[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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Phoenix Activity – “Phoenix Activity” occurs where the directors of a company place the company into liquidation or administration 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require the company’s constitution to be modified or repealed; or compel or prevent a person from engaging in certain conduct.
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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 control and influence over the company in a way that is unfairly prejudicial to minority shareholders. Shareholder’s rights under the Corporation Act The rights and protections that apply to shareholders under the Corporations Act will depend on the nature of the relevant company, as well as the provisions of the company’s constitution and other constituent documents (such as a shareholders agreement). Examples of shareholder rights which are contained in the Corporations Act (and will apply to private companies, despite any contrary provision within a company’s constituent documents) are set out below:
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:
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Amending the Constitution: A company may only amend its constitution by passing a special resolution of members. To pass a special resolution, at least 75 percent of the company’s shareholders must vote in favour of the proposed resolution. Companies are required to obtain shareholder approval before undertaking alterations to the company’s share capital. These Capital Alterations: alterations include capital reductions, selective buybacks, and share buy-backs.
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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.
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Such orders can include orders that:
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require the company to be wound up;
ILN Corporate Group – Establishing a Business Entity Series
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