Issue: the issue about company’s constitution and whether the loan contract between ABC bank and Sambal Pty Ltd is invalid.
State the law:
Section 140 of the corporations act states that:
“A company’s constitution (if any) and any replaceable rules that apple to the company have effect as a contract:
(a) Between the company and each member; and
(b) Between the company and each director and company secretary; and
(c) Between a member and each other member;
Apply the law:
According to section 140, a company’s constitution is only an internal governance rule, it cannot be enforced by outsider and also cannot be used and act between a company member and an outsider (Corporation Act, 2001).
In this case, Sambal Pty …show more content…
Therefore, Susan can appeal to the court to have it grant an injunction against the directors of Rich Pty Ltd. In other words, mandatorily require the board to pay dividends to the shareholders and provide sufficient information to the members.
Additionally, the statutory right allows members of a company to seek to inspect the books of the company if they believe that insufficient information are given by directors.
However, there are some certain circumstances that failing to pay dividends does not contravene the Corporations Act. For instance, chasing higher profits for the company or suffering a financial crisis.
All in all, the fact that the board of Rich Pty Ltd contravenes the Corporations Act will result in certain consequences, these may include: fine, disqualification order, injunction etc. Speaking of Susan, she may receive the amount of dividends attached to her shares as compensation. Nevertheless, if the directors acted in a good faith or say for the sake of the company, then the board only needs to provide relevant information and explain why they refuse to pay dividends.
Section 249H states that, as unlisted companies, the minimum period of notice are 21 days. The notice period can be reduced by agreement of members holding at least 95% of the votes that maybe cast at the.1 In this case, John, Sam only hold 72% of the shares, they do not have the authority to