Question

Beverley Johnson holds 5% of the shares in JPR Pty Ltd. The largest shareholder is Eugene Mann who holds 80% of the shares. Eugene Mann and Carmel Wren are the only directors, and the company does not have a constitution.

Beverley’s shares were issued with a right to a dividend which is double that of other shares and 4 votes per share. Eugene Mann wants to hold a general meeting of members to pass a resolution that will reduce the dividend and voting rights of Beverley’s shares down to the same level as the other shares.

Required

Using the Corporation Act 2001 (Cth) and case law if any, advice Beverley Johnson if JPR Pty Ltd can amend Beverley’s dividend and voting rights.

NOTE: You are required to use the 4-step process in answering this question.

Answer 1

The Corporations Act 2001 is an Act passed by the Australia which provides the detailed laws dealing with business entities in Australia at federal and interstate level. It mainly provides regulations dealing primarily with companies but also with other entities, such as partnerships and managed investment schemes.

Act provides that subject to any rights or restrictions attached to any class of shares, at a meeting of members of a company with a share capital:

                     (a) on a show of hands, each member has 1 vote; and

                     (b) on a poll, each member has 1 vote for each share they hold.

In the given case, Beverley holds 17.93% of voting rights in the Company compared 69.57% rights held by the Eugene Mann. Eugene Mann by virtue of more than 50% rights and in abscence of any constitution, it is most probably that the rosultion could be passed.

As a member Beverley, he has rights under Section 232 to 235 of the Act deal with oppresive conduct of affairs .

Act under said section provides following-

Act provides Grounds for Court order if:

                     (a) the conduct of a company’s affairs; or

                     (b) an actual or proposed act or omission by or on behalf of a company; or

                     (c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

                     (d) contrary to the interests of the members as a whole; or

                     (e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Further, Act provides that the Court can make any order under this section that it considers appropriate in relation to the company, including an order:

                     (a) that the company be wound up;

                     (b) that the company’s existing constitution be modified or repealed;

                     (c) regulating the conduct of the company’s affairs in the future;

                     (d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

                     (e) for the purchase of shares with an appropriate reduction of the company’s share capital;

                      (f) for the company to institute, prosecute, defend or discontinue specified proceedings;

                     (g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

                     (h) appointing a receiver or a receiver and manager of any or all of the company’s property;

                      (i) restraining a person from engaging in specified conduct or from doing a specified act;

                      (j) requiring a person to do a specified act.

An application for an order under section 233 in relation to a company may be made by:

                     (a) a member of the company, even if the application relates to an act or omission that is against:

                              (i) the member in a capacity other than as a member; or

                             (ii) another member in their capacity as a member; or

                     (b) a person who has been removed from the register of members because of a selective reduction; or

                     (c) a person who has ceased to be a member of the company if the application relates to the circumstances in which they ceased to be a member; or

                     (d) a person to whom a share in the company has been transmitted by will or by operation of law;