Issue cam sued cs under s729 to recover damages and

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Issue: CAM sued CS under s729 to recover damages and alleged that the prospectus was defective due to: 1. Non-compliance with the disclosure provisions in s710; and 2. The forecast sales rev. and earnings and the statements about the coy’s outlook being misleading and deceptive in breach of s728 CS objected to CAM’s claim, on the basis that they were barred from bringing their claim because of the operation of the rule in Houldsworth’s case. This rule stated that a shareholder could only claim a remedy by first rescinding their share purchase. However CAM had already sold their shares so they could not rescind the purchase and therefore the rule prevented them from claiming against the company. Decision: Full Federal Court disagreed and upheld the entitlement of the subscribing shareholder (CAM) to recover from the company issuing the prospectus (CS) the loss suffered as a result of the subscription without the need to rescind the contract to acquire shares. Regulation of Related Conduct s734: restrictions on advertising and publicity s736: prohibition of ‘securities hawking’ B. Maintenance of Capital Case Law Trevor v Whitworth (1887) 12 App Cas 409: Paid-up capital may be diminished or lost in the course of the coy’s trading; tha is, a result which no legislation can prevent; but persons who deal with and give credit to a limited coy; naturally rely on the fact that the coy is trading with a certain amount of capital already paid, as well as the responsibility of its members for the capital remaining at call; and they are entitled to assumed that no part of the capital which has been paid into the coffers of the coy has been subsequently paid out, except in the legitimate course of its business. Statute Authorised share capital reductions s256A: relevant statutory provisions are designed (a) to address risk of relevant transactions leading to insolvency (b) to ensure fairness between shareholders and (c) to require disclosure of all material information. Subject to that (see s256B(1)), where only ordinary shares are involved and all are treated equally an ordinary resolution is all that is required: s256B(2) and s256C(1) In all other cases a special resolution, subject to some restrictions, is required, or a resolution agreed to at a general meeting by all ordinary shareholders Statutory provisions protecting class rights continue to apply Statutory exemptions - A limited number of reductions are exempt s258A-s258F. Consequences of breach Persons concerned contravene s256D(3) which is a civil penalty provision Dishonest involvement is a criminal offence: s256D(4) Section 588G may apply An injunction and/or damages may be available under s1324 Note that the reduction is not thereby invalidated and the company itself is not guilty of an offence: s256D(2) Financial assistance by a company to acquire shares - s260A: Financial assistance is not defined; however case law has interpreted the notion broadly, so as to include for example making a loan, making a gift, giving security over the company’s assets, releasing a debt owing to the company. Prohibited if material prejudice
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