean you will
automatically e an employee of the companyH
Do) this is a right that comes in memers
capacity as an outsiderJ C!"tituti! !t '
c!t&'ct 9et+ee! c*p'!, '!3 *e*9e& i!
&el'ti! t it-
2: The company and each director and secretary and
F: ?etween a memer and each other memers
U!3e& +%ic% e'c% pe&"! ';&ee" t 9"e&(e '!3 pe&$&* t%e c!"tituti! '!3
&ule" " $'& '" t%e, 'ppl, t t%'t pe&"!:"5@C-
- These parties may enforce the rights contained in the constitution or 66.
- T%e c!t&'ct .c!"tituti! '!3 RR0 c'!!t 9e e!$&ce3 9, 7
&3
p'&tie"-
'! ut"i3e&) constitution will not e a contract etween outsiders and the
company and as such will not e ale to enforce constitution in a reach.
&ailure to comply with a 66 is not of itself a contravention of the Act s1F+(F:.
CONSTITUTION
Amendments to the Constitution
)Eropritary rights attaching to shares are su4ect to modification
- A company may vary the terms of a constitution y special resolution*
s1F9(A:.
o Speci'l &e"luti!) one passed with the support of at least N+> of the
votes cast y memers entitled to vote on the resolution in the meeting*
s 9.
o There is scope for entrenchment of a constitutional provision against
alteration y a special resolution, y specifying in the constitution a
further re<uirement for its alteration which provision may not itself e
repealed unless the further re<uirement is satisfied* s1F9(F:,(4:. eg
That the special resolution e passed with a greater ma4ority
than N+> of the votes castL
The consent of a particular person or
A particular condition e fulfilled.
P&tecti! ;i(e! t Mi!&it,:
Alterations to the Constitution are allowed ut are su4ect to statutory and C3
safeguards so as to protect minority shareholders
STATUTORD: S5@C.A0- i*p"e" ' p&%i9iti! ! '!, i*p"iti! $ $u&t%e&
li'9ilit, ! *e*9e&":
5nless a memer of a company agrees in writing to e ound, they are not
ound y a modification of the constitution made after the date on which
they ecame a memer so far as the modification*
a: re<uires the memer to ta#e up additional shares,
: Increases the memer$s liaility to contriute to the share capital or, or
otherwise to pay money to, the companyL or
c: Imposes or increases restrictions on the right to transfer shares already
held y the memer, unless the modification is made*
i: in connection with the company$s change from pulic
company to a proprietary company under Eart 2?.NL 26
ii: To insert proportional ta#eover approval provisions into
the company$s constitution.
COMMON LA1: Gam#otto v &CP Ltd .56650: Applies to C!an.e of #onstitution
to e"propriate shares or proprietary rights) 2 tests need to e applied* the proper
purpose test and the fairness test
) 0ives protection to minority shareholders
FACTS: %CE amended its constitution to allow its ma4ority shareholder, Industrial
;<uity 3td (who owned 99.N> of the shares in %CE: to compulsorily ac<uire the
shares of minority shareholders at fair value. 0amotto, a minority shareholder with a
=.1> interests in the company, rought an action to prevent the amendment of the
constition.
The court held that amendment of the constitution to e"propriate a proprietary right
was valid as long as long as a special resolution to change the constitution A/ %;33
as 2 re<uirementsI tests (oth need to e met:
1: Eroper purpose test* The change of the constitution was for Eroper purpose )
the proper purpose of everyone, not 4ust the company.
a. In 0amotto, the company wanted to change the constitution to gain a
financial enefit for the company. Court* this is not a proper purpose to
e"propriate the shares of minority shareholders.
- Eroper purposes include*
o It if it is necessary to comply with a regulatory regime governing the
usiness) eg A proprietary company e"ceeds the ma"imum numer
memers allowed) of +=) so that company is reaching the law.
o A memer that is harming the company ) detriments the interests of the
e"isting sIh generally)it will e legitimate for the company to change
the constitution to e"propriate the shares of that memer.
in oth cases, the purpose is to secure the company from significant
harm ) so it is a proper purpose for everyone.
2: The change to the constitution was fair (fairness test :)
a: 6e<uires full disclosure so that memers can ma#e an informed
decision when votingIvoted for the amendment
If full information given to them)most li#ely to e fairness.
: The price offered for the shares need to e fair) Are the memers whos
shares are eing e"propriated eing paid the proper amount for their
sharesH
a. Deed to e paid at least mar#et value or more
. If e"propriating shares for less then mar#et value, then wont e
fair fairness test wont apply the change of the constitution
will e considered invalid.
ONUS: lies on those supporting the e"propriation (the ma4ority: to show that the
power is validly e"ercised) that the 2 tests are met.
C256T* Eroper purpose test was not met ecause change of the constitution was for
the purpose of the company itself in saving money and not the proper purpose of
everyone. Change in the constitution invalid.
PRINCIPLE: Any repealImodification of a constitution relating to e"propriation of
proprietary rights must e e"ercised for a proper purpose.
the
K A company$s
constitution may include a restriction or prohiition upon the e"ercise of
any of the company$s powers.
o The e"ercise or a
power is not invalid merely ecause t contravenes the restriction or
prohiition*s12+(1:.
REPLACEA=LE RULES
- s1F+(1:) 'o not apply to a proprietary company while the same person is oth its
sole shareholder and sole director.