BLAW20001

Corporate Law 2022

Tutorial 3
Decision Making Within Companies
Variation of Class Rights
CORPORATE LAW 2022 TUTORIAL 3 DECISION MAKING
VARIATION OF CLASS RIGHTS

Mr. Julian D. Panetta

Melbourne Law School

INSTRUCTIONS Please attempt questions 1 and 2 below and have them ready to discuss during
the tutorial.

The focus of this tutorial is to expose you to some hypothetical problems so you
can practice IRAC.

Please have your textbook available for each class so you become familiar with
how to use the text and refer to the legislation.

ASSUMED • How are decisions made in companies: [6-200 – 6-320]

READING • Board of directors’ power of management: [6-400 – 6-460]
• Background to directors: [10-001 – 10-180; 10-300 – 10-370; 10-500 – 10-
540]
• Members’ decision-making powers: [6-500; 7-001 – 7-100; 7-200 – 7-320] •
Varying class rights: [7-340; 19-280]
• Members’ control over the composition of the Board: [7-400; 10-400 - 10-
450]
PLEASE NOTE • if you are registered in a Zoom tutorial or joining a Zoom consultation,
please have your video camera on. This will provide a better teaching and
learning experience for staff and students while the course is delivered
online.

• all students are encouraged to make use of the weekly discussion boards
on Canvas. This is a great place to interact with each other and engage
with the material. If you have questions for the teaching time, please join a
consultation.

• when you come across a section or case reference in the readings or

lectures, you are expected to read and understand it. You are not expected
to do any further reading beyond that which is in the prescribed readings.

CONSULTATION • Monday: 12noon – 1pm (Rm 221 and via Zoom)

TIMES • Tuesday: 12noon – 1pm (Rm 221 and via Zoom)
• Wednesday: 12noon – 1pm (G29 and via Zoom)
• Thursday: 5:15pm – 6:15pm (Zoom), 6:15pm – 7:15pm (Zoom) • Friday:
11am – 12noon (Zoom)

1
THE UNIVERSITY OF MELBOURNE
© 2022
CORPORATE LAW 2022 TUTORIAL 3 DECISION MAKING
VARIATION OF CLASS RIGHTS

OTHER Lots of great activities happening in Melbourne over the next few weeks. If you
love your social media, check out “Happy Place” at Crown and save some
pennies with Midweek Melbourne Money!

Q1 Catterwell Ltd’s share capital is comprised of 100 million ordinary shares and 25
Intermediate million preference shares. Coote Ltd is a shareholder in Catterwell Ltd.
Hypo
The directors are considering the following two proposals:

Proposal 1:

To divide the ordinary shares into 2 distinct classes - A class ordinary shares and B
class ordinary shares. The shares held by Coote Ltd will be called Class A shares and
they will have 2 votes per share at general meetings. This will give Coote Ltd 20% of
the voting capital. The remaining ordinary shares will be regarded as B class ordinary
shares and will continue to enjoy the same rights (e.g. 1 vote per share) as they had
before the division.

Proposal 2:

To issue 10 million preference shares to Coote Ltd, at market price. These preference
shares will rank equally with the existing preference shares.

The directors of Catterwell Ltd seek your advice on their obligations under the
Corporations Act:

(i) In relation to Proposal 1, does the company have to obtain the approval of
the existing ordinary shareholders before it can be implemented? And
If provisions in constitution then only need to follow those- otherwise will
require special resolution of all members, then separately special resolution of
Coote followed by special resolution of other shareholders

IRAC- Does the company need to obtain approval from shareholders to

implement Proposal 1?
General Law- requires a strict change in legal position (Greenhaigh and White) i.e.
an actual change to the rights of the shareholders. Class A shares have had a
general law variation to their rights as they have had a change in their voting rights
(1 vote to 2 votes), whilst Class B shares have not had a general law variation as
their voting rights remain the same (Greenhaigh v Aderne Cinemas Ltd AND White v
Bristol Aeroplane Co)
Deeming Provisions- s246C(1) states that if the shares of a company are divided

2
THE UNIVERSITY OF MELBOURNE
© 2022
CORPORATE LAW 2022 TUTORIAL 3 DECISION MAKING
VARIATION OF CLASS RIGHTS

into classes (Class A and class B) and those classes have varying rights (2
votes/share for Class A, 1 vote/share for Class B), every shareholder is considered
to have had a variation of class rights.
S246B(1) states that if a company has procedures relating to changing class rights
within its constitution, these procedures should be followed. As Catterwell does not
have a clause within its constitution, this section is not relevant and as such general
law and deeming provisions will be used.
S246B(2) states that if a company does not have a constitution with procedures for
variations to class rights, a special resolution will be required of all members, as
well as separate special resolutions for each of the classes of shares that are
impacted by this proposed change.
Based on the above, approval of ordinary shareholders, Class A and Class B
shareholders would be required by way of 3 separate special resolutions. As Coote
only has 10% of the voting power it is unlikely they would meet the 75% threshold
required in the special resolution, whilst 75% of Class B shareholders are unlikely to
vote in favour as this would dilute their shares.

(ii) In relation to Proposal 2, does the company have to obtain the approval of its
existing preference shareholders before it can be implemented?
No the company is able to issue shares at its discretion without approval of
members

IRAC- Does the company need to obtain approval from shareholders to

implement Proposal 2?
General Law- requires a strict change in legal position (Greenhaigh and White) i.e.
an actual change to the rights of the shareholders. Proposal 2 does not result in an
actual change to preference shareholders (that is, there is no change to voting or
dividend rights), and as such will not be recognised.
Deeming Provisions- s246C(6) states that if the company issues more equally
ranking shares this will vary the rights of existing shareholders, unless the issue is
authorised by the existing preference shareholders, or the constitution makes a
provision for this event. As this is not the case the deeming provisions state that
existing preference shareholders will not have to approve the issuing of more
preference shares. This is a deemed variation under s246C(6) as Caderwell is
proposing 10 million shares, and s246C(6)(a) and s246C(6)(b) is not satisfied as this
issue has not been accepted in terms of issue or been outlined by the constitution.
Based on the above, the company (at a general meeting) and existing
preference shareholders will be required to both pass separate special
resolutions in order for this issuance of shares to occur, with this unlikely to
pass as existing preference shareholders will not wish their shares to be diluted.

3
THE UNIVERSITY OF MELBOURNE
© 2022
CORPORATE LAW 2022 TUTORIAL 3 DECISION MAKING
VARIATION OF CLASS RIGHTS

Q2 Bellatrix and Fleur are the shareholders of Equities Pty Ltd, a financial advice
Intermediate company. Bellatrix owns 51% of the shares and Fleur owns 49%.
Hypo
Fleur is a qualified accountant and accredited financial advisor. Bellatrix has a full-
time job as a lawyer.

Fleur is the company’s sole director and sole employee. However, because they are
good friends and because Bellatrix is the majority shareholder, Fleur and Bellatrix
frequently discuss how the business is going.

The company owes a large amount of money to the Eastpac Bank and its manager,
Neville, often calls Fleur and gives her advice on possible ways to improve the
business’s revenue.

Is Bellatrix or Neville a director of Equities?

Only if the advice given by either is frequently actioned by Fleur- i.e. they will essentially
decide what the company will do. Neville acting in his capacity therefore no

IRAC- Is Bellatrix a director of Equities?

Under s9, a director is a person who is appointed to the position of a director or is an
alternate director and is acting as a director. Bellatrix not shadow director as doesn’t act
in position of director, and is not De Factor director as Fleur not accustomed to act in
accordance with her advice

Is Neville a Director?
Under s201D, Neville has not been properly appointed as he has not consented to this.
Similarly, as Neville is not acting as a director, he is not considered to be a de factor
director. As Neville gives advice (and Fleur may or may not often act upon it), and it is
likely not in his performance as a bank manager he will be considered a shadow director.

4
THE UNIVERSITY OF MELBOURNE
© 2022
CORPORATE LAW 2022 TUTORIAL 3 DECISION MAKING
VARIATION OF CLASS RIGHTS

5
THE UNIVERSITY OF MELBOURNE
© 2022