Company in ContextThere are four principle forms of business organisation Sole traders Partnerships (general/limited via Limited Partnerships Act 2008) Companies Trading trusts

Sole traders and partnerships economic owners can be sued directly and may also be vicariously liable for torts committed by their manager. Technically possible for sole traders to limit their liability non recourse credit i will only pay for the goods if I make a profit. If creditors agree to take the risk, cannot ask for more beyond that.

IssueSole TraderPartnershipCompanyTrust

FormalityNoneNo writing; No registrationexcept for limited liability partnershipWritten subscription; RegistrationNothing written required (except if land in trust prop); No registration

Risk of LossPersonal + UnlimitedPersonal + Unlimited unlessLimited Liab partnership.Every limited partnership requires at least 1 general partner who is liable as 1 partner under ordinary partnership. Then the limited partners are not liable but, their identity remains secret. IF they involve themselves in management and they become visible, then they lose immunity (because if you associate yourself with the company, you should be liable).No direct or indirect liability if ltd liab is adoptedDirect liability for trustee but not beneficiary; may contract out of indirect.

ControlN/AVariable & subject to contractVariable & subject to contractUnanimity subject to contract.Beneficiaries cannot act even by majority unless the deed allows majority.

Assignability/ transferabilityYesNo, subject to contract(there is a Ltd Partnership Presumption).Partners cannot sell the interest in the business; you need agreement with other partners (because you work closely together so cannot sell to someone random) but it is not the same for limited partners who can sell because they dont interact with the other partners)Yes, subject to contractYes subject to trust deed

TerminationFreeYes: on notice; death; bankruptcy.Prima facie, the partner can terminate, but that forces the other partners to buy them out. If they dont have the $ to do this, they are forced to accept someone new.If there is termination with one partner, technically, they form a new partnership.No, unless 75% agree.Cannot force SH to buy you out but it is the converse of partnership, where your investment is stuck if you cannot find a buyer.No: Bs cannot terminate arrangement unless there is unanimity, or the trust deed permits (this is the starting point)

Listed and Unlisted companies, and Public Issuers (on the Stock Exchange) legally significant difference. Listed companies raise $ from the public, so they are subject to the rules of the stock exchange which can be onerous (see Companies Act & Securities Act). There is no legally significant difference between public and private companies now, or those that are closely and widely held.

Sources of Company LawEnglish RootsThe NZ Companies Acts of 1908, 1933 and 1955 largely mirrored the English Acts of 1908, 1929 and 1948. UK cases very persuasive, Aus persuasive because adopted English model too.

The 1993 Company Law PackageIn 1993 the following were enacted: the Companies Act 1993 (CA93), the Financial Reporting Act 1993, the Receiverships Act 1993, and the Takeovers Act 1993. CA93 was the result of two reports by the Law Commission: Report No 9 Company Law Reform and Restatement (1989) and Report No 16 Company Law Reform: Transition and Revision (1990). Both reports provide a thorough background to the reforms.

The CA came into force on 1 July 1994. Old Companies Act 1955 applied until end of transitional period 1 July 1997. During transitional period, amended to align with CA93.

The North American InfluenceThe 1993 reforms marked a significant departure for NZ company law in that, in several areas, the Companies legislation no longer follows an English model. The major reforms were influenced by Canadian and US legislation, increasing relevance in NZ interpretation. However, in 2006 the UK enacted the Companies Act 2006, which itself has North American influences, including a statement of directors duties somewhat similar to New Zealands.

NZX Listing RulesEach company listed on the New Zealand Stock Market is party to a contract with the market operator, New Zealand Exchange Ltd (NZX). That contract is known as the Listing Rules additional source of private law governing listed companies. Rule 2.1.1 - Listing Rules are enforceable against each listed company for the benefit of the shareholders of that company, and that the Contracts (Privity) Act 1982 shall apply. This means that the shareholders can enforce the agreement directly against the company.

Nature of Company Law

Corporate personality common lawSalomon v Salomon & Co Ltd [1897] AC 22 (HL)a. Company is not the agent of SH (ordinarily)b. SH can lend to the Co just like anybody else canc. Courts are not going to be paternalistic to creditors: if they were not told that it was a company they were contracting with, then the company may not protect the SH. But here, they knew.d. Banks have secured debts so they get everything first.

Lee v Lees Air Farming Ltd [1961] AC 12 (PC)Can owner/director also be employee? PC said yes company was a separate person and so capable of contracting with sole director as employee even though same person.

Re Fletcher Challenge Forests Ltd (2004) 9 NZCLC 263,447 Fletcher Holdings = sole shareholder of Fletcher Forests. Value of forests which FF wanted to sell was > 50% of assets = major transaction. S129 if a company wants to enter a major transaction, BoD needs SH approval. The sale was major transaction for FF and not FH so only approval needed was from directors of FH and not from shareholders of FH.

Andar Transport Ltd v Brambles Ltd (UK 2004): His company = his employer therefore also partially owed duty of care for his injury.

Corporate personality statuteCompanies Act 1993, s15 company is separate legal entity and exists until removed from registerS16 company has full capacity to undertake any business activity and full rights/powers/privileges subject to other legislation and general lawS16(2) company constitution can restrict the capacity or powers of the company

AttributionA company is subject to the same legal rules as a natural person but it is an abstract legal entity with no physical existence. Q how can guilty mind or state of knowledge of a company agent be attributed to the company?

Organic Theory/Doctrine of identification (pre-Meridian)Directing mind and will attributable of persons in control attributable to companyLennards Carrying Co v Asiatic Petroleum Co [1915]: CM 25Includes people who were controlling a particular function of the company - the senior manager knew and was closely involved, so the company was held to have known and privity was satisfied so there was no limitation of liability.

Three tiers of attributionPrimary, General, SpecialMeridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 (PC)Question as to meaning of words in the Securities Act was a company liable for breaching this Act because they did not announce they had bought shares of another company? HELD: Yes. Someone should have spoken on behalf of the co the co did have this obligation. PC used rule of agency the manager was delegated the authority to undertake the transactions and under agency law the knowledge of the agent acquired during the transaction is attributed to the principal, that is the company.

Three tiers of attribution 1. Primary rules found in company constitution and Companies Act 1993. S128(1) subject to modification in companys constitution, business and affairs of company must be managed by direction of the BoD. Therefore, collective acts by directors/shareholders to bind company at a valid meeting = act of company. Unanimous acts of shareholders = act of company.

2. General rules principles of agency, estoppel, apparent authority, vicarious liability.

3. Special rules situations where neither primary or general rules apply. Case by case basis.

Tesco Supermarkets Ltd v Nattrass [1972] AC 153Supermarket left Special Price sign on although goods were at normal price. Trades Description Act business owners could be liable unless offence was due to act/omission of another person and due diligence was taken. Here, small Tesco and manager was negligent. Defence would have been available if senior management (directing mind and will) had taken reasonable precautions.

Americanos Ltd v State Insurance Ltd (1999): Contract of fire insurance, restaurant was deliberately burned down. Insurance contract was owned by the company but the arsonist beneficially owned 25% of the shares. His wife also owned 25% and was de facto manager. Policy stated an exclusion for wilful act or with connivance of insured. The company is the one that is insured but the company did not have will. Fact specific decision underlying rationale, nobody can benefit from their own wrongdoing. Here, show that the arsonist had some economic interest.

Consequences of incorporationThere are several consequences of incorporation under the CA93. Some are advantages: Limited liability of shareholders Shareholders do not have any legal or beneficial interest in the companys property: creditors have priority claim over assets Individual shareholders cannot liquidate company. Perpetual succession. Transferable shares. Holding property.

Macaura v Northern Assurance [1925] Mr M owned some land which had timber. He took out fire insurance. He formed a company later and transferred the land but did not tell the insurance company. When there was a fire the insurance co said that he was insured in relation to assets he owned, and the land was not owned by him. HL said M did not own the land so no insurance.

Others are disadvantages: Increased costs associated with complying with various statutory and regulatory requirements. The general scheme of the companies legislation is to minimise such compliance costs in the case of companies with a small number of private shareholders (closely-held companies). Being subject to various mandatory rules in the Companies Act 1993. Publicity.

For most business organisations the advantages outweigh the disadvantages, and so the company is the most popular form of business organisation.

Limited liabilityLimited liability depends on a combination of two distinct rules:1. A shareholder has no liability to the companys creditors for the companys obligations.S97(1) unless in the company constitution, shareholder is not liable for company obligations by virtue of being a shareholder (might be if they were also an agent).

Chen v Butterfield (1996)Defendant was SH in a Co which had taken a lease from plaintiff. P had given this lease without a guarantee (normal arrangement) so if the Co didnt pay, D would not be liable. The company was unable to pay. P was clearly dealing with the Co and not D, so could not ask D to pay.

2. A shareholder has a limited liability to the company.S97(2) - ): Except where the constitution of the company provides that the liability of the shareholders of the company is unlimited, the liability of a shareholder to the company is limited to(a) Any amount unpaid on a share held by the shareholder (b) Any liability expressly provided for in the constitution of the company:(c) Any liability under sections 131 to 137 of this Act that arises by reason of section 126(2) of this Act (if SH is also director you have obligations as director. You may be director either explicitly through agreement or deemed because you act as director would):(d) Any liability to repay a distribution received by the shareholder to the extent that the distribution is recoverable under section 56 of this Act:(e) Any liability under section 100 of this Act.

Note many times, secured creditors will seek guarantees from the shareholders which diminishes their protection. But shareholders remain protected from trade creditors and unsecured.

Cos have a separate legal personality: Salomon v Salomon.There is a relationship b/w Co & SH but SH have no legal relationship with the companys assets.

Special and Limited PartnershipsIf there is a partnership with a certain number of partners, they are all jointly and severally liable for it.

The Partnerships Act allows for General Partnerships. General Partner is responsible for the management of partnership and is liable. The Special Partners have limited liability valued up to their contribution, but no management of partnership. If a Special Partner would get involved in the management of the business, they must then be liable as a General Partner and incur liability as such. Problems: Jurisdictional issues; Tax advantages.

Limited Partnerships Act 2008 You have General and Limited Partners. It has a separate legal personality (Ltd Liab Pship = LLP). Liab is ltd to Ltd Partners, but the losses do flow through to them. It is a well-known model internationally. Protection for Limited Partners: No agency No fiduciary duty Derivative action [where an SH can take action on behalf of a Co they have this right from the Companies Act. Here, a Ltd Partner can take action against the Gen Partner if the GP does a wrong against the Partnership].The General Partner has a fiduciary duty. Safe Harbour: Vetoing/approving investment under Act is not being involved in management. These are specific things LPs can do without losing their limited liability.

Justifying limited liability The limited liability corporate form is viewed as a standard form contract that reduces the need to negotiate individual contracts for each transaction regulating their relationships. This is said to reduce transaction costs and add to efficiency. Limited liability reduces the need for shareholders to monitor the behaviour of the directors. The point being that in a situation of unlimited risk or liability shareholders incur greater costs of monitoring for the depletion of the company's assets, ie. insolvency. Limited liability reduces the need for shareholders to monitor other shareholders to prevent unauthorized dispositions of assets. For in an unlimited liability environment the wealth of other shareholders is important as the more they possess the less the shareholder will be liable to pay in the event of the insolvency of the company. Limited liability facilitates the diversification of risk allowing a greater spread of investment by an individual shareholder who does stand to lose all his assets in one risky venture. This allows a shareholder to require a lesser return, which is said to result in a lower transaction cost and a more efficient market.

Arguments in opposition to limited liability Firstly, those opposing limited liability argue that it shifts the risk of failure from shareholders onto unsecured creditors, who as a group are less able to bear the risk. Proponents of limited liability reply that creditors can build a margin to hedge against this risk either by taking a higher rate of return or obtaining a higher price for goods or services supplied. Secondly, opponents argue that the standard economic analysis has little or no relevance to close corporations. The reduced costs of monitoring managers model does not apply as managers and owners are either the same group of persons or the same person. Thus in a close corporation monitoring costs are either zero or low with or without limited liability. The diversification of risk argument is less applicable as owner-managers in close corporations have less incentive to diversify their investment and limited provides more incentive to invest insufficient funds and to undertake more risky strategies, for example insolvent trading, on the basis that limited liability shifts the risk back to creditors.

Thirdly, in the case of involuntary debts, such as tortious debts, the economic arguments are less persuasive. A tort creditor may not necessarily have any knowledge of the limitation of liability. Furthermore the tort creditor is not in the position to bargain for a higher return or an increased price. This has lead to arguments being put forward that there should be unlimited liability for tort debts.

Lifting the corporate veilCourts have been willing in certain circumstances to ignore the concept of separate legal personality and look at the situation behind the corporate personality. This is often referred to as "lifting the corporate veil". The courts have been willing to undertake such action in the following circumstances.

Fraud Where the corporate form is used to commit a fraud or is a faade concealing the true facts the Courts look beyond the company to those persons who control the company. Re Darby [1911] - the company was incorporated as a part of a scheme to defraud investors. Court was entitled to look beyond the company and recover the proceeds of the fraud from the individuals who had perpetrated the fraud. Official Assignee v 15 Insoll Avenue Ltd [2001] - a person convicted for fraud and forgery incorporated a company using the names of fictitious persons. Shares were then issued to the infant children of the convicted persons. Subsequent transfers of the shares were made without the knowledge of the children to other persons without following the appropriate legal procedures. The company was then used as a structure to defeat the creditors of the convicted person. It was held that the incorporation of the company was a sham and as the company had been operated in a manner inconsistent with it being an independent legal entity. The corporate veil was to be lifted.

Avoidance of legal obligationWhere a company is incorporated or used to avoid legal obligations of the shareholders the corporate identity of the company will be disregarded. Gilford Motor Co v Horne [1933] GM contracted with H including a restraint of trade clause. H stopped working for GM and Mrs H created a company. H solicited GMs customers and brought them to Mrs Hs company.

AgencyAnother circumstance in which the courts has lifted the corporate veil is where one company is treated as the agent for another company.Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 (in CM)BWC Ltd wholly owned subsidiary of SSK Ltd. Short term occupants not compensated for land acquired by Council. SSK was land owner with short term lease to BWC. Court said in addition to subsidiary characteristics, BWC carried on business without transfer of asset after being incorporated as subsidiary agency relationship characteristic.

Cf in Salomon, the business was sold to Salomon Ltd whereas here there was no sale.

General unfairnessSavill v Chase Holdings (Wellington) Ltd (1988)Facts: Savil entered into an agreement to sell shares in the family company to a Wellington subsidiary of Chase Holdings. Consideration for the shares was conditionalcertain properties owed by other subsidiaries had to be delivered by Chase Corporation to the Savils. Chase Corporation sold the property to someone else, and the Savils got a caveat upon the land.Issue: Did the management of the Wellington company have the authority to contract with the land? Savil asked for the corporate veil to be lifted and get those persons to specifically perform the contractual obligations.Held: Corporate veil would only be lifted in limited circumstances relating to fraud, sharp practice or criminal activity. Just because it was difficult or unfair was not a basis for lifting it. These principles were upheld in Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Co-operative Ltd (No.2) (1989)

In Bentley Poultry Farm Ltd v Canterbury Poultry Farmers Co-operative Ltd (No. 2) (1989) the Court was of the view that unconscionability does not exist merely because the transaction or deal is unfair to one party.

Jones v Lipman [1962] 1 WLR 832"Sham" = the situation where parties enter into a transaction using a particular legal form, but intend that the transaction take effect other than in that form.

Chen v Butterfield (1996) D owned a Co which leased premises from P. P gave lease without a personal guarantee. When the Co defaulted, they sought to sue D.HELD: P needs to show substantial injustice if the corporate veil is going to be removed. Here, P knew who they were dealing with (i.e. they knew it was a Ltd liab company; they did not ask for a guarantee etc = no sham).

Under capitalizationIssue of whether of majority shareholders-directors of companies should be personally for the debts of a company in circumstances where a company is incorporated with inadequate financial resources case in America.In Re Wait Investments Ltd (1997) Company incorporated with $100 capital entered into an agreement to purchase a property for $1.635 million. The required finance did not eventuate and the vendor cancelled the agreement and sold the property for a lesser amount The liquidator brought an action against the director and another party who managed the affairs of the company for fraudulent trading pursuant to s135 of the Companies Act. S135a director must not agree to the business of the company being carried out in a manner likely to result in serious loss to companys creditors. If this is breached, you become personally liable for the debts the company cannot pay. Hence, the director was held liable. No reasonable director or manager would have entered into such a large transaction unconditionally without having adequate finance, and they misused the company formed.

JudiciallyOfficial Assignee v 15 Insoll Avenue Ltd [2001] Family owned company purchased land. After bankruptcy, assets vested in OA to realise and make distributions. Funds to purchase land went from D and if OA wanted to take the land, had to show taht D was withholding funds from OA. Court held that company should be treated as same person as D no corporate veil.

OA v Sanctuary Propvest LtdD was SH and Director of SP, but he only possessed legal title. Held as trustee on trust for S trust, and the bankrupts were beneficiaries. Court says Co holds property as constructive trustee, look to see that A is the beneficiary it does not do the same thing as 15 Insoll Ave (which basically ignored the Cos identity in this, they saw it as a company).Under statuteCA93 s 25Section 25 provides a situation where parliament thought courts should have power to pierce veil.(1) Co must ensure name is printed on all docs if it is to be party (i.e. contracts)(2) If it doesnt happen, every person who issued/signed the doc is liable to the same extent as the company if the Co fails to discharge its obligation unless they show that the other party was fully aware that the K was with the Co (or it is not just & equitable for that natural person to be liable).

CA93, ss 271272Piercing veil to enable P to get at SH where the SH is another related company (eg a Parent Co) you are getting at SHs, not directors. S271(1)(a) - Related company could be asked to make $ contribution to liquidation of subsidiary. S271(1)(b) - 2 or more Cos can be liquidated together to meet the obligations (assets pooled together).S272 criteria guidelines very broad. Courts are generally more cautious. S272(2)(d) compelling - the extent to which businesses have been combined strongly factual. Often people set up many companies deeply with tangled together businesses and assets unravelling the books can take lots of time and money.

There is a strong case for saying that if it will be so expensive to find out, the fair thing to do is to combine assets and creditors. Pooling is a justified qualification.

HEB Contractors v Westbrook Development Ltd (2000) 8 NZCLC CM 77 Section 272(1)(a): W was a property development Co with a development project which it put to tender. Initial documents had its name. In the final document, it used a subsidiarys name which was similar and set up for this sale. The subsidiary did not own the land, nor did it have any $. There was a default on Ws part, and W said it did not have any assets. HEB had not realised that there were 2 companies. HELD: the puppet company was effectively running the whole operation the veil was pierced.

Formation of Companies

Registration under Companies Act 1993S10 a name, one or more shares, one or more shareholders, one or more directorsEven if sole shareholder dies or sole director resigns, company continues in existence. S11 any person may apply

Reservation of nameS20 Registrar must not register company unless name is reservedS21 name in all documents must end with Limited or Tapui (Limited) unless they opt out of limited liability.S22 - the Registrar must not reserve a name (i) the use of which would contravene an enactment (eg flags);(ii) that is identical or almost identical to that of another company, or to a name already reserved. Test for identicalness is to look at key words virtually indistinguishable?Dr Rust Ltd Dr Rust Ltd =/= Rust Doctor LtdStanley-Hunt Earthmovers Ltd v RoCos - Stanley-Hunt Earthmovers Ltd = Stanley-Hunt Earthmovers(1996) LtdVicom NZ Ltd v Vicomm Systems Ltd (1988) Vicom = Vicomm(iii) that, in the opinion of the Registrar, is offensive.

Law Comm reduced Registrars powers, so now, they must register unless there is an identical or almost identical company (limited discretion) Dispute resolution is now only in the HC (no longer DC but the general law of unfair competition can be used there) The result is that although you can get on the register, you cannot trade because when you do, you will be attacked through those other routes.

Flight Centre (NZ) v Registrar of Companies they wanted the registrar to not register another company (Flight Centre (xyz)). The registrar could not exercise jurisdiction widely they would have to wait till the company started to trade to take any action.

Form of application for registrationS12 - The form must be signed by each applicant and be accompanied by: signed consents to act as a director signed consents to be a shareholder a notice reserving the name the companys constitution (if, as is likely, the company is going to have one)s13 Registrar must register application if properly completed and issue certificate of incorporations14 certificate is conclusive evidence that all registration procedures have been complied with and incorporation states on the date of the certificate.

Promoters of companiesA promoter is a person who undertakes to form a company with reference to a given project, who sets it going, and who takes the necessary steps to accomplish that purpose - Twycross v Grant (1877).

The Securities Act 1978 mostly regulates the obligations because common law and equity is insufficient to control promoters. Promoters usually have special fiduciary duties.

Constitution of a company

Nature and ContentS26 - A constitution is not compulsory. Constitutions normally contain: (1) Controls on types of business; (2) Controls on what the Company can do; (3) Governs decisions made on the behalf of the Co.

Companies Act 1993 provides a default constitution.- Presumptive operate unless modified by constitution s16 restrictions on company capacity and objectives s39 transferability of shares s45 offerings of new shares s59 repurchase of shares- Optional effective only if adopted into constitution s59 power of company to buy own shares- Mandatory s31 requires consistency with Companies Act

Adoption, Alteration, RevocationS32(1) company without constitution can adopt one at anytime by special resolutionS32(2) company can alter or revoke constitution by special resolutionMandatory restrictions on company ability to alter/revoke S117 if alteration affects rights attached to shares, must be approved by special resolution of those affected. Shareholder voting against alteration unsuccessfully entitled to buy out right.S174 relief available if alteration is unfairly prejudicial to shareholdersS110 buy out right available for unsuccessful voters if alteration imposes/removes restricting on company activities

Common law required alterations to be made bona fide for the benefit of the company as a whole - Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656, Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 209. Unclear if this continues on under the new Companies Act 1993.

Note there are two tests for deciding majority power can change the constitution(a) is it for the good of the Co (Cf Directors duties) reluctant to override power of majority SHs(b) Competing test unfairness rarely these changes affect actual business the real question is to ask whether the change oppresses minorities.

Effect of the constitutionS31(2) constitution is binding between company and shareholder and between shareholders, enforceable as statutory rights.

Enforcement by shareholdersS171 bring action for breach of duty owed by company to him as a shareholderS164 apply for injunction to restrain company/directors from breaching constitutionS170, 172 apply for order requiring company/directors to comply with constitutionS174 apply to HC for remedies for oppressive/unfairly discriminatory/unfairly prejudicial conduct to shareholdersS31(2) implies but does not expressly support action between shareholders.

Enforcement by the companyS164 apply to HC for injunction restraining directors from contravening constitutionS97(2)(b) implies but does not expressly support company v shareholder action

Effect of non-compliance on outsidersS18(1)(a) company cannot bring action against third parties for breach of constitution

Extra-constitutional agreementsNothing in statute prevents extra-constitutional agreements between shareholder and company or between shareholders but note - only binding on parties who sign- can only be altered by unanimous consent of parties

Russell v Northern Bank Development Corporation Ltd [1992] 1 WLR 588 (HL): Said such contracting was not contrary to public policy and you do have $ rights. Did not say whether they would be willing to grant an injunction.

Management of the Company

Making Decisions for the companyTwo decision making bodies shareholders and board of directors. Tension between the two because of different interests. Shareholders cannot vote to overturn bona fide decisions of the directors (this is codified in s128 of the Act)Breckland Group Holdings v London and Suffolk Property

General Statutory Rule: s128(1)business and affairs of the company must be managed by, or be under the direction or supervision of the board. s128(2)board has all necessary powers for managing, directing and supervising the management of the business and affairs of the company. s128(3)subsections 1 and 2 may be modified by the constitution. Can draft provisions to allow shareholders to override directors decisions. If this is done, shareholders who vote in favour of binding the directors may be deemed to be directors with the ensuing statutory duties in relation to the particular act. Same if constitution is drafted in such a manner as to reserve some particular powers to be exclusively exercised by shareholders. s109(1)Management Review Shareholders in a shareholders meeting are allowed a reasonable opportunity to question or comment on the management of the company. s109(2)shareholders may pass a resolution commenting on the management. However, this is not binding on the directors unless expressly provided for in the constitution. If this happens the s/holders voting in favour of the resolution will be deemed directors under s125(2) & stat duties may apply s130 (delegation of powers)Board of directors may delegate powers, subject to the constitution, except for the powers in the Second Schedule of the Act. s130(2)Delegation of powers does not absolve the board from responsibility. Board still remains responsible of the delegated power as if the board itself had delegated the power. s32(1), (2)Shareholders may adopt, alter or revoke the constitution of the company. s36(2) (constitution may negate the right of a shareholder to vote on a resolution for the alteration of the constitution) does not negate this right. s196(1)shareholders at a general meeting must appoint an auditor. Company must not enter into a major transaction unless it is approved by special resolution. Common law default powers of general meeting: If the board cannot or will not exercise the power vested in it, the general meeting may do so where: Deadlock on the boardBarron v Potter An effective quorum cannot be obtainedFoster v Foster Directors are disqualified from votingGrant v U.K Switchback Railways

Exceptions to the boards power

Major transactionsS129 cannot enter into any major transactions/contingent unless approved by special resolutionS129(2) defines major transactions - (a) The acquisition of, or an agreement to acquire, whether contingent or not, assets the value of which is more than half the value of the company's assets before the acquisition; or(b) The disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company's assets before the disposition; or(c) one that has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities[[, including contingent liabilities,]] the value of which is more than half the value of the company's assets before the transaction.]S2(1) special resolution approved by majority of 75% or higher if required by constitution

Cudden v Rodley (CA 67/99, 31 March 1999)In determining value of assets, need to use market value. Problematic different valuations have different figures. Also, net assets figure or gross assets?

S129(2B) - Nothing in paragraphs (b) or (c) of the definition of major transaction applies by reason only of the company giving, or entering into an agreement to give, a charge secured over assets of the company the value of which is more than half the value of the company's assets for the purpose of securing the repayment of money or the performance of an obligation.Hogg v Sheppard95 sections of land, directors created 95 separate contracts so that none would be major transaction on its own. Court found it to be a major transactions because it was essentially a single sale.

Central Avoin Holdings v Palmerston North City Council: there were a series of contracts (staged contracts) separated in time these were not seen as a MT.

Re Fletcher Challenge Forests Ltd (2004) The Court could not look to the transaction just because subsidiary was selling >50% of its shares, did not mean that the parent Co could look at it, because it was not a major transaction for the parent company.

Alternative means of protection for shareholders make themselves shareholders of a holding company for the shares of the business.

Buy back in relation to major transactionS106, 110 allows shareholders to require company to buy their shares.

S128(3) S128(3) boards power is subject to any modifications, exceptions or limitations in the CA93 or in the company constitution. S126(2) however imposes director duties when exercising management powers.

DeadlockDeadlock = directors have differing opinions on what should be done.Massey v Wales (2003) [NSW]Equal division alone is not enough for the shareholders to take over the boards decision making power. Shareholders have no power to make management decisions or to control/direct BoD. Would not rule out possibility in extreme deadlock case.

Caretaker directorsUtilicorp NZ Inc v Power New Zealand Ltd (1997)When majority shareholders choose to use their power to remove the Board and signals to board a proposal calling a meeting to remove them, they become caretaker directors in the intermediary period shareholder meetings require time and notice, etc.

How can this decision be reconciled with Automatic Self-Cleansing?This decision generated a lot of criticism because it was seen as inconsistent with Automatic Self-Cleansing, because their only powers should be the appointment and removal of directors, and nothing in the Act or Constitution allows for this caretaker situation. If Ds actions are a Major Transaction, then SHs could get s 170 injunction for non-compliance. But there is no other support for the caretaker principle. There has to be a source of this implication.

Might be prohibited if it can be shown that the directors were proceeding with a decision out of spite or for some other improper purpose. In Utilicorp and Chimaera, the board was faced with two sensible options. Good for minority but not bad decisions.

WEL Energy Group Ltd v Hawkins [2001] 3 NZLR 374Ds were told they were going to be removed, but refused to call a SH meeting although they were asked repeatedly. The Court removed them but it is unclear where that power came from. The normal remedy would be to injoin them and ask them to comply with CA.

Unanimous Assent RuleNew Act does not explicitly retain the doctrine of unanimous assent but it is a possibility. S177(4) - Nothing in this section limits or affects any rule of law relating to the ratification or approval by the shareholders or any other person of any act or omission of a director or the board of a company.

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7In Meridian, this was seen as a primary rule of attribution which was implied by Co law: the unanimous decision of all SHs in a solvent Co about anything the Co has the power to do is the decision of the Co.

UK Re Duomatic Ltd [1969] 2 Ch 365The Duomatic principle where it can be shown that all shareholders assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. The informality can be lax and dont have to show active assent.

NZ adopted in Westpac Securities Ltd v Kensington [1994] 2 NZLR 555 (CA)The qualifications to unanimous assent are: You need to show SH unanimity All SHs have to have understood what they are assenting to in their capacity as SHs and they must know their assent is required. (see Cromwell v Sofrana) Solvency: the Co has to be solvent. Once insolvent, there are constraints about what can be done by directors. The SHs cant be in any better position mainly due to unanimity.

ANZ Executors & Trustee Co Ltd v Qintex Australia Ltd (1990) 2 ACSR 676Is it enough to show that the assent is that of the beneficial owner rather than the trustee? This is an important unsettled issue. It is enough to show that trustees have assented; enough if the legal owner of the shares assents

Doctrine of unanimous consent under the 1993 Act s107express provision for a formal type of unanimous consent. Permits certain acts set out in s107(1) to (3) to be undertaken by written assent of all shareholders. s104powers reserved to shareholder by the Act or constitution can be assented to by shareholders in two ways:a) Valid meeting of shareholdersan AGM as per s120 or a special meeting as per s121.b) A resolution in lieu of a meeting per s122requires written assent by 75% of shareholders entitled to vote (parallels s362 in old Act).

Under Companies Act, there are three groups of shareholders resolutions:1) Unanimous consent falling under s107. Expressly excludes common law doctrine. Statutory regime more restrictive than common law as assent must be in writing following the procedure in s107.2) Resolutions reserved by the act or required to be carried out by shareholders by express provision of constitution (s104). Also excludes common law doctrine. Procedure under s122 may be more liberal than common law doctrine as it only requires assent by 75% of shareholders entitled to vote (not unanimous).3) Resolutions not covered by s107 or 104. Common law doctrine may still apply This is as small companies dont usually have formally convened shareholders meetings If the doctrine applies, they can all agree at different times and places, as long as there is unanimous consent (i.e. all turn their mind to the issue) s122 appears to follow the reasoning in Westpacemphasis has shifted to shareholders with the right to vote.

Shareholder Meetings s120every company must hold an AGM (Annual general meeting) each calendar year no later than 6 months after balance date and no later than 15 months after previous meeting. s121all other meetings besides AGM are special meetings, e.g. to deal with: Company business that is urgent. Interest group meetings which affects rights of each interest group (s117(b)). If company is in the process of liquidation, a shareholder, liquidator or creditor may request or convene various types of meetings dealing with aspects of the liquidation process.

Conduct of Meetings s124meetings are governed by the First Schedule of the Act. First Schedule requirements are mandatory and may not be changed by constitution unless permitted by the Act. For a meeting to be valid, it must be convened or called correctly and there has to be a quorumminimum number of shareholders must be present. Shareholders may be represented by themselves, by a corporate representative (if shareholder is a corporate) or by proxy (person appointed to attend and vote on behalf of shareholder).

Who is entitled to call/convene the meeting? Directors s120statutory responsibility to call an AGM. s121may do so at any time. If they fail to do so, shareholder may bring an action under s172 or make an application to Court to convene a meeting (s123). Courts s123(2)shareholders may apply to the Court to convene a meeting. Grounds set out in s123(1):a) Impractical under Act of constitution to call a meetingIn re South British Insurance Co Ltdb) It is in the company interests that the meeting be held (e.g. if director fails to call an AGM). Shareholders have no power to convene a meeting themselves. Must go through directors or Courts. s121(b)shareholders who hold shares with not less than 5% of voting rights may make a written request to the board to convene a meeting. Court looks at voting rights attaching to shares, not the number of shares. Request must be in writing. Does not have to be signed by shareholders (but should occur). Shareholders should set out the basis on which they possess the voting rights. Shareholders do not have to state the objectives of the meeting. Shareholders are entitled to pursue their own interests in requesting a meeting and do not have to act in the interests of the company as a whole, although they must act in good faith. Directors have the fiduciary duty when faced with a request to consider and exercise discretion whether to hold the meeting or not.

Notice of MeetingsPersons who call a meeting must:a) Fix the date S120board must set the date of an AGM, and AGM must be held on that day. Special meetings may be called at any time and cannot be changed without the consent of all shareholders entitled to attend unless provided by the Constitution, or there could be an action under s174. Date also cannot be chosen to prejudice a particular shareholder or group.

b) Give notice to those entitled to attend. Shareholders whose name is entered on the share register are entitled to attend and receive notice. If board fixes date for determination, it is the persons on the share register on that date (s125(3)), subject to s125(4)not less than 10 and no more than 30 working days from the date of the meeting. If date is not fixed, it is those shareholders on the register at the close of the day preceding the day on which the notice is givens125(3)(b). If persons determined to be entitled to receive notice have sold their shares between the date of determination and the date of the meeting, the company is entitled to treat the person on the register as the person entitled to votes89(2)(b).

c) To whom must notice of meetings be given Every shareholder entitled to attend must be sent a written notice not less than 10 working days beforeclause 2(1) of First Schedule. Directors are entitled to receive notices of meetings but have no right to attend and speak at the meetings unless the constitution provides. Auditorscan receive notice and speak on relevant matters (s207(1)).

d) Contents of notice Time and placeFirst Schedule clause 2(1). Text of any special resolution. Name of person who is to receive and count the votes where postal votes are permittedFirst Schedule clause 7(2). Nature of the business to be transactedFirst Schedule clause 2(2)(a). Notice must state the business of the meeting in sufficient detail for a shareholder to form a reasoned judgment about it.

Necessary detail:Re Marra Developments (1976) Under todays conditions, people tend to read things in a quick cursory manner, hence a notice would be misleading if a person reading the notice in this manner was not able to discern the important points. Persons who invest in companies today are no longer always expected to be business people versed in commercial affairs, hence the contents of the notice must be fair to those persons.

Malayan Breweries Ltd v Lion Corporation (1988)Facts: Lion and Nathan proposed to merge, involving the sale of a substantial parcel of Nathan shares held by Fay Richwhite and Co at a cash consideration of $9.20 per share to Lion. However, other shareholders in Nathan were to receive a share swap that had a value of far less than $9.20 per share. Shareholders requested supplementary information about the sale of the shares to Fay Richwhite.Arguments: Malayan Breweries argued that: Notice of the meeting and information in the notice was misleading. Additional information was not supplied within 14 clear days of the meeting. Information was provided too late to allow shareholders to make an informed decision even though there was literal compliance.Held: Notice of the meeting was delivered to shareholders within prescribed time (14 days before meeting), and literally complied (set out the general nature of business to be considered), but left out information required for an informed decision to be made on the proposal, e.g. terms of agreement to purchase, total cost to Lion of the merger, why the merger at such cost to Lion was desirable, defect on dividend, asset backing and proprietary ratios of the large cash payout to Fay Richwhite, and the fact that Lions managing director had an involvement with a put option over the Fay Richwhite shares. Further explanatory material was not given before the 14 day limit, and was not provided with the notice which in itself proffered inadequate explanation. Shareholders are entitled to adequate time to consider all the material and decide whether to attend the meeting in person or by proxy and reflect on how they should vote. Although prima facie the notice complied with statutory and common law requirements, it did not accord with equitable requirements of full and fair disclosure. Hence, Court found that the explanatory material was sent too late when it arrived less than 7 clear days before the meeting, and shareholders did not receive adequate notice of the general nature of the business to be discussed at the meeting.

e) Directors Interests It is the duty of a director to disclose his interest to a general meetingTiessen v Henderson Where directors do not comply with this duty, a notice of a meeting is misleading and directors may be restrained from either holding the meeting or acting on the resolutions passed.

Non-compliance with notice requirements: Renders the meeting and any resolutions invalid. However, accidental omission to give notice or a shareholders failure to receive notice will not invalidate the meeting unless otherwise provided by the constitution (clause 2(3A)). Subject to clause 2(3) that any irregularity in the notice may be waived if all shareholders entitled to attend and vote do so without raising the irregularity. S212shareholders may waive their right to receive notice of meetings in writing. Company is not obliged to provide any notice while the waiver is in force, and the waiver notice may be withdrawn at any time by written notice. Matters not specified in the notice cannot be dealt with by the meetingEfstathis v The Greek Orthodox Community of St George

Method of holding meetings: First Schedule Clause 3 Meeting of shareholders held by required quorum of shareholders at the place and time stated in the notice, and audio visual commercials allowedclause 3. Clause 4(1)meeting cannot validly proceed without a quorum, and any resolutions passed while the meeting is inquorate will not be binding. Clause 4(2)company under its constitution may set its own quorum requirements, if not clause 4(2) applied. Quorum is calculated on basis of voting power instead of number of shareholders presentat least 50% of voting power must be present to constitute a quorum. This includes both proxy and postal votes. Shareholders who are not entitled to vote cannot constitute part of a quorum even if they are physically present at the meeting. Clause 4(3)where a quorum is not present after the first 30min of a meeting, a meeting called at the request of shareholders pursuant to s121(b) is dissolved. Other forms of meetings are adjourned, and at the adjourned meeting, the shareholders and proxies present will constitute a quorum if the required quorum is not present after 30min.

Voting in a meeting: clause 5 Vote taken by voice or show of hands One vote per shareholder regardless of the number of shares owned by the shareholder. Vote taken by poll Votes equal the number of shares owned. Postal voting(clause 7(1)) By proxy Shareholders can exercise their vote through a proxy representativeclause 6. Cannot be abrogated by the constitution.

Type of Resolutions Ordinary S105(2)a resolution approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question. Simple majority is 50% of those voting. Special S2(1)a resolution approved by a majority of 75% or higher if required by the constitution. This is the percentage of votes of those shareholders entitled to vote and voting on the questions (does not include shareholders who abstain). S106(1) specifies matters to be resolved by special resolution, e.g. adoption, alteration or evocation of companys constitution and approval of a major transaction. Shareholder Proposals (clause 9): A shareholder may give written notice to the board of a matter the shareholder proposes to raise for discussion on resolution at the next shareholders meeting

DistributionsS60(1)(b) all shareholders consent to non-equal share buy baackS76(1)(a) all shareholders consent to giving of assistance

Management reviewS109 in a shareholders meeting, shareholders must have reasonable opportunity to question/discuss/comment on management of company and may pass resolution relating to management of company.S109(3) unless provided otherwise in the constitution, such a resolution is not binding on the board. Effectively, shareholders only have a right to be heard.

Contracts by CompaniesFour main ways in which a contract may be defective:(i) the company may have lacked the capacity to enter into the contract;(ii) the agents acting on behalf of the company may have lacked authority to bind the company;(iii) the contract may not be in the proper form;(iv) the agents acting on behalf of the company may have breached their duties to the company. This type of defect is considered in more detail in section 9 of this outline.

S18(1) statutory estoppels in certain circumstances, company cannot raise defect against innocent parties.

Company CapacityUltra vires doctrine at common law companies are artificial legal persons who can only pursue the intended objective of their existence (usually what is in their constitution). Might be unjust for third parties who contract with them. Eg. Re Introductions Ltd [1970] Ch 199 human resource company accepted a contract to operate a pig farm was ultra vires and hence contract was made outside the commpanys capacity.

16Capacity and powers (1)Subject to thisAct, any other enactment, and the general law, a company has, both within and outside New Zealand, (a)fullcapacity to carry on or undertake any business or activity, do any act, or enter into any transaction; and (b)for the purposes of paragraph (a), full rights, powers, and privileges.(2)The constitution of a company may contain a provision relating to the capacity, rights, powers, or privileges of the company only if the provision restricts the capacity of the company or those rights, powers, and privileges.17Validity of actions (1)No act of a company and no transfer of property to or by a company is invalid merely because the company did not have thecapacity, the right, or the power to do the act or to transfer or take a transfer of the property.(2)Subsection (1) does not limit (a)section 164(which relates to injunctions to restrain conduct by acompanythat would contravene its constitution); or (b)section 165(which relates to derivative actions by directors and shareholders); or (c)section 169(which relates to actions by shareholders of a company against the directors); or (d)section 170(which relates to actions by shareholders to require the directors of a company to takeactionunder the constitution or this Act).(3)The fact that an act is not, or would not be, in the best interests of a company does not affect the capacity of the company to do the act.

S18 protects outsiders provided they did not know about the breaches of the constitution.S19 not deemed to know content of constitution merely because it is in the NZ register and available for inspection at the companys office.

A company will thus lack capacity in only two situations:(i) where it acts in breach of an express restriction in its constitution. Few companies would want to adopt such restrictions;(ii) where it acts in contravention of another provision in the CA93, or another rule of law. But the provision or rule must relate to capacity (eg, s 151(1), which provides that a company cannot be a director). There are very few such provisions or rules.Authority to contractContract was entered within companys capacity but the people purporting to bind it - arent sufficiently senior- arent sufficiently delegated (substantive defects)- with seniority but did not follow the appropriate procedure (whats listed in the constitution).

S128 authority to bind company to contract is primarily for the BoD. Also allows those being supervised under the BoD.S130(1) allows board to delegate most of its powers with the board remaining responsible for delegated actions unlessS130(2) - (i) the board believed on reasonable grounds that the delegate would exercise the delegated powers properly; and(ii) the board monitored the delegate by means of reasonable methods.

Authority of agentsUsual what agents are usually able to do assessed by fact specific or based on industry normsUsual actual expected that they had authority and they did s18(1)(c)Usual apparent expected that they had authority and they did not s18(1)(d) no defence whatsoever to having actual authority

Onus of proving a contract is always on the plaintiff need to show that dealt with someone who had actual/apparent authority. This is done by looking at the relationship between the company and the agent to show that there was proper delegation.

Northside Developments Pty Ltd v Registrar-General (1990) CM 161Must establish substantive regularity before presumption of procedural regularity will help. The fact remains that the rules dealing with substantive regulation are still found at CL within the general rules of agency, and not in the Act.

Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] 2 QB 480 at 500510 (CA) per Diplock LJActual authority means that there were no defects substantively or procedurally. Apparent authority is where even though there is a substantive or procedural defect, it will bind because of certain other elements that have been proved

S158 Acts of a person as a director are valid even though persons appointment was defective or not qualified for appointment.

Note actual authority can be given after the event right up until before the trial. Can show retrospective authority (eg. Informal unanimous approval) because = ratification

EstoppelFreeman & Lockyer v Buckhurst Park Properties Ltd [1964] (CA) per Diplock LJWe need to show 4 conditions to entitle P to enforce a K against a Co if the K was entered into by an agent who had no actual authority to do so (to show apparent authority):(1) a representation that the agent had authority to enter into the K (of this kind) was made to the P(2) it was made by a person who had actual authority in relation to either: manage the business of Co (director); or matters relating to the contract (so that it can be traced back to someone who had power to make the delegation if they wished)(3) the P was induced by this representation (i.e. reliance)(4) the company had capacity to enter (i.e. within the purpose )Moneyworld NZ 2000 Ltd v Lee (2005) 8 NZBLC 101,638Went into Ms office and dealt with someone who appeared to be sufficiently senior business card, authorised by company to say this, induced L. Company bore risk because they allowed this to happen unforged business cards, allowing it to go on albeit premises were inactive = holding out.