A director’s duty to act in the best interests of the company: MG Corrosion Consultants Pty Ltd v Gilmour

The case of MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990 involved allegations of a director authorising unnecessary and excessive payments that caused detriment to a company and its shareholders.  This case serves as a reminder to directors of the importance of adhering to their duties under the Corporations Act 2001 (Cth) (Corporations Act).

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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…]

What is a Preference Share?

Preference shares (Preference Shares) are a class of share that gives the holders some right or preference over another class of shares.  A Preference Share is often thought of as a ‘hybrid’ security, as it has features of both debt and equity.  Like ordinary shares, Preference Shares are issued by a company at the time of issue, or may be capable of being purchased on the market.  Pursuant to section 254A(2) of the Corporations Act 2001 (Cth), a company can only issue Preference Shares if the rights which attach to such shares are set out in the company’s constitution, or have been approved by a special resolution of the company.  A company does not have to be listed on a stock exchange to issue preference shares. [Read more…]

Tag along rights in shareholders’ agreements

“Tag along rights” are rights that are commonly included in shareholders’ agreements. As the name suggests, tag along rights effectively empower minority shareholders to “tag along” with a majority shareholders’ (Seller) sale of shares to a third party (Third Party).  [Read more…]

Shareholder disputes – the fight for control

Disputes between directors and shareholders of Australian proprietary limited companies (Shareholder Disputes) are common.  The rights and obligations of directors and shareholders of companies are regulated by the Corporations Act 2001 (Cth) (Act) and the standard form “vanilla” constitution (Constitution) based on the Act.  The unfortunate reality is that the Act and the vanilla Constitution are usually insufficiently prescriptive to protect the parties from the conduct of a Director or Director(s) behaving badly. [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.

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