Understanding the Company Constitution and Constitutional Amendment

In respect to the case at hand, it is first important that you educate Amanda on what the constitution to a company is so as to enable her raise he claims on the right bases. A constitution can be defined as a contract between the company and each member of the company, the company and each director, the company and the company secretary and finally a contract between a member and each member. In this manner Amaya needs to look at the case s advice on ho to amend the contract term between her and the company, her as a member and the other member of the company in this case the two large shareholders of the company who have 90 percent of the company shares. There are different ways to approach this situation and first means the company to change the constitution so that Amaya’s interest may be included in the changes. The changes fall under special resolutions that needs to be at least a 21 days’ notice since the company is not a publicly owned company (Adams, and Borsellino, 2015).

So first it is important to inform Amaya that it is possible for the company constitution to be mended. As identified in the introduction, this is referred to as Special resolution of shareholders. And Amaya being part of the shareholders it is possible for her to request for the meeting. Although hear comes in a different point where for any resolutions to be effective, it needs the support of 75 percent of the shareholders. Despite all this it is important to acknowledge that the corporations Act and the common law provided help in the protection of shareholders from variation or the cancellation of their class rights by the huge shareholders in the company which is our current scenario. The other two shareholders have up to 90 percent of the company shares. The corporations Act and the common law also protect the shareholders against certain amendments to the provision of the company’s constitution that may have the effect of expropriating the shares of the minority shareholders in our case Amaya or her rights attaching to these shares. Also, this protects against the amendments to any specific or particular provisions of the company’s constitution.

Several approaches to the case can be utilized to help protect Amaya’s interests. The class right is one of the best approaches for the case, the shareholders with the excessive powers within the company need a limiting factor to control them from ending up misusing this power. In relation to the class rights the power of the majority share holders to make changes or cancel rights associated with the minority shareholders is limited by Part 2F.2 of the corporation Act. The act provides that if the company’s constitution of a company does not lay down a procedure of varying or cancelling class rights then those specific right can only be interfered with by a special resolution passed during a meeting with the shareholders who fall under the class and are affected by the changes. This means that the affected shareholders are given the chance to provide their views in relation to the changes by the majority shareholders rather than just the majority shareholders making all the decisions without the consideration of the other minority shareholders (Bottomley, 2016). The act also sets out provides room for procedure that can be added as requirements for the cancellation of a minority shareholder that limits the majority shareholders powers. This means that these procedures need to first be met before any amendment of the constitution is changed. Amaya can take this clause and use it to gain position that will help her during the case. This means the procedures to be added as requirement for the cancelation of her right favour her and make it harder for the other shareholders to cancel her right although they have a higher share of the company. From a legal point of view this is one o the best approaches that she can probably take up.

Leveraging Special Resolutions and Class Rights

The provision has been set aside to provide an opportunity for the minority shareholders of a privately-owned company the chance to include a procedure that helps them protect their interests as well as help them control the majority shareholders’ rights. This holds the company constitution in place from the constant or random changes by the majority shareholders.

The other approach that can be used is the limitation on expropriation where the powers of the majority shareholders to amend the company constitution for expropriation reasons of the shares of the minority (Amaya) is limited after the decision made by the high court of Australia in Gambotto v WCP Ltd. As a result of the case it was defined that any amendment of the company constitution by the majority to expropriate share from the minority shareholder can only be valid if it is for a proper course as the first requirement and if it does not oppressively impact the minority shareholder or shareholders meaning the amendment is to be fairly carried out (Moens, and Evans,  2015). As per the majority of the judgment by the court held that the valid procedure valid for the expropriation of the shares from the minority will specifically require the full disclosure of all information with the introduction of an external and independent expert to valuate the value of the shares of the minority and also responsible to ensure that the payment is in accordance with the market value.

If this is to be adhere to, Amaya can utilize this legal information to ensure that her shares in the company are not taken by the majority shareholders although for this to succeed she requires a well-informed legal team to help her (Ramsay, 2015). Although if this is not the case then it has already been evident that the majority can call for a special amendment meeting where they will vote and attain the 75 percent approval and Amaya’s shares will be withdrawn from her and bac to the majority shareholders.

Gracey has found herself in this situation unwillingly. As seen from the case analysis she has not agreed to Amaya’s advice. Amaya was still busy trying to convince her but no evidnce of her agreeing to this. There are different ways to forward with this case either approach it legally or approach it in a less intimidating manner. This means she can either request for a meeting with both the two majority shareholders who they signed the contract with this is Sammy and Huw. Through the meeting she can lay down her claims and wait to see the reasoning of her employers. The response she is to get from them determines her next move. She has already shown her loyalty and not switched lanes and teamed up with their competitor and in this case the company needs such loyal employees. In case this then fails she can approach a legal approach here she files for the breach of the contract signed between her and the company. The claim can be on the basis that the company has breached the contract since they have failed to pay her monthly fee (Harris, Jason, and Anil Hargovan). With this approach she has to prove her case by providing the evidence od the breach of contract and showing the failing of the company to meet its end of the agreement. With this the contract signed by Gracey has stipulated what a breach of the contract entails hence this is to be reacted upon by the court. In this case, as per the law a breach needs to be serious and one that has caused damage before the breach can be considered viable in front of the court. In this case Oh My Pty Ltd signed a one-year contract with Gracey but the company has failed to do so and already has failed to pay for this. This is enough damage viable in a court of law. Since the damaged or the breach of the contract is in the form of money it is enough to for a lawsuit. Gracey should consider all this before making any decision currently since the situation with the company is a matter that can be resolved. Also having a keen review of the contract terms is important since the contract terms stipulate how such a breach is to be legally addressed.  Professionally the best approach is to first try the first approach which was talking to her employer but in case it fails then she is to go for the second approach to the matter.

Utilizing the Limitation on Expropriation

In relation to the case provided it is evident that the directors of Drink it Up Pty Ltd are in breach of S181 of the Corporation Act 2001(Cth). It is important to acknowledge that the act requires that the company directors as well as the other officers to practice or utilize their power and implement their duties with great care and diligence (Nettle, 2017). These duties are bided to business judgment rules that may require a director or the board of director to make decisions within the business judgment to be in good faith and for a proper purpose of the company. This means the decision made by the director need not to be based on other interests apart from the business itself. As per the Act also the decisions should not have a material interest in the actual subject matter that is being decided on or the matter of judgement (Lu, Shelley, Thillainadarajah, and Leonard, 2016). So far analyzing the case immediately the transfer of the company’s successful venture into a different company, the other arm of the business gets liquidated. It can hardly be a coincidence but it is evident that the directors probably had the possibility of the liquidation of the company. The financial analysis had already indicated the chances of the company crushing into debts. The strategic over by the directors to separate the two businesses can be explained in only one way (Du Plessis, and Rühmkorf, 2015). The separation was as a strategy to safe guide their interest. The directors had found that the only way to protect their profit-making business with the chances of such occurrences. A breach of the act means that the directors within the business made decisions in relation to the company not in good faith or for a proper purpose. In good faith would mean that the directors had to not separate the business but help the struggling business first clear the debts before the company got liquidated (McLaughlin, 2018). With such a consideration then, the directors had other better decisions to make rather than the one they did. Also, in line with the directors’ decision to separate the businesses, it is also evident that the directors had material personal interest in the decision they make (Harris, 2016). In relation to this one ends up concluding the interest of the directors was based on material interest. They new that the Drink it Up Pty Ltd was not in a position to elevate its self from the debts and the loses so in respect to their interest they decided on the best way to safe guard their interest was via the protection of their profit yielding company. This clearly shows a breach of the s181 of the Corporations Act 2001 (Cth). As per the law the breach of the Act is charged as a criminal offence. Under the charges of dishonesty as referred by the act. This is in respect to the fact that the directors fail to exercise their powers and discharge them in good faith and the best of the company.

Addressing Breach of Contract Issues

Dhruv does not have any viable evidence to back his claims. A director has the right to sell or buy shares of a company. This can be used against Dhruv since the prediction of the future occurrences of the company can hardly be predicted. The success of a company or the failure of the company can hardly be predicted. This means in case the business was to be profitable then no blame would be held on the Kristofer the responsible shareholder who had sold the shares. It is expected of Dhruv to conduct an extensive research on the profitable nature of the business. Also, since he bought the shares after the company had separated then Dhruv had to find out the main reason for the business separation (Spencer, A., 2016). Dhruv was not enticed into buying the shares which would have meant that he was given any wrong information that would mislead him (Pearson, 2016). Then such background would be used to raise a case but with the current information provided, it is evident that the buying process was completely out of own will.

But from the given information in relation to dates provided on 5th of July was when the selling of the shares was carried out and then the incorporated, it is evident that Kristofer failed to disclose one of the most important information that Drink It UP Pty Ltd was to be divided with the business (McKendrick, and Liu, 2015). Such information would have been useful when making the decision. Dhruv would have been in a position to know that the shares would not be as profitable as they would have been as for both the businesses. The with holding of this information is an intentional move by the director. This is because the transfer of the other company was also concluded the same month (Wilson, 2018). It becomes slightly contradicting since the decision to separate the company was a directors’ agreement and Dhruv was among the members of the directors who agreed on the changes. This also leaves Dhruv under the position of ignorance since they had the chance to utilize the information they had to make a sound idea. The law does not advocate for ignorance and with the current change within the company operations it is important for one to utilize the available information to help them make sound ideas (Welsh, 2014).  

References

Adams, M.A. and Borsellino, G., 2015. The unspoken reality of diversity on boards. Governance Directions, 67(2), p.78.

Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge. 2(1), p.2.

Du Plessis, J. and Rühmkorf, A., 2015. New trends regarding sustainability and integrated reporting for companies: what protection do directors have?. 8(1), p.2 – 5.

Harris, J., 2016. Voluntary administration: Using voluntary administration to dilute minority shareholdings. Australian Restructuring Insolvency & Turnaround Association Journal, 28(1), p.22.

Harris, J., Jason, and Anil Hargovan, 2017. “Still a sleepy hollow? Directors’ liability and the business judgment rule.” Australian Journal of Corporate Law.

Lu, A., Shelley, J., Thillainadarajah, T. and Leonard, R., 2016. Developments in Australian private international law 2015-2016. Australian Year Book of International Law, 34, p.477.

McKendrick, E. and Liu, Q., 2015. Contract Law: Australian Edition. Macmillan International Higher Education.

McLaughlin, S., 2018. Unlocking company law. Routledge.

Moens, G.A. and Evans, P. eds., 2015. Arbitration and Dispute Resolution in the Resources Sector: An Australian Perspective(Vol. 43). Springer.

Nettle, G., 2017. The changing position and duties of company directors. Melb. UL Rev., 41, p.1402.

Pearson, G., 2016. Failure in corporate governance: financial planning and greed. Handbook on Corporate Governance in Financial Institutions, p.185.

Ramsay, I., 2015. Increased corporate governance powers of shareholders and regulators and the role of the corporate regulator in enforcing duties owed by corporate directors and managers. European Business Law Review, 26(1), pp.49-73.

Spencer, A., 2016. Does freedom of religion imply freedom of religious trade?. James Cook University Law Review, 22, p.81.

Welsh, M., 2014. Realising the public potential of corporate law: Twenty years of civil penalty enforcement in Australia. Fed. L. Rev., 42, p.217.

Wilson, T., 2018. The Private Provision of Essential Financial Services and the Corporate Social Responsibilities of Banks and Insurance Companies. Griffith Journal of Law & Human Dignity, 6(1).