Corporations Act Business Inconsistency Rules

Question: Describe about the Corporations Act for Business Inconsistency Rules. Answer: Interpretation Clauses In this Constitution; Act refers to the Corporations Act, 2001 or any other Act which replaces the same and is brought into force from time to time; Terms and expressions which have been defined in the Act shall have the same meaning under this Constitution as well; The provisions of this Constitution shall prima facie govern the company. However, when the Constitution is silent regarding any matter concerning the company, the Replaceable Rules under the Corporations Act shall apply. Thus, the company shall be partially governed by the Constitution and partially by Replaceable Rules. In the event of inconsistency between the Rules under this Constitution and the Act, the Rules or the portions of the Rules, which are inconsistent, shall be considered to be struck out and the relevant provisions of the Corporations Act shall be applicable. Business Management The business shall be managed by the directors; This Constitution confers on the directors all such powers which are vested in a Company under the provisions of the Act. Directors Meetings Any and all directors can summon a meeting by way of rendering reasonable notice to the other directors; Directors may elect any one director to chair the said meeting. Members Meetings The power to summon a meeting of members of the company is vested on the directors; Directors shall appoint an individual to act as the chairperson of the meeting; Shares The company does not put any restrictions on the power to issue shares. However, issued shares must fall into the below stated categories; Ordinary Shares A Class Redeemable Preference Shares B Class Redeemable Preference Shares When a class of share is identified by an alphabet, in the above clause, it signifies a distinct class of shares. When a members holds A class Redeemable Preference Shares, the following rights and conditions are applicable; Shall not possess any right to attend or vote at meetings; In the event of winding up of the company shall be entitled to paid up for the shares held under this class in preference to all other shares. However, shall not be entitled to any right on surplus profits or assets of the company. When a members holds B class Redeemable Preference Shares, the following rights and conditions are applicable; Shall possess the right to attend and vote at all meetings of the company. The member shall be entitled to cast one vote against each share held under this class; In the event of winding up of the company shall be entitled to paid up for the shares held under this class in preference to all other shares except the A class Redeemable Shares. However, shall not be entitled to any right on surplus profits or assets of the company. Mediation In the event of dispute between any of the following groups; Directors and Directors; Directors and Members; Members and Members; Company and Members The same shall be resorted through mediation rather than resorting to the court of law. Adoption and Amendment of the Constitution The members are being vested with the right to amend or repeal the entire constitution or parts of it subject to the passing of a special resolution either at an EGM or AGM. At least 30 days prior to the date of meeting a notice stating the fact about the proposed amendments shall be addressed to all the members of the company. Part 2 Section 198A This Section provides that in Australia businesses are to be managed by directors and they have the liberty to exercise all powers of a company except the ones which either the Corporations Act, 2001 or the constitution of the company specifically requires exercise by the company. Vesting of powers upon directors for managing company has been long established. The reason behind the incorporation of this provision in the Corporations Act is the fact that generally shareholders do not have the obligation of acting for the best interest of the organization, as a whole and directors have the obligation of acting in the best interest of the organization. This Section implies that shareholders are bound by the decisions of directors. This provisions tries to embody the rule that non-executive directors cannot be involved in the day-to-day business of the organization. This Section imposes collective responsibility upon the board of directors of for company governance and they are held acco untable for the same. In practice directors delegate most of their powers This provision empowers the directors of companies with a wide range of powers, In fact, a resolution of shareholders becomes ineffective for overriding decision of directors when they have the power to manage the company. This is one of the steps for codifying directors duties in Australia (austlii.edu.au). Section 191 Sections 191-195 of the Corporations Act, 2001 contain provisions concerning conflict of interest. This Section imposes an obligation on the directors of company to disclose matters relating to the company which are of personal interest to the. Such disclosure is required to be made to the other directors. However, certain exceptions are laid down under Section 191(2). One example of such conflict of interest is as follows; a director has some personal interest in any contract, which the company enters into (austlii.edu.au). The purpose of the legislature underlying the incorporation of this Section in the Corporations Act, 2001 is to make directors of companies refrain from using their position for their own personal benefit. If a director commits breach of any of the duties he/ she is liable to be subjected to compensation under the Corporations Act. This legal obligation would deter directors of corporations in Australia from taking action attempting to make personal benefit by ut ilizing his/ her position in the company. Section 191 is one of the checks, which the legislature has introduced in relation to the unfettered powers imposed on the directors. It embodies the principle that directors must take decisions for the betterment of the company and not otherwise. Section 250R (2) (3) Section 250R(2) was incorporated in the Corporations Act, 2001 by the Corporations Amendment( Improving Accountability on Directors and Executive Remuneration) with the intention of holding election for appointment of directors, if in two successive meetings, 25% of votes are recorded against the remuneration package of directors. The election must be held within a period of 90 days. Under this Section a listed company has the obligation of adopting remuneration report during its Annual General Meeting. Hence we may state that Section 250R(2) requires passing of resolution concerning remuneration report. However, Section 250(3) lays down that the voting under the said Section is considered to be advisory in nature and does not impose binding obligation upon either the company or the directors. Both the sub clauses deal with adoption of advisory resolution concerning remuneration report (austlii.edu.au). The notice of the Annual General Meeting must state that such resolution would be adopted. Key Management Personnel and parties who are closely related are prohibited from casting their votes for this resolution. References Austlii.edu.au. (2001).CORPORATIONS ACT 2001 - SECT 191Material personal interest--director's duty to disclose. [online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s191.html [Accessed 20 Sep. 2016]. Austlii.edu.au. (2001).CORPORATIONS ACT 2001 - SECT 198APowers of directors (replaceable rule--see section 135). [online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s198a.html [Accessed 20 Sep. 2016]. Austlii.edu.au. (2001).CORPORATIONS ACT 2001 - SECT 250RBusiness of AGM. [online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s250r.html [Accessed 20 Sep. 2016].