Question

In: Accounting

Truck Hire Pty Ltd (Truck) is a company that hires out large machinery. Since January 2020...

Truck Hire Pty Ltd (Truck) is a company that hires out large machinery. Since January 2020 the company has been in a difficult financial position. The Board of Truck have passed a resolution to sell some of the assets to reduce their debt.

Sally and Tom are two shareholders of Truck, they obtained a valuation report that shows the assets have been sold off at a significant undervalue in breach of s 180 of the Corporations Act 2001 (Cth).

Advise Sally and Tom whether the court will grant them leave to bring a statutory derivative action under ss 236/237 of the Corporations Act 2001 (Cth).

Solutions

Expert Solution

As per Corporations Act 2001, S 236, any person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party e for the purpose of taking responsibility on behalf of the company for those proceedings if the person isa member or former member or person entitled to registered as a member of the company or of related body corporate.

As per S 237 of the Corporations Act 2001, a person referred to in 236 may apply to the court for leave to bring or to intervene in, proceedings. The court must grant the application if it is satisfied that :

  • It is probable that the company will not itself bring the proceedings or properly take responsibility for them or for the steps in them and
  • The applicant is acting in good faith and
  • It is in the best interest of the company and
  • There is a serious question to be tried and
  • Either at least 14 days before making the application the applicant it has given written notice to the company of the intention to apply for leave and for the reasons of applying or it is appropriate to grant leave even though prior notice has not been sent.

The court will not grant leave if if it is proved that the actions taken are in good faith of the company and no reason to deceive the company.

In the present case Sally and tom are two shareholders of the truck, it means they are the members of the company. As the member is a person as defined in S 236, they may apply to the court for leave, or bring in the proceedings or intervene in as per S 237 if the court is satisfied of the above said provisions.

But if the court is of the opinion that the board of truck are acted in good faith and there is no reason to believe that they acted in bad interests of the company, if proved by the board that selling of some assets at a value lower than the book value to cover the liability is the only option to survive the company, then the court may not grant leave to the application made by the applicant.


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