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Corporations Law

Corporations Law

This case mostly deals with the majority rule and the remedies available to the minority or those
without voting rights or the oppressed shareholders. The majority shareholders are not allowed to
misuse or abuse their powers as they like because of their superior voting strength and
capabilities. The other directors and also the minority shareholders have a role to play in
management of the company.
Bela is Maple’s Managing Director. She is fully responsible for the decisions she makes despite
relying heavily on daisy’s advice. As a director of Marple, Daisy is similarly responsible for the
advice she gives to Bela. These situation would have been different if she were an ordinary
employee and not a director of the company as its only directors who have a duty of care and
have to perform their duties with due diligence. If the decisions made by the directors result in
insolvency then they would be directly responsible if its proved that the directors acquired more
debts when they were actually aware of the company’s financial position. Ordinary employees
are not responsible for their weakness as the employers are not supposed to be ignorant of their

Corporations law 2
capabilities. All the directors of the companies registered in the US have legal obligations and
duties under the corporations Act and subsequent statutes which require that companies do not
acquire any debts while it’s insolvent. It’s the directors’ fundamental duties and obligations to
ensure that the Act is abided with and it’s also their primary role to exercise due care and
diligence as part of their duties. They are directly responsible for any acts of omission or
commission on the part of their employees that may result in misinformation on their decisions
or judgments when a wrong decision has been made. The directors have no legal basis to contest
any wrong decisions on the basis of ignorance. A court may be petitioned to lift the veil of
corporations and the directors can be charged directly for their actions or inactions. Lifting the
veil refers to a situation or a circumstance where a judge or the judiciary has decided to remove
the statutory separation of the personality of a firm and the members or directors of the company.
Zac is the managing director of a company that has similar interest as Marple. Zac has disclosed
this information as required under the corporations Act. Under the Act he is allowed to vote on
all matters relating to decisions of the board of directors. Under the provisions of replaceable
rules, he’s allowed to retain all the benefits that accrue to him as the managing director of a
separate company that’s sharing similar interest with Marple. Marple is not allowed by law to
deny him these benefits as he has disclosed all his interest in the subject matter. These legal
provisions are contained in the Australian securities and investment in the Corporations Act
(s141) However; these provisions are not applicable in situations where the director of the
company is a sole member and the same director. (s198E, 202F and 202c of the Corporations

Corporations law 3
Bella is against the idea of expansion as the company’s financial resources are limited and
cannot accommodate any expansion as advised by Daisy their financial adviser. For these reason
Zac and Claude conspire and enlist Able in their scheme to take over the management of the
company so as to ratify their decisions to expand the business operations. The decision to remove
Bella and replace her with Claude is made so as to make it easier for the business expansion
proposal to be passed by the board. The request to allow Able to vote by Proxy is legal and
Claude is legally elected as the managing director as both of them enjoy voting rights. This
decision binds also Bella as a director of the company. Should the company be insolvent then all
the directors will be responsible notwithstanding that some of the directors were against the idea.
Expansion strategies are usually accompanied by financial assistance inform of loans to
subsidize the company’s resources. Considering Daisy’s advice that the company was not in a
good financial position, it’s inevitable that the company will be cash strapped and it may be
unable to finance its operational budget. Theses may lead to insolvency which the board was
aware of and it may result in direct prosecution of all the directors for negligence.
The takeover of the leadership of the company by Claude may amount to fraud on the part of
Able as she was not informed of the intentions of the two, Claude and Zac to ratify some critical
decisions which were unpopular with Bella and the ultimate decision to replace her as the
managing director.
The ordinary test would be whether in an open ordinary resolution the directors would validly
ratify the decision to expand. Daisy being the adviser to Bella would also object the expansion
operation and Able ordinarily would have followed the decisions of Bella. The only option for
the operation to take effect was to bring in the voting rights of Able to challenge the decisions of
Bella and Daisy and finally to replace the managing director. Claude and Zac lack of financial

Corporations law 4
knowledge on the company financial status does not shield them from any prosecution that may
result from their wrong decisions on the company which portrays their ignorance. The absence of
Able who is apparently sick does not make any difference in the matter in question. She is also
directly liable in case of a breach of the duty of care by the other directors despite not attending
the board meeting or even allowing a proxy to represent her during the voting exercise. If a court
case is instituted against Maple then the plaintiff may petition the court to lift the veil of
incorporation on the basis that the directors of Maple breached their legal duty of care.
(Gallagher and Ziegler, 1990) They did not take adequate measures to ensure that the company
was in a bad financial position and was therefore not in a position to expand and therefore they
are not entitled to borrow any money. (Gower and Davies, 2008)
The decision to remove the voting rights of the family by the majority in the board room, can be
seen in light of minority shareholders protection under the corporations Act. The common law is
the principally based on the Majority Rule, Foss v Harbottle (1843) it’s very clear that the final
decisions and the resolutions of the majority shall always prevail against those of the majority.
Against these approach of the law, if the company is competent to handle its own feuds then it
can ratify its own correct decisions. This way no member can bring an action in a court of law.
(Matheson and Maler, 2007)
However, the minority shareholder, in these case the family voting rights while in the board
room, are also protected in the company’s act, which gives a leverage to check the excesses and
prevent abuse by the majority. (Meinhardt, 2000) These provisions are applied where the
majorities are determined to use their strength to execute all their plans despite opposition from

Corporations law 5
the minority. The minority can petition the court for protection and also relief from their current
Maple may not be able to honor some of its commitment if the planned expansion operation is
implemented and it may result in serious repercussions for both the company and the directors.
The minority directors, who are Bella and Daisy, face an impossible task of trying to force the
other directors to take a legal action against their own actions. (Prentice, 1988).
The family can rely on the following remedies to try and ratify their current situation.
The minority can institute a derivative claim against the company in a court of law in respect to
an action that is arising from the actual act or the omission of that involves negligence, breach of
trust by the directors of a company, breach of duty or alternatively trust. (Thompson, 1993) Able
trusted his fellow directors to take due diligence when exercising her proxy voting right. Under
these legal provisions a member must apply to court of law to be granted permission to continue
with the derivative claim. If the court is satisfied that there is sufficient ground and evidence that
the directors breached the trust bestowed to them by the shareholders then the action will
proceed to a full hearing. (Chernichaw, 1994)
The family can also make personal claims against the directors of the company. The family
members as the company’s shareholders have is that they also can enforce lawfully against the
company and also against the other shareholders. It can be formal or not and notwithstanding that
an agreement has been already reached. They can object to the board’s decision to alter the
memorandum and the company’s articles of association in the agreed variation of the family’s
voting rights, the change of the managing director and any other take over actions. (Art, 2002)

Corporations law 6
The memorandum and the company’s articles of association is actually statutory agreement
between the company and its shareholders on how the company should operate and be managed.
If the directors of maple breached the provisions of these documents then the court can enforce
it. A legitimate variation can only occur if its implementation can result in negative effects to the
rights of the already existing members or the majority has acted in bad faith. (Spratlin, 1990)
The other protection that can be relied upon by the minorities is the concept of unfair prejudice.
This is perhaps the most important protection that can be afforded to the minority. (Grandfield,
2002) Under section 459 of the companies act of 1985, the minority shareholder has a right to
petition a court of law. The actions culminate in allegations that the company is conducting its
affairs unfairly prejudicial to the shareholders interest and its members or some of its
shareholders. The court can make orders to adjust or reverse the unfair prejudice or decisions that
the minority shareholders have sued for or have suffered from.
From the information given, Zac who is the managing director of rival the company, seems to
be the one behind the company’s replacement of Bella as the managing director with Claude who
seems to be in good books with Zac. Zac may be having ulterior motives which may not be for
the interest of the company. The family members aggrieved should petition the court before
Claude and Zac create problems for the company. These problems will affect all the directors
including the Bella, Daisy and Able.
Finally, the law recognizes that a company is not just a mere entity, it’s a personality in law and
that there are individuals amongst them with a lot of expectations, rights, and other obligations.
The structure of a company as defined by the companies act, and by its articles of association
which bounds the shareholders, defines its overall structure and all its complexities. A director is

Corporations law 7
not allowed to disregard or manipulate its provisions for his own benefits. The law of equity
always enable the courts to exercise legal rights to all equitable considerations that may arise in
individuals or group of individuals in a particular company set ups which may in one way or the
other be unjust or inequitable to others if there is insistence on the provisions of the legal rights
and the court have a legal duty to exercise those rights in an equitable way.

Gallagher and Ziegler (1990) Lifting the Corporate Veil in the Pursuit of Justice. JBL 292.
Gower and Davies’ (2008) Principles of Modern Company Law, London: Sweet & Maxwell,
Meinhardt, J. M (2000), Investor Beware: Protection of Minority Stakeholder Interests in
Closely Held Limited-Liability Business Organizations: Delaware Law and Its Adherents 40,
Washburn L.J., p. 288
Matheson, J. H., Maler, R. K. (2007) Simple Statutory Solution to Minority Oppression in the
Closely Held Business, A 91, Minn. L. Rev., p. 657
Chernichaw, A. (1994), Oppressed Shareholders in Close Corporations: A Market-Oriented
Statutory Remedy , Cardozo L. Rev.
Spratlin, A.D. (1990), Modern Remedies for Oppression in the Closely Held Corporation 60, 405

Corporations law 8
Grandfield, C. S. (2002), Reasonable Expectations of Minority Shareholders in Closely Held
Corporations: The Morality of Small Businesses, the DePaul Bus. L.J., p. 381
Thompson, R. B. (1993), Shareholder’s Cause of Action for Oppression, The 48, Bus. Law.,
p. 699
Art, R.C. (2002), Shareholder Rights and Remedies in Close Corporations: Oppression,
Fiduciary Duties, and Reasonable Expectations 28, J. Corp. L., p. 371
Prentice, D. (1988), The Theory of the Firm: Minority Shareholder Oppression: Sections 459-
461 of the Companies Act 1985 , Oxford Journal of Legal Studies

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