The concept of pre-emption and its importance

(a) Pre-emption clause:

The term pre-emption denoted certain rights regarding the purchasing of shares or goods in the company before others. The nature of the right is contractual. The term is also known as first option to buy. The existing shareholders of a company regarding the new shares that are allocated by the company exercise the right and the shares are not at all times offered to the public. It is a fact that the right can be exercised on the discretion of the shareholders. It is not mandatory that the shareholders have to buy all the newly generated shares (Anderson 2014).

Many terms are used regarding the ownership of the shareholders in the company. In case of pre-emption, one of such terms are being used to denote the status of the shareholders and the term is stock dilution. When there is a decreasing fact takes place regarding the ownership of the shareholders, company issues new equity. This situation is known as stock dilution. Pre-emption helps to maintain a proportional ownership regarding the same on behalf of the shareholders (Brush and Van Staden 2016).

Rights enjoyed by companies:

In the provinces of Australia, it has been observed certain company have enjoyed the right regarding the pre-emption. It has been observed in the constitution of some proprietary companies that there was a provision regarding the pre-emptory rights. It has been mentioned expressly that the companies enlisted in the Australian Stock exchange could not able to enjoy the right (Chen et al. 2014). Therefore, the practice regarding the right is quite rare in case of public companies.

Working process:

This right provides a first option to the shareholders regarding the purchasing or refusal of shares and it is to be considered that this mechanism helps to increase the number of shares in a company. a proportionate relationship through ownership has been establish on behalf of the shareholders and it is a fact that this system helps to facilitate the voting arrangement by providing the way regarding the share purchasing policies by the shareholders.

It is a legal requirement for the continent of Australia regarding the incorporation of the companies. It is a mandatory rule regarding the Australian companies that the companies must be registered under the Australian Securities and Investment Commission (Godwin 2015). This institution has provided certain facts wherefrom it is clear that the rules and regulation of a company should be written under the constitution and the company stakeholders have to abide by the rules.

In Australia, the Corporation Act 2001 is solving all the company related matters and it has been mentioned under the Act that the constitution of a company should have comprised of certain replaceable rules considered as mandatory for the stakeholders of the company (Harris 2013).

The constitution of the company can also be altered by way of passing special resolution regarding the same. The rules regarding the special resolution has been mentioned under the Corporation Act and it has been stated that notice has to be generated regarding the same to all the shareholders before minimum twenty-one days and a voting system should be conducted to understand the opinion of the shareholders regarding the amendment of the constitution. The alteration of the constitution should be done regarding the best interest of the company. as per section 136 (2) of the Corporation Act, if the constitution of the company holds certain additional requirements for the amendment, that also have to followed up. In Gambotto v WCP Ltd. [1995] HCA 12, it has been held that the constitution should be amended with right purpose.

Alteration of company constitution in Australia

The provision regarding the replaceable rules is contained under section 141 of the Corporation Act 2001. These are the3 basic rules that are to be maintained by the stakeholders of the company Johnston and Too 2015).

It is to be stated that the rules are used to play the official works of the company systematically. It has been mentioned under the Corporation Act that it is the will of the company to determine the process of internal governance and replaceable rules are contained these rules. If not anyone obeys the rules, he can be held liable for the breach of contract. Replaceable rules can be changed if the rules regarding the same have been mentioned under the constitution of the company.

(a) Removal of director:

The present case is evolved with the case of a public company. the company can be classified in two parts: public company and private company. In case of public company, the shares are traded freely. It has been mentioned under the law that in case of public company, there must be minimum number of shareholders.

In the present case, it has been observed that the director of a public company has been charged under certain drugs related offence and the other directors of the company has decided to remove him from the post. However, they have decided not to inform the members or the shareholders regarding the issue. It has been mentioned that according to section 203D (1) of the Corporation Act 2001, in case of the removal of directors of a public company, the shareholders will get the ultimate rights. It is to be noted that in case of public company, another director cannot remove one director. Therefore, in the present case, the other directors cannot remove the alleged director without informing the members of the company (Johnston and Too 2015).

(b) Contractual relation:

The present case is based on the principle of the contract law. It has been mentioned under the Contract law that a contract can be made by way of following certain rules. There should be certain offer and acceptance regarding the subject matter. The parties should have to enter into the terms of the contract with free consent. Certain rules are also mentioned regarding the offer and acceptance. It has been stated that once the other party accepts an offer, the contract will be treated as legally bound between the parties. It has been mentioned that the offer maker will have no power to terminate the terms of the contract after the acceptance.

In this case, there was a contract made in between the conference authority and the company and certain consideration was made in respect of the process. However, on subsequent event, the conference of the company was cancelled.

In this case, the company is bound to meet the payment to the conference room authority. It is to state that the conference was cancelled after the acceptance of the offer and therefore, the company have to pay the proposed amount, else the company have to face legal process.

Removal of director from a public company

(c) Secret profit by directors:

The directors of the company are playing an important role and they have to perform certain duties to maintain the position of the chair. It has been menrtioned that the director of a company should be act in good faith and they are not allow to do anything that can be harmful for the interest of the company. The duties of the director has been engraved under the provision of section 180 to section 184 of the Corporation Act 2001 (Purchase et al. 2016).

 Certain civil obligations have been imposed on the director under section 182 of the Corporation Act. It has been mentioned that the directors of a company should not make secret profit and he has to disclose all the transactional facts and documents for the betterment of the company. It has been mentioned that these duties are given to the directors to avoid the conflict of interest. In case of Chan v Zacharia, it has been held that if any profit has been made during the process of company related matters, the director to the company should inform the same. the same principle has been followed in case of Furs Ltd v Tomkies (1936) 54 CLR 583.

Therefore, the alleged director of the case has violated the provision of section 182 of the Corporation Act 2001 and held liable for the same.

(d) Rights regarding dividend:

Shareholders of a company are the most important stakeholder and they obtained certain rights regarding their position in the company. It has been mentioned under the Corporation Act 2001 that the shareholders are enjoying certain privileges. The main duty of the shareholders is to buy the share of the company to facilitate the works of the company and they have certain rights over the dividends. Dividends are certain amount of money given to the shareholders in respect of profit. It is to be noted in this case that the right to get dividends are not mandatory.

The power of the company regarding the payment of dividend has been stated under Section 254T of the Corporation Act 2001. However, the provision regarding the same is complicated in nature and therefore it can be stated that dividend right is not mandatory. However, this case attracts the provision of section 233 of the Corporation Act. It has been mentioned that the company directors as the company has not been pay the same to her though the company has gained profit has unfairly treated Janeen. Therefore, she has right to claim damage for the same.

Reference:

Anderson, H., 2014. Directors’ Liability for Fraudulent Phoenix Activity—A Comparison of the Australian and UK Approaches. Journal of Corporate Law Studies, 14(1), pp.139-173. (Anderson 2014)

Brush, D. and Van Staden, B., 2016. Shareholders’ agreements for new companies and start-ups. Governance Directions, 68(4), p.231. (Brush and Van Staden 2016)

Chen, D., Gao, Y., Kaul, M., Leung, C.K. and Tsang, D., 2014. The role of sponsor and external management on the capital structure of Asian-Pacific REITs: the case of Australia, Japan, and Singapore. (Chen et al. 2014)

Godwin, A., 2015. Teaching corporations law from a transactional perspective and through the use of experiential techniques. Legal Educ. Rev., 25, p.221. (Godwin 2015)

Harris, B., 2013. a new constitution for Australia. Routledge. (Harris 2013)

Johnston, N. and Too, E., 2015. Multi-owned properties in Australia: a governance typology of issues and outcomes. International Journal of Housing Markets and Analysis, 8(4), pp.451-470. (Johnston and Too 2015)

McLachlan, R., 2013. Deep and Persistent Disadvantage in Australia-Productivity Commission Staff Working Paper. (McLachlan 2013)

O’Connor, N., 2015. International trends in freedom of information. Ireland and the Freedom of Information Act: [email protected] 15, p.6. (O’Connor 2015)

Purchase, S., Rosa, R.D.S. and Schepis, D., 2016. Identity construction through role and network position. Industrial Marketing Management, 54, pp.154-163. (Purchase et al. 2016)

Roos, O.I. and Saunders, B.B., 2017. Re Robert John Day AO: Section 44 (v) of the Australian constitution revisited. Sydney Law Review, The, 39(1), p.123. (Roos and Saunders 2017) .