Law

Example Exam Q&A.

LAW00004 Company Law s 2 2018

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1 Sample Exam

© John ORR.

This material is subject to copyright. Not

to be reproduced without written

permission from the author.

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2 - Topic 3 -

*****‘Takeaways’*****

(key points to be remembered)

• Promoters and their duties

• Pre-registration Contracts

• Internal Rules (Purpose/ Role; RR &or

Constitution/ statutory contract

• Altering the company’s constitution (statutory

& general law rules)

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3 Question styles & Answer

Structures

• Problem Style Q: I: Issue

L: Law

A: Apply to law to the facts

C: Conclusion

• Essay Style Q: Introduction

Body

Conclusion

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4 Sample Exam – Q2.

• Q2 is a problem style question and

ILAC/HIRAC is the structure to use.

Your approach could be as follows:

• What is specifically asked?

• What is the issue?

• What is the law?

• Apply the law to the facts

• Conclude on the likely outcome.

• Ensure your response answers the

question asked.

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5 Sample Exam – Q2.

Samuel is a promoter of Edmanuals Pty and

executed a contract on behalf of Edmanuals Pty

before Edmanuals had been registered.

There are two issues for discussion.

1. the pre-registration contract and

2. the duties of a promoter.

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6 Sample Exam – Q2.

Issue: Pre-registration contract

The Law:

• Note that the common law relating to pre-

registration contracts has been displaced by

Part 2B.3 Corporations Act; see s.133.

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7 Part 2B.3

(Contracts before registration.)

• The basic structure is:

• 131(1) company becomes bound

• 131(2) person entering the contract is liable

• 131(3) & (4) powers of the court

• 132 person released from liability by 3P

• 133 covers the field.

• ** expand on the above.

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8 Sample Exam – Q2. Pre-registration contract: Application

• Under s.131(1) Edmauals may become liable for the

pre-registration contract if, within a reasonable time,

it ratifies the contract after registration.

• Where Edmanuals fails to ratify the contract Samuel

may be liable to pay damages to Samuel’s Cars Pty

Ltd, the other party to the pre-registration contract;

s.131(2)

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9 Sample Exam – Q2. Pre-registration contract: Application

• If Samuel’s Cars Pty Ltd brings proceedings to

recover damages against Edmanuals for failing to

ratify the pre-registration contract the court has

power to do anything it considers appropriate in the

circumstances.

• Here it is unlikely the court will order the Edmanuals

to pay damages or any amount to a party to the

contract.

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10 Sample Exam – Q2.

Pre-registration contract

• A promoter (Samuel) may be liable for pre-registration

contracts. However s.132 provides that a party to the

contract (Samuel’s Cars Pty Ltd) may release the

person (Samuel) from liability; s.132(1). Given the

facts it is likely that Samuel’s Cars Pty will release

Samuel from liability. However the person (Samuel)

does not have a right of indemnity against the

company (Edmanuels Pty); s.132(2)

• Edmanuals should be advised not to ratify the pre-

registration contract.

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11 Sample Exam – Q2.

Issue: Promoters duties

The Law:

• Start with a brief discussion on who are promoters.

• Promoters include persons involved in promoting a

company and inactive persons who leave the

promotion activities to others but who share in the

profits stemming from the company’s creation; Tracy v

Mandalay . The facts are clear that Samuel is involved

in the promotion activities and is a promoter.

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12 Sample Exam – Q2.

Promoters duties

• Discuss the promoter’s duties owed to the company

• Promoters stand in a fiduciary relationship with the

company and must act in the company’s best

interests, act in good faith and the ‘utmost condour

and honesty’,

• Must not have a conflict of interest

• Must not profit at the expense of the proposed

company and must disclose all material facts

(including the nature and extent of any interest thy

may have in a transaction to an impartial board if

possible or to all the shareholders

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13 Sample Exam – Q2.

Promoters duties

• Where the promoter makes an indirect unauthorised

(secret) profit by receiving a reward for arranging a

3rd party to contract with the company the promoter

is liable to account to the company for the profit;

• A contract by a promoter with the company will be

voidable at the company’s option in the absence of

sufficient disclosure; Gluckstein v Barnes

• In any event $10,000 per month for the hiring of a

car is excessive and the company can avoid the

contract due to the lack of disclosure regarding

Samuel’s nature and extent of his involvement in

Edmanuals Pty.

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14 Sample Exam

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15 - Topic 2 -

*****‘Takeaways’*****

(key points to be remembered)

• The relationship between s 51(xx) Australian

Constitution & Corporations Act 2001 (Cth)

• Role of ASIC

• The Separate Legal Entity Doctrine (&

Salomon’s Case

• Corporate Veil

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16 Sample Exam – Q3.

• This is an essay style question and

ILAC/HIRAC is not the structure to use.

• What is specifically asked?

• Look at the statement and address the

required discussion.

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17 Sample Exam – Q3.

The statement refers to the separate legal entity

doctrine.

You need to explain the doctrine and discuss the main

legal consequences of the doctrine under both:

• the common law; and

• the Corporations Act 2001 (Cth).

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18 SLE under the Common Law

• Students are expected to discuss Salomon and the

development of the separate legal entities doctrine

through Lees Air Farming, and Macaura.

• The question invites a discussion on the development

of the ‘separate legal entities doctrine’, ‘limited liability’

and the ‘veil of incorporation’. You could give some

common law examples of lifting the veil.

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19 SLE under the Corp Act

• Regarding the Corporations Act you should

discuss when a company comes into

existence; s.119 and the legal capacity and

powers of a company (esp. as an individual)

as expressed in s.124.

• You should develop your answer to include

areas such as perpetual succession and

management structure; s.198A (rr) and some

statutory examples of lifting the veil.