Corporation Law - Peter Situation - Assignment Example

Running header: Corporate law Student’s name: Instructor’s name Subject code: Date of submission: Corporate law 1. Case 1: Facts of the case: Peter forms the company as the sole shareholder and its sole director. He sells his existing business to the company at an inflated price and also lends the company $100,000 so that the company can be able to purchase the business. The loan is secured using the vacant land he sells to the company. The business is not sufficiently profitable and to make the matters worse, he is injured in the course of working for the company while the building industry in which he operates is undergoing recession. The business is no longer profitable and has to be liquidated with total creditors of $210,000 but the company is only able to raise $120,000. i) Whether peter being the only secured creditor will get his $100,000 back The company’s act recognizes single director single owner companies such as the one formed by Peter. This has also been recognized in Lee v Lee case where Lee was the sole owner and director of the company while at the same time he serve as an employee. As such, Peter’s company was a legal entity in accordance to company’s act section 1201. This being the case, Peter’s company should be considered as a separate legal entity from him. This implies that the company could enter into transactions with Peter. as such, peter could act as its agent/director and employee despite being its owner. This is what was held in Solomon v Solomon case2. As such, there was no problem with Peter entering into contract of sale with the company as well as that of lending money to the company as he did it in his capacity as an individual but not as an agent of the company. It should also be noted that Peter did his best to ensure that the company succeeds and he could not have foreseen the problems that the industry was experiencing. As such, although he sold the business to the company at an inflated price, it should not be assumed that he did this with an aim of defrauding the company. With these facts in mind, it can be concluded that Peter is entitled to get repaid for the money that he owed the company. This is in line with Lee v Lee case where the wife to the deceased was compensated despite his husband having been the sole owner, director and the employee of his company. It should also be noted that the company’s act prioritize the secured creditors in compensation in case of liquidation. A similar decision was made in Solomon VS Solomon case where he recovered the money he owed to the company in precedence over the unsecured creditors3. As such, being the only secured creditor in the company, Peter would be prioritized over the other creditors since they are not secured. This implies that Peter will get his $100,000. The rest of the money can be used to repay the unsecured creditors proportionally since it is not enough. ii) Whether Peter can claim workers’ compensation assuming that he is otherwise entitled to it As stated above, Peter and his company are two separate legal individuals and each has a right to enter into contracts with each other. That Peter is the director and the employee of his company is legally correct. This is in line with the decision by Judges in Lee v Lee case to award the wife of the deceased her benefits despite his having been the only owner, shareholder and employee of his company4. It should also be noted that Peter experienced the injuries in the course of working for the company as its agent. As such, he is entitled to claim worker’s compensation in accordance with workers compensation act section 20 which provides for compensation of workers in the course of performing their work related duties5. It should also be noted that Peter and his daughter are the only workers that the company has. As such, Peter can claim worker’s compensation following the injuries as he was injured in the course of performing his duties to the company. However, it should be noted that the claim will be lodged to the company and depending on whether the company has put in place a worker’s compensation plan, Peter will receive the compensation. Case 2: i) The procedure to be followed by Peter and Pyne to convene a general meeting of shareholders to remove John as a director of the company The procedure to be followed in removing a director has been set up in sections 168 6 of the company’s act 2006. It should be noted that in line with the company’s replaceable rules, the company’s act has also donated the role of removing the director to the shareholders regardless of who has been dissatisfied with the director. As such, Peter and Pyne will have to convene a general meeting of shareholders who may or may not pass the resolution to remove John as a director. In calling for the general meeting, the directors in their capacity as shareholders must ensure that they give a special notice in accordance to section 168 of the company’s act 2006. The notice must be given to the company at least 28 days before the meeting at which the resolution will be moved in accordance with section 312 of the company’s act7. However, the directors are responsible for calling for the general meeting in accordance to corporations act section 249 C of 20018. In calling for the general meeting however, the directors must ensure that the meeting is properly convened and adheres to quorum requirements. In this case, it is advisable that before the meeting is convened, the directors must ascertain themselves with who the shareholders entitled to vote in the meeting are. They must be listed in the company’s list of members and whether the voting power of anyone has been changed by the articles. ii) The nature of the resolution to be passed and the notice required to be given for convening a meeting of shareholders for the removal of John as director of the company The company’s act states that an ordinary resolution by shareholders is necessary for removing the director from office. This means that a majority of voters or more than 50% of the shareholders are required in passing the resolution. According to section 311 of the companies’ act 20069, the notice for the general meeting must state the date, time and place where the meeting will be held. It must also state the general nature of the business to be transacted that day as well as the intentions to move the resolution as well as the grounds under which the director is being removed. The proposal to remove John as a director will have to be given to the company on special notice at least 28 days before the meeting at which the resolution is to be passed. The company will then be required to issue notice of the resolution at the same time and manner as it gives notice of the general meeting. If not practical, a 14 days’ notice before the meeting must be given to the shareholders by advertising in a newspaper that is appropriately circulated or in a manner allowed in the company’s articles of association. The company is also required to send a copy of the proposed resolution to the director concerned on its receipt. The director has a right to be heard on the resolution at the meeting or make written representations to the company. iii) Assuming that peter and Pyne succeed in their bid to remove John and the board agrees to appoint Fred in his place, the board has the following powers for appointing new directors Section 28410 states that a vacancy such as the one created by removal of John as a director be filled by the general meeting that passes the resolution to remove the director provided special notice to such appointment is given. Where this does not happen, the board of directors has the power to fill the position as a casual vacancy as per section 6211. However, this is subject to the removed director not being reappointed. As such, the board can has the power to appoint Fred to fill the vacancy caused by removal of John so that he can serve for the remaining term to the general meeting at which this decision should be ratified by the general meeting. It is worth noting that the board does not have power to appoint Fred if the general meeting reappointed John to the same position. Read More