Question

question

John, Paul and Ringo and George are musicians who operate out of a garage in Melbourne. They initially form a partnership, but then decide to incorporate, and register a company called New Beatles Pty Ltd of which John, Paul and Ringo own 30% each and George owns 10%. The business of the company is to play music, hold concerts and record CDs. All four brothers are also directors. Things go well for a year, but then disputes occur. Ringo comes to you and asks you advice in relation to the following:

Ringo has found out that a meeting of shareholders was held without giving notice to him and that at the meeting an ordinary resolution to change the company logo from a silver guitar to a red trumpet was agreed to by all his brothers. Ringo tells you that he objects to this step.

By another resolution – also agreed to by the other three brothers - the actual constitution of New Beatles Pty Ltd was changed so as to insert a provision which limits the company’s activities to Australia. Ringo tells you that he objects to this, as he believed the company should start touring overseas.

Ringo also discovered that over the past couple of years Paul has been giving his (Paul’s) girlfriend Sarah $ 500 per week from company funds, and that in total the company has suffered a loss of $ 50 000 because of these payments. When Ringo raised this at a board meeting and proposed that the company’s lawyers be asked to initiate action against Paul and Sarah to recover the money, the other three directors voted against the proposal.

Finally, Ringo tells you that since he confronted his brothers about Paul’s conduct, they have begun holding board meetings without telling him (Ringo).

Advise Ringo as to what remedies he can obtain in relation to the above, citing legal authority. [You should assume, and therefore do not need to prove, that the payments by Paul to Sarah are a breach of the duty to act in the best interests of the company under s 181 of the Corporations Act 2001 (Cth).]

Answer 1

Following are the remedies which Ringo can get:-

For Company Logo:-

Special resolutions are needed for certain changes as defined in the Corporations Act. Decisions like changing a company's name, winding up the company, or changing the company's type, company's logo, changing the constitution etc will require a special resolution.

Special resolutions must meet certain criteria before they can be voted on, or passed:

Notice of a meeting of members for a company or registered scheme

The notice of such special resolution must be given to all the directors. If a special resolution is being proposed at a meeting, the notice to members must include the intention to vote on the special resolution and details of its contents. This is in addition to the other standard requirements like providing a date and time, proxy information.

Passing a special resolution at a meeting:-

For a special resolution to pass, at least 75% of the votes cast must be in favour.

Here, only ordinary resolution was passed and also notice of the meeting was not given to Ringo.

So, any decisions taken in such meeting will be considered as void ab initio.