Whether the Wrong Committed Is against the Shareholder as an Individual or against a Company - Assignment Example

Student Name Instructor Name Course Date Question 1 The issue in this case lies on the question of whether a shareholder may be able to sure for a wrong done against them or a wrong done against the company. There is also need to identify whether the wrong committed is against the shareholder as an individual or against a company. The determination of this question is important in identifying which action should be taken by Kate. In law, the company is a separate legal entity from its shareholders. This rule was established from the celebrated case of Salomon v Salomon. This doctrine prevents individuals who are the shareholders from the activities of the company. No shareholder can therefore have a right to bring an action on behalf of the company (Foss v Harbottle, 1843). This rule was meant to prevent against multiple suits being brought by separate shareholders claiming on behalf of the company. The argument here is that the company is the rightful claimant since the wrongs are committed against it. This rule however has an exception. Sometimes the persons who commit the wrong against the company are the same people given the authority to manage the company and institute claims against any wrong committed against the company. If the majority, whom are supposed to act by the reason that the company is a democratic entity, are the ones engaging in fraudulent activities, then the minority may at such a time be allowed to bring a claim on behalf of the company (Burland v Earle, 1902). An action brought by a shareholder on behalf of a company is called a derivative claim. These were mostly remedies available under common law. Most of the concepts have been adopted and introduced in statutes. In Australia, the Corporation Act 2001 (cth) provides for derivative claims. This is found in section 236 of the Act. It provides that other persons may bring actions on behalf of the company. The requirement here is that a person is either a member of the company or a former member of the company. An official of the company may also bring an action against the company. Before one can institute an action, there is a requirement that there should be leave of the court granted under section 237 of the Corporations Act. The leave will be granted on specified grounds some of which include; an instance where it is evident that the company will not institute a suit on its own, where the suit is brought in good faith, where there is a serious question to be tried and if the application is for the best interest of the company. The court in this circumstance has the power to make an order for inspection of the company’s books or order that a person to do or not to do a certain act. Personal claims under the Act can be brought under section 232 of the Corporations Act 2001 (cth). This action is brought where an individual, being a member or a former member of a company is treated unfairly or discriminated against. In the case given, Elizabeth and Ann refuse to give financial statements to Kate, draw money from the company in the name of their firm without the knowledge of Kate, force her out of directorship and further refuse to buy out her shares. The actions to push her out of directorship and also refusing to buy her out constitute to unfairness which is a ground under section 232 for instituting a personal claim (Corporations Act ,2001 (cth)). It is also discriminatory in nature and therefore she should institute a personal claim for that. She should have a right as a member of the company to inspect the books and also to transfer her shares, which she is denied. The two engage in a fraudulent exercise where they award themselves money in the name of their firm. This amounts to a wrong committed against the company. It is clear here that the directors, being that they are the ones who did the wrong would not bring an action on behalf of the company. Kate should also bring a derivative action on behalf of the company. Kate should bring both person claims and derivative claims since grounds for both are present in the case. This is because the wrongs have been committed against her as an individual and also against the company. Question 2 Kate should bring an action under section 232 other than use the general law. The issue as to which avenue Kate should use to approach the court is mostly pegged on the kind of claim she intends to bring. A general claim against Elizabeth and Ann. There are many actions which can be brought against them. There are many things which they do contrary to the law and specifically, the Corporations Act, 2001. The Act under section 232 provides a range of circumstances under which a court may make orders in regard to oppression. The section provides for clear procedure that can be followed by an individual who would like to bring an action of oppression. The reason as to why section 232 should be used and not the general law is because of the following reasons; The first reason is that Kate qualifies to bring an action under section 232. Section 234 provides that a member of a company may seek orders under section 233. Kate, still being a holder of part of the shares of the company is in a position to apply for the orders of the court. Furthermore, even if she ceases to be a member of the company, she would still be entitled to apply for the orders. Another reason why Kate should bring an action under section 232 is that the section provides for a situation where the company is affected and also, a member is affected. This provides a concurrent way to deal with the two. She can claim personally for unfair treatment and also for the fact that Elizabeth and Ann have been discriminatory. The conduct is unfair because they have chosen to be awarding themselves hefty sums in the name of management fees to an auditing which they are the sole owners. In doing so, they have been unfair to Kate who holds equal shares with Ann and Elizabeth. Their conduct is also discriminatory because they remove her as a director for the sole reason that she doesn’t agree with their plan not to have dividends paid. They further refuse to buy her shares when she opts to leave. The outcome from section 232 is far much predictable as opposed to using the general law. It provides for the orders that the court may issue. This is important since when Kate is going to make her claim, she knows what kind of orders may be issued. Furthermore, the section is made for the purposes of personal claims. Although other issues such as fraud maybe found in Elizabeth’s and Ann’s conduct of the affairs of the company, the same does not really incline towards personal claims but rather, claims against the company. The final reason is because of the remedies available when orders are made under section 232. Kate wanted to sell her shares off to both Ann and Elizabeth. One of the remedies is for orders to buy shares. This would be good solution to Kate since trust at this point has been lost already. It would be hard to be able to trust them in the future. The best alternative is therefore to leave. The remedies also include an order of winding up. Through such a remedy the activities of the company may be investigated and money paid fraudulently maybe recovered from the two. In conclusion, instead of looking for other provisions in which Kate should bring an action, she should stick to section 232. That way, she can be able to build a case properly by simply pointing out the grounds required. If she would try to apply the general law, multiple issues would crop up which would be a recipe of confusion. It is important that there should be clarity in what is sought in court to ensure that actions succeed in court. Section 232 is able to carefully guide anyone who may be seeking personal claims, if anything; it seems tailor made for that purpose. Question 3 There are various remedies provided for under section 234 from which Kate may choose from. The first order which Kate could seek is that the company buys her shares. This is a good remedy; however, Elizabeth and Ann have been awarding themselves some money from the company. This remedy will not be able to cater for any amount misappropriated by the pair. The best remedy that she can apply for is to have the company wound up. This ensures that a neutral person, a receiver and later a liquidator is given the mandate to recover the property of the company. The affairs of the company at this point will be put to scrutiny and any amount paid to Elizabeth’s and Ann’s firm irregularly will be required to be paid back. This would present Kate with a chance of having to share the property which the company has accumulated over time and also the benefits which would have been given to her if the amount is recovered from the two. This order should however be avoided where the company maybe in huge depts. This is because winding up would not be to the best interest of Kate. If such is established, she should seek to have an order for the company to buy back her shares. Furthermore, the winding up process is long and Kate is in need of money. She should therefore opt for the sale of the shares. Works Cited Corporations Act 2001 (cth) Burland v Earle [1902] AC 83 at 93-4 Foss v Harbottle.(1843) 2 Hare 461 E.R. 189 Read More