Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk...

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Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk and several other small investors. The Board of Satin wants the company to become a wholly owned subsidiary of Cotton Limited as they expect this will result in both taxation benefits and a saving on accounting fees and administration charges of about $230,000. Cotton Limited offers to buy the shares held by Silk and other minority members but they refuse. Arrangements are made to hold a members meeting to pass a resolution changing the constitution of Satin by inserting a new clause 53 “any member entitled to 80% or more of the issued shares may compulsorily acquire all the remaining shares”. Silk and other minority members receive written notice of the company meeting together with a proxy form and a valuation certificate stating the shares were worth $2.50 each. Although the offer is fair Silk does not want to sell her shares and wants to start legal action to prevent the proposed alteration to the constitution.Discuss whether she may succeed in her action.Would your answer be different if the real reason for compulsorily acquiring the shares from Silk was that she discovered operating a business in competition with Satin Co and was using information gained as a member to take away some of Satin’s business?
	
Document Preview: HA3021 CORPORATIONS LAWTRIMESTER 2, 2012ASSIGNMENTAssessment Value: 20%Due Date – Week 10Instructions:Address each of the questions, clearly indicating which question your answer relates to.Maximum 2,000 words in total.Marks will be awarded or deducted for quality of presentation, e.g. format, structure and referencing.Students are expected to use legal referencing system - – see additional reading on blackboard for a copy of Melbourne University Law Review Association Inc., Australian Guide to Legal Citation (2010, 3 ed).Question 1Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk and several other small investors. The Board of Satin wants the company to become a wholly owned subsidiary of Cotton Limited as they expect this will result in both taxation benefits and a saving on accounting fees and administration charges of about $230,000. Cotton Limited offers to buy the shares held by Silk and other minority members but they refuse. Arrangements are made to hold a members meeting to pass a resolution changing the constitution of Satin by inserting a new clause 53 “any member entitled to 80% or more of the issued shares may compulsorily acquire all the remaining shares”. Silk and other minority members receive written notice of the company meeting together with a proxy form and a valuation certificate stating the shares were worth $2.50 each. Although the offer is fair Silk does not want to sell her shares and wants to start legal action to prevent the proposed alteration to the constitution.Discuss whether she may succeed in her action.Would your answer be different if the real reason for compulsorily acquiring the shares from Silk was that she discovered operating a business in competition with Satin Co and was using information gained as a member to take away some of Satin’s business?Question 2Identify and explain how some parts of the Corporations Act allow certain business conducted at...

Robert · Accepted Answer

Corporations Law
PAGE  
1
Corporations Law
Corporations Law
Question One
Part one
From the case, it is evident that Silk does not want to sell her shares and prefers to begin a legal action to prevent the proposed alteration. She has the ability of succeeding her action of stopping the constitution from being altered. This is supported by the fact that without any form of discrimination to the existing rights of the parties that had been previously conferred with regarding shareholding of the available shares in a class, any available share within a company can be provided. This can be done using deferred, preferred, or special restrictions or rights, whether concerning voting, dividend, return of capital or otherwise. This is supported by the fact that the company can determine the party with the rights of share holding through the act of ordinary resolution.
Company law has principles, which are not clearly expressed within the literature presented in the text. The law is put in place to ensure an equal treatment of all the parties present. The principle means that all the available shareholders have rights especially to the obtained profits and the capital set aside for a company. Silk has the ability of succeeding in her move in that the contract has provided the minority shareholders with rights. In this case, Silk has the potential of arguing out that, as minority shareholder she has the right to be involved in the management of the company as a quasi-partner. This means that the way the company has been managed has given rise to some levels of understanding. Silk can argue out that it is unfair to exclude them from the management as this means that the majority will have an opportunity of purchasing shares without the discount being offered.
Question One: Part Two
If the compulsory shares acquisition from Silk was based on competition as a factor, which required a member to take away, Satin’s business means that Silk has the ability of succeeding in her action. This is supported by the fact that their case will be based on the issue of unfair prejudice. In this case, the court will ensure that the minority obtains a fair share of the available company shares. In this case, the court has the ability of adjusting the unfair acts and ensuring when the valuation of the level of discount to be reflected within the minority shareholders.
Question Two
Corporations Act
In cases where the share capital is broken down into different subcategories of shares, the rights associated to any subcategory have the ability of becoming the holders of the three fourths of the available shares in that subcategory unless if the constitution provides otherwise. For every available general meeting, which exhibits such qualities, the provisions of the available regulations, which are related to the general meeting being conducted, have the ability of applying. However, to ensure that the available quorum is composed of two individuals who represent a third of the proxy of the class issued with shares. If an individual is present at a meeting, which has been adjourned with the members being a quorum like the one stated, either any shareholders present by proxy or class has the ability of demanding a poll of the available shares.
Taking into consideration derivative action as an element of the company act, it is evident that in the cases where a director or an acting director breaches his or her duty, the rights of enforcing duty are considered the obligation of a company. This means that the board of directors or the general shareholder meetings are considered as the proper organ, which can be utilized when suing the director for the experienced breach. However, there are instances where the appropriate bodies may fail from taking actions. Derivative action is utilised when an individual shareholder sues the board of directors based on the name of the company.

Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk and several other small investors. The Board of Satin wants the company to become a wholly owned...

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