Shareholders must exercise their power to alter the

Info icon This preview shows pages 11–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Shareholders must exercise their power to alter the articles of the company “bona fide for the benefit of the company as a whole” o This implies that shareholders owe a duty to each other to act in their interests as well ‘as a whole’ Later Test : {Peters American Delicacy v heath per Dixon J} o Shareholders are not in a fiduciary relationship with the company and majority shareholders are not in a fiduciary relationship with minority shareholders o Therefore it is not a positive requirement that must be fulfilled by members who vote in favour of an alteration Current Test: {Gambotto v WCP} o HCA have rejected Allen v Gold Reefs and have distinguished between two categories of majority falling within the equitable constraint on their power: (1) Altering the constitution (2) Ratification of certain breaches of director’s duties C. Categories of Majority Conduct Falling within Equitable Constraint C.1 Altering the Constitution Under {s 136(2) Corporations Act} the company may modify or repeal its constitution or a provision in the constitution by special resolution (75%) o Further under {s 136(3) Corporations Act} the constitution may provide further requirement (eg. Demand a unanimous vote in favour of the constitution o Then under {s 136(4) Corporations Act} this further requirement must be complied with even when the resolution is about it being repealed Therefore a majority of shareholders would have significant power when trying to push through constitutional amendments – hence in the following instance ( Expropriation) equity places limits on this power and it must meet certain requirements There is a limitation on the power of majority shareholders to alter the constitution for the purpose of expropriation of minority shares or valuable rights attaching to minority shares {Gambotto} TEST {Gambotto} : Amendment of constitution to include an expropriation power will be VALID if: o (a) the expropriation power is exercisable for a proper purpose AND o (b) the exercise of the power will not operate oppressively in relation to the minority shareholders – it must be fair in the circumstances (1) What is a “Proper Purpose”? Expropriation is a reasonable means to prevent a detriment to the Company if: o The continued shareholding of the minority could be detrimental – ie. The minority shareholder is a competitor o Expropriation is necessary to allow Company to continue its present business – ie. Compliance with foreign ownership restrictions o If exercising the power will avoid insolvency BUT: The majority cannot use their power to expropriate the minority simply to make money o Not allowed to “expropriate the minority merely in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage by virtue of the expropriation” {Gambotto} However note the dissenting judgment in {Gambotto} o “No distinction should be drawn between expropriation that will enable a company to pursue a beneficial course of action
Image of page 11

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern