Ltd (JPL). JPL would like to enter into a finance lease with Finco. The board of
Finco is happy to approve the lease, and would like to give JPL a discount of 0.5% on the standard interest rate Finco would usually charge its customers.
Will the approval of Finco’s shareholders be required? If so, what procedure must be followed? Explain your answer using relevant cases and sections of the Corporations Act 2001.
Company background :
J P L Plumbing Services Pty Ltd is a private company categorized under Heating Contractors and located in Bowral, NSW, Australia. Our records show it was established in 1998 and incorporated in . J P L Plumbing Services Pty Ltd usually offer: Professional Plumbing Services, Public Service Plumbing, New Construction Plumbing, Plumbing Service Work and Plumbing Company. This is a private company and provide plumbing services
Financial and Corporate Services Limited is a "full service" company licenced and registered in St. Lucia, specializing in the formation, registration and administration of international business companies, banks, insurance companies and mutual funds.
The company is wholly owned by the Partner of the Law Firm Glitzenhirn Augustin & Co., Barristers and Solicitors of the Eastern Caribbean Supreme Court, as such, immediate access to expert legal advice, set at high standards is guaranteed with the firm fulfilling their role in providing a full range of legal services in all aspects of international finance and company work.Is the approval of jay shareholders required under Chapter 2E of the Corporations Act? finco Ltd doesn’t need approval of its shareholders because they are getting a benefit from this deal so therefore there is no approval is required from its shareholders.
Is the approval of finco Ltd’s shareholders required?
On one hand there is no approval required of jay shareholders because they are the beneficiary party but on the other hand finco Ltd needs the member’s approval for the transaction. The reason why finco Ltd needs the approval of its members is that first they are having a loss of 10% on this transaction and Jenny who controls finco Ltd is also a non-executive member of jay which makes it a related party transaction.
The rules to consider in this case are Chapter 2E (Corporations Act 2001) and Section 228 (Related parties) of the Corporations Act 2001.
First of all, I would like to tell that ASX listing rules does not apply on finco Ltd because finco in an unlisted public company. Corporation Act 2001 (Ch 2E) gives power to members for approval when a public company or entity that a public company controls gives a financial benefit to a related party of the public company. The public company’s shareholders must approve the transaction (unless it is an exempt transaction).
S. 228 states benefits given to a related party of the public company and how to make the connection between the companies. S. 228(1) states an entity that controls a public company is a related party of the public. S. 228(2) states that directors and their spouses are the related parties. (a) Directors of the public company; (b) Directors (if any) of an entity that controls the public company; (c) if the public company is controlled by an entity that is not a body corporate—each of the persons making up the controlling entity; (d) spouses and de facto spouses of the persons referred to in paragraphs (a), (b) and (c). S. 228(3) states that the following relatives of persons referred to in subsection (2) are related parties of the public company: (a) parents; (b) children. S. 228(4) states that an entity controlled by a related party referred to in subsection (1), (2) or (3) is a related party of the public company unless the entity is also controlled by the public company. S. 228(5) states that an entity is a related party of a public company at a particular time if the entity was a…