[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
33
SHAREHOLDERS’ RIGHTS AND PROTECTION Shareholders do not have the right to manage the affairs of the company. The constitution of the company usually vests the management of the company in the board of directors. Typically, the board will delegate the day-to- day operation of the company to the chief executive officer. Shareholders have no right to demand access to information including the books of the company, under the Corporations Act. Shareholders may apply to the Court for an order to inspect the books of the company. Shareholder Oppression under the Corporations Act The Corporations Act provides Australian Courts with the authority to make a broad range of orders where it is established that a company has acted (or proposes to act) in a manner that: • is contrary to the interests of the company’s shareholders (as a whole); or • is oppressive to, or unfairly prejudicial against, one or more of the company’s shareholders. Such orders can include orders that:
• Insolvent Trading – Directors who allow a company to trade whilst insolvent will be in breach of the Corporations Act, and in some circumstances, may be personally liable for the debts incurred by the company during the period in which the company traded whilst insolvent. • Personal Guarantees – It is common for directors of small private companies to provide a personal guarantee as security for debts incurred by a company. Given that personal guarantees are a separate and binding agreement between the director and the relevant financier, a director will be personally liable for the debt to which the guarantee relates. • Breach of Directors’ Duties – Where a director breaches their fiduciary or statutory duties to a company as set out in the Corporations Act (and as outlined above), they may be liable for civil and criminal penalties, as well as damages in favour of the company. • Taxation Debts and Superannuation Contributions – Directors can be personally liable for a company’s failure to comply with their GST, PAYG withholding tax and SGC payment obligations. • Phoenix Activity – “Phoenix Activity” occurs where the directors of a company place the company into liquidation or administration in order to avoid paying the company’s debts, and then establish a new company for the purpose of continuing the previous company’s business. Directors who engage in Phoenix Activity may be subject to civil and criminal penalties, and in extreme circumstances, may even face imprisonment.
• require the company to be wound up;
• require the company’s constitution to be modified or repealed; or • compel or prevent a person from engaging in certain conduct. The types of conduct which may give rise to a successful claim of shareholder oppression will be assessed by the Court on an objective basis and will involve an examination of whether the conduct would be seen as oppressive in the eyes of a reasonable person. A common example of shareholder oppression is where a majority shareholder misuses their
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator