Introduction
The Corporation Act 2001, normally referred to as the Corporation Act, is a Commonwealth of Australia act that comes up with laws governing business entities situated in Australia. This governance is normally at the inter-state and federal levels. The law focuses mainly on the company’s functions though they are other sections that touch on the other cover entities like schemes on investment and partnership management.
The Corporation Act 2001 is believed to be the biggest statute corporation in the entire world. Since its enactment, the law has gone through several reforms with the latest being the CLERP reform which made the statute even simpler. The Act has remained the main legislating principle that regulates Australian companies. The regulations are in terms of the company’s formation as well as operations, officer’s duties, fundraising, and takeovers.
Issue: Director’s duties in a Company
One of the key issues included in the Corporation Act 2001 is the Clause on the duties of the directors in corporations. The section mainly concerns itself with the guidance needed by directors as they carry out their obligations
Rule/Law
The Corporation Act 2001 has organized the common law in terms of the director’s duties in the companies they are in charge of. Several sections within the Act offer guidelines of the obligations discharged by the directors. The sections include;
Duty to Act with Diligence and Care-180(1)
According to this section, directors as well as other officers in any company are expected by the Act to perform their duties with diligence and care to a degree comparable to what a reasonable individual would do in the same position. The recommended diligence and care standards as stated by any court consider the circumstances of the company and the position occupied by the director or officer in question. An executive director’s skills are determined objectively about the calling from the director.
Duty Not To Improperly Use Position-182
The clause is also referred to as the ‘Duty not to profit from the position.’ According to the clause, any corporation employee be it the secretary, officer, director or officer must in no way use their positions in ways that are not proper such that they will result in damages or have any added advantage in the corporation.
Duty to Prevent Insolvent Trading-588G
According to section 588G, a company’s director who commits any offense that results in the company incurring a debt leading to insolvency at that particular incident or maybe insolvent in some time in future, then the director will be considered as to have failed to protect the corporation thus dishonest.
Application
Following the rules and laws stated by the Corporation Act 2001, the directors of any company are required to put to practice the powers given to them by the act and carry out their duties while observing diligence and care. The act is applicable in the judgment rule of businesses which is out to protect the directors who face liabilities on the duties discharged to them by the corporations. According to this rule, if a director makes a business judgment that is viewed as being rational and honest as the representative of a corporation, the director is then considered as being immune from any personal liability that may be caused by the judgment.
Conclusion
Despite the many issues covered by the Corporation Act 2001 about the company’s operations, the obligations of the directors stand out as the most covered. The Act has listed the requirements and legislative powers given to the directors. In addition, the Act has come up with more fiduciary roles on the entities of directors as included under the same legislation. Persons appointed to hold the position of directors of corporations must meet the rules stipulated in the Corporation Act.
Issue: issuing of shares
This issue falls under the Corporation Act 2001 under section 254A. The section covers issues on the power vested in companies when it comes to the issuing of bonuses, shares that are paid partly, redeemable shares as well as preference shares. According to this Act, the power of the company in matters related to shares includes the power to; issue preference shares, issue bonus shares, and issue shares that have been partly paid.
Law/Rules
According to subsection 246(5) (6) of the Act, in some situations, preference shares issuing is considered as being a class-rights variation. Any issue arising about shares that are partly paid is addressed in sections 254M to 254N. The act states that there is no need of increasing the shares of the company about bonus shares.
Application
The Act limits any company from issuing preference shares on condition that the rights included in the issuing of the preference shares have to take into consideration the listed issues below which are included in the constitution of the company or if that is not the case, they have to be approved by the company’s special resolution. The issues include; voting, non-both cumulative and cumulative dividends, capital repayment, taking part in profits and surplus assets, and dividends and capital gave priority when it comes to payment related to shares.
Conclusion
Redeemable type of preference shares are the most preferred shares by most companies and are normally issued on the condition that they are liable to redemption. These shares can be redeemed following; the decision of the company, a fixed time or a specific event, and the decision of shareholders.
Issue: Rights issues without disclosure
This issue is addressed in the Corporation Act 2001, section 708AA. This section concerns itself with securities body issue that can only take place under the following conditions; by subsection (2), investor’s disclosure under this subsection will be a requirement of section 706 and according to subsection (3), a determination is not effected concerning the body during relevant securities offering. For the rights issue to take place, the following conditions have to be met; the offer does not involve any investor’s disclosure and this can only happen when the appropriate securities are offered according to a rights issue and the relevant security classes are the securities that are quoted during the time of making the offer.
Law/Rules
Section 111AS and 111AT provide no exemption of this issue regarding the body covered or any person be it an auditor or director of the body. The body is charged with the responsibility of giving the preferred market operator a notice that has to meet the requirements of subsection (7). This notice has to be given within 24hours before the offer is presented. A determination may be made by the ASIC under the same subsection on condition that it is satisfied that the body had successfully contravened at least one of the listed provisions in the last 12 months; complied with subsections 283AA (1) or 283AB or 283AC (1), Chapter 2M provisions as applied by the body, sections 674, 675, 724, 728, subsection (10) and section 1308
Application
The section is applicable when a notice is required but this has to happen when it is presented in accordance to the subsection on condition that the notice; clearly states that the body is capable of providing the required securities for any arising issue with no investor disclosure, the notice has it that it is being presented according to paragraph (2)(f), the date of the notice has to comply with section 674 and Chapter 2M provisions, has to contain any information that had been earlier excluded, and the consequences of the notice effects
Conclusion
According to section (2), the notice given has to include any information that had been excluded in case such information is valued by professional advisors of the investors or the investors themselves. Such notices contain information that is useful for the investors as well as their professional advisors in making a well-informed assessment. The notice also contains the liabilities and assets, performance, financial position, losses, profits, and the body prospects. In addition to the above, the notice also provides the liabilities and rights related to the relevant securities.
Issue: Dividends declarations and payments
The Corporation Act 2001 has come up with several changes on the means of declaring dividends and how they are to be paid. Following the amendments, companies are now able to pay and declare their dividend in situations where; the assets of the company are more than the liabilities just before the dividend declaration and the surplus is enough to pay off the dividend. This has to take place when the dividend payment is agreed upon as being reasonable and fair to the shareholders of the company and when the dividend payment does not in any way prejudice the ability of the company to pay creditors.
Rules/Law
As a result of the amendments, the Australian Taxation department came up with a taxation ruling under section 254T regarding the franking and assessment of the payment of the dividend. The rulings included; in situations where a company decides to pay dividends from the prevailing trading profits as it appears in its accounts and the company is ready for distribution as written in its constitution and does not in any go against the Corporations Act 2001, then the company cannot be stopped from franking its dividend; in the situation that the company is forced to pay dividend using unrealized capital reflected in the company’s accounts and ready for distribution as per its Constitution and without going against the Corporation Act 2001.
Application
This amendment offers companies great flexibility when it comes to the payment as well as the declaration of dividends. A company that has considerable assets but lacks enough profits is still in a position to pay a dividend. Also, accompany that lack enough net assets but makes profits do not qualify to earn dividends. This application may result in additional administrative and accounting liabilities. Directors must put into consideration their duty to make sure that the company is not trading if it is insolvent.
Conclusion
According to the amendments, the company powers are stipulated in its Constitution thus the sections on the companies ability to frank dividends have to be put into consideration. The Company’s Constitution must be in a position to ensure that its directors meet the circumstances for paying a dividend. Most of the companies Constitutions offer provisions for dividend payment from the company’s profits. For such companies to be in a position to access more flexibility, they need to employ the new Constitution which accommodates the changes effected in the Corporation Act 2001.
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