Restraint of trade clauses in commercial contracts

A restraint of trade occurs where one party (Covenantor) agrees with another party (Covenantee) to restrict their liberty in the future to carry on trade with other persons who are not parties to the contract see: Petrofina (Gt Britain) Ltd v Martin [1966] Ch 146 at 180.

Restraints of trade clauses are prima facie void, however, the presumption can be rebutted if the restraint is justified because it is reasonable in the circumstances.    Note that there is a significant divide between restraints in commercial contracts and those in employment contract with the latter being widely accepted as only being enforceable for a far shorter period of time. [Read more…]

The legal relationship of agency

The importance of establishing whether a legal relationship of agency exists, and if so, to what extent, can be critical when ascertaining whether a person had authority to enter into an agreement on behalf of another person or entity.  The precise legal nature of the relationship may be important to the parties if either are attempting to enforce their rights under an agreement between them. [Read more…]

Is your liquidated damages clause really a penalty?

It is common for drafters of liquidated damages clauses in commercial contracts to run a fine line between a genuine pre-estimate of damages and a penalty.  The case of Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 (Paciocco) provides some guidance on when a liquidated damages clause can be enforced. [Read more…]

What is a partly-paid share?

It is common to hear people talk about owning shares or equity in a company but what does that actually mean?  Simply put, a share (sometimes referred to as equity in investment settings) is a portion of ownership of a company.  By acquiring shares in a company, the person becomes a member (commonly referred to as a ‘shareholder’) of the company, thereby granting them benefits and rights associated with the class of share that they subscribe for.  These rights can include the right to vote on issues relating to the company and to a distribution of profits (commonly referred to as dividends).  Generally, when people subscribe for shares, they pay the full price of the share upfront, however, it is possible to receive a share without paying the full purchase price – these shares are known as partly-paid shares. [Read more…]

Holding company liability for debts of subsidiary

When advising on the suitability of corporate structures, we are commonly asked whether a holding company can be liable for the debts of a subsidiary.  The answer (of course) depends on a number of factors. [Read more…]

ASIC v Macdonald – have the lessons been forgotten?

The case of Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (ASIC v Macdonald) decided in the New South Wales Supreme Court, highlights the importance of strict adherence to the requirements of the Corporations Act 2001 (Cth) (Act) when preparing minutes of Directors’ meetings (Board Meetings) for them to be relied upon as evidence in a proceeding. [Read more…]

Shadow directors and de facto directors

The definition of “director” in section 9 of the Corporations Act 2001 (Cth) (Act), goes beyond directors validly appointed, and includes de facto directors and shadow directors.  This article explores the level of involvement in the affairs of a company that a person must have to be deemed a de facto director or a shadow director. [Read more…]

Convertible Notes

While convertible notes (Convertible Notes) may in a lot of cases provide considerable benefits for the issuer they may also create a significant burdens.  This article attempts to explain what can be a complex financial instrument by examining some of the key features of Convertible Notes and some of the more common legal issues associated with their use. [Read more…]

Do I need financial assistance whitewash?

What is a financial assistance?

The general rule contained in section 260A of the Corporations Act 2001 (Cth) (Act) is that a company may financially assist a person to acquire shares (or units) in the entity if the giving of assistance does not materially prejudice:

  • the interests of the company or its shareholders;
  • or the company’s ability to pay its creditors.

If a transaction is determined to be financial assistance, then shareholder approval and the requirements of section 260B must be complied with.

[Read more…]

What is a Corporate Governance Framework?

The term ‘corporate governance’ is often bandied about, but rarely explained in the context of a framework which can be applied to a variety of enterprise types.

So what is it?  Corporate governance is traditionally thought of as the way in which enterprises are directed and controlled.  More recently, corporate governance has been defined as the framework of rules and procedures by which the decisions in an enterprise are made, and how the controllers and held accountable for them.  The term, ‘enterprise’ refers to all types of associations, companies, trusts and other hybrid entities that provide a product or service (Enterprise).

[Read more…]

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