Overview

The purpose of the critical essay is for students to apply theoretical understanding to doctrinal areas of corporate law. The focus is on analysis, justification and critique of doctrinal elements of corporate law through comparing and contrasting different theories of the corporation.

Each question has a different due date and students are able to self-select which question they complete. You are only required to respond to one (1) question.

Essay Question

Question:

Drawing on the theoretical perspectives discussed in the week 2 lectures and your own research, respond to one (1) of the following questions:

1. Several legal commentators have described the doctrine of separate legal personality as a ‘double-edged sword’. What are the competing interests that create this ‘double-edged sword’? Do you think this is an apt analogy? (appropriate or suitable in the circumstances) In your answer make specific reference to sections of the Corporations Act 2001 (Cth) and consider at least two different theoretical/critical perspectives on the corporation.

Criteria & Marking:

Each student’s answer will be marked out of 100 against the following criteria:

Content and analysis (75%):

• Is the relevant law accurately outlined and explained?
• Does the answer engage and accurately present the relevant theoretical/critical positions?
• Is the analysis of the theoretical perspectives, as it applies to the law, well-articulated and the overall argument/thesis logical and well supported?

Presentation, Structure and Expression (25%):

This requirement covers grammar, punctuation, spelling, referencing, use of headings and overall structure of the essay (including introduction and conclusion).

 

 

Instructions

You are not required to do too much external work. I will give you the textbooks (and it’s chapters) and the lecture slides that you need to be able to take on this essay.

The Case of Salomon v Salomon & Co Ltd will NEED to be MENTIONED. Especially some of the judges extracts…but not word for word

Another external article you could use is:

http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1081&context=blr

THE REST OF THE EXTERNAL ARTICLES OR CASES YOU USE WILL NEED TO BE AUSTRALIAN ARTICLES AND CASES.

FOOTNOTES ARE NEEDED. THE REFERENCING STYLE IS THE AUSTRALIAN GUIDE TO LEGAL CITATION (AND NOTHING ELSE).

YOU WILL NEED A TITLE FOR THE ESSAY

THE MOST IMPORTANT THING: CONSIDERING TWO THEORETICAL /CITICAL PERSPECTIVES ON CORPORATION WHILST ANSWERING THE QUESTION

Module 3 (below) is the most important module to be used.

 

The books are below and they need to be MENTIONED in the essay: The chapters next to the books are the only chapters you need to read for this essay

• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 1, [1.1]-[1.5], pp1-6.
• Turner, Australian Commercial Law, 2006, Lawbook, chapter 13, pp165-174
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 3, [3.9]-[3.35], pp72-120
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 1, [1.6]-[1.12], pp6-16.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 2, [2.23]-[2.32], pp51-62.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 1, [1.13]-[1.23], pp16-34
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 3, [3.1]-[3.8], pp64-72 and Chapter 4.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 1, [1.13]-[1.23], pp16-34.
• Tomasic, Bottomley & McQueen Chapter 2.8 “The Corporation: Perspectives and Theories” pp 51-66
• Austin & Ramsay, Ford’s Principles of Corporations Law, LexisNexis, 1995- [Online] Sections 1.380-1.390.9 “Aspects of Corporate Law Theory”
• Wilson, T “The Pursuit of Profit at All Costs: Corporate Law as a Barrier to
• Corporate Social Responsibility” (Dec 2005) 30(6) Alternative Law Journal
• 278

 

Cases

Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics

Ltd [1971] 2 QB 711

Salomon v Salomon & Co Ltd

 

Acts

• Corporations Act 2001 (Cth) ss 9 (definition of ‘public company’), 45A, 46, 50 and 112
• Corporations Act 2001 (Cth) ss3, 9 and s45A.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 3, [3.8], pp71-72.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 4.
• Harris, Company Law: Theories, Principles and Applications, 2nd Edition, 2015, LexisNexis Butterworth, Chapter 4.

 

 

 

 

 

OVERVIEW OF THE COURSE!!

 

 

Module 2: The Corporate Form: Theory, History & Regulatory Framework

 

The notion of separate legal personality is one of the most attractive and also most controversial aspects of corporations. As far as the common law is concerned, the concept first arose in medieval times with respect to monasteries and governmentboroughs. One of the main reasons for separate legal personality in that period was for the benefits of perpetual succession. When it comes to the changes to the corporate form in the 18th and 19th centuries, one of the major issues was no longer perpetual succession but limited liability. Read Harris pp6-16 noting the characteristics of companies that began to emerge from the late 17th century onwards and that remain a part of contemporary notions of the company.

In the nineteenth century each of the Australian colonies had their own system of

corporate legislation and administration. All colonies modelled their legislation

on some particular iteration of the English legislation. However, as Companies

Acts were introduced and revised at different times there was no consistency in

the law from state to state, nor for that matter in the administration or

interpretation of the relevant Acts from colony to colony.

Thus, when federation occurred there was an effectively different form of the

Companies Act in each of the new states (although all based on some form of the

English Companies Act) and a wide divergence of administrative practice in each

of the States. In order to attempt to deal with this problem a `corporations power’

was inserted in the Constitution in section 51 (xx) giving the Commonwealth the

power `to make laws with respect to…foreign corporations, and trading or financial

corporations formed within the limits of the Commonwealth’.

Early in the life of the new Commonwealth the above provision was given a

narrow interpretation by the High Court which stated that whilst the

Commonwealth was vested with a power to make laws respecting corporations

already formed (under State legislation), they were not given any power by s51

(xx) in respect to the creation of corporations, a power which was, by implication,

still vested in the States. As a consequence of the decision in Huddart Parker & Co

Pty Ltd v Moorehead (1909) 8 CLR 330 the Commonwealth largely remained

excluded from a role in the development of companies law and the various States

continued to form companies under their own disparate versions of the Companies

Act, and to administer those companies under administrative practices which

varied from state to state.

Due to agitation from business interests and from the Imperial government in the

U.K., there were various attempts during the 1920s and 1930s to change this state

of affairs by referendum and to thus alter the Constitution so that the

Commonwealth would have sole power over both the formation and regulation

of companies in Australia. None of these referenda were successful, largely due to

the fact that each of these referenda were tied up with a number of other changes

including controversial proposals to change the industrial relations legislation of

the time, so the status quo regarding the States’ powers over corporations law

remained.

In the late 1950s, disenchantment with this state of affairs amongst Australian

businesses was almost complete. Again they lobbied government and on this

occasion the response was for the States to get together and agree on a Uniform

Companies Act which would be enacted in each State. The idea was that this would

create consistency between States in the provisions which covered corporations,

and in particular those that affected corporations operating nationally. However

the goal of consistency under the Uniform Act scheme failed insofar as it did not provide a basis upon which the legislation would be kept uniform between states

over time, nor any mechanism by which the administration of the Act would be

consistent from state to state. Indeed not long after the Uniform Act was in place in

each State, various jurisdictions commenced amending its provisions – thus again

creating inconsistency.

The High Court of Australia had not really considered the question of the

meaning of s.51 (xx) since the Huddart Parker case, but gave some indications in

Strickland v Rocla Pipes (1971) 124 CLR 468 that it might be prepared to reconsider

the decision in that case. In the meantime there was a series of corporate collapses,

which exposed the vulnerability of a corporate law system that had no national

regulator and which was a mish-mash of provisions that varied from State to

State. The corporate law system seemed ripe for exploitation by unscrupulous

businessmen and the Commonwealth government became increasingly

concerned about the possible macro-economic effects such weak corporate

regulation might give rise too.

As a stop-gap measure a co-operative scheme was put in place in 1980 that gave

rise to a single Corporations Law for all States through the use of the `application

of laws’ mechanism. Consistency in legislation was to be maintained by regular

meetings of a Ministerial Council composed of ministers from each state (the

Attorneys-General and Commonwealth ministerial representatives).

The new co-operative scheme introduced in 1980 also established a national

regulator for the first time, the National Companies and Securities Commission.

However the state offices of this new body were effectively the old state

Registrars of Companies and the national body based in Canberra was fairly

weak and under-funded, at least in its initial incarnation. In retrospect it is not

surprising that the co-operative scheme came to grief fairly rapidly, but it was the

first real attempt at a national scheme.

In 1987 the newly elected Labor administration moved to arrogate all powers

respecting Corporations Law to the Commonwealth using the failure of the NCSC

and the rising tide of corporate collapse as a rationale. National legislation was

drafted and provision was made for a new national regulator that would be

properly resourced. However, as there was only one State Labor government at

the time there was considerable opposition to these initiatives. State opposition

was not only on party political grounds but was also related to the considerable

loss to state revenues such a national scheme would give rise too. Despite this

opposition, the Commonwealth government pressed on with its plan, only to find

the legislation challenged in the High Court of Australia in NSW v Commonwealth

(1990) 169 CLR 482 in which the majority held the proposed scheme

unconstitutional on the grounds that the Commonwealth government did not

possess powers in respect to the `formation’ of corporations. The majority noted

with approval the decision in the Huddart Parker case.

After this decision, further negotiations occurred and a new National scheme was

agreed between the States and the Commonwealth. It was in some ways a beefedup

version of the earlier co-operative scheme, but in this case the States had

agreed with the Commonwealth to cede the regulatory powers over companies to

a new body named the Australian Securities Commission. This new scheme

stayed in place until 2001 but its effective death knell occurred when the High

Court ruled against `cross vesting’ arrangements which were in place under the

scheme as constitutionally impermissible in R v Wakim. This was followed by the

later decision in R v Hughes, which raised doubt as to the constitutional validity of

uniform administration under the national scheme established in 1991.

The above decisions set the scene for another rethink of how to firmly entrench a

national scheme of corporations law and administration in Australia. The

principal basis for the new Corporations Act (2001) and the ASIC Act (2001) was the

`state referral power’ in the Constitution in s.51 (xxxvii).

 

THE THEORIES

Corporate Social Responsibility One of the questions consistently raised about the role of corporations in society is: who are they responsible to? Directors of corporations owe duties to act in the best interests of the corporation (see s181 of the Corporations Act 2001 (Cth)), which has been traditionally understood to mean ‘the shareholders as a whole’ and, in particular, their financial interests (or in certain circumstances, that of creditors). This raises the question of whether directors are able to act in the interests of parties other than shareholders

 

Read the reading from Harris and the extracts from Tomasic, Bottomley &

McQueen and from Austin & Ramsay and make a brief summary of the different theories and perspectives. This will form an important foundation for your critical essay.

 

 

Module 3: Registration and its effects

The principal distinguishing feature of a corporation is that it is a separate legal entity from its members and directors. The most common type of corporation is the company. Companies obtain their corporate status by registration under the Corporations Act 2001 (Cth).

 

Read Corporations Act s112 and Harris, pp64-71, noting the different types of companies and the ways they may be classified as follows:

• By liability o
• Limited by shares o
• Limited by guarantee
• Unlimited
• No liability
• Proprietorship (public vs private)
• Public: Listed (on a stock exchange – e.g. the ASX) or Unlisted
• o Proprietary: Small or Large
• Jurisdiction – e.g. foreign, domestic
• Purpose – e.g. trustee, investment, trading
• Relationship – e.g. holding, parent, subsidiary, related, associated
• Obligations – e.g. disclosing entity

Many of today’s large public companies operate in the context of a ‘corporate group’. This is where companies are owned/controlled not just be natural persons but by other companies. Read Corporations Act ss46 and 50 noting the definition of a subsidiary.

 

The process of registering a new company begins with Form 201 – Application for registration as an Australian company. The Australian Securities and Investments Commission (ASIC) website (www.asic.gov.au) has a good overview of the procedure including links to relevant forms. Review the steps [listed under Companies > Starting] outlined in relation to registration:

1. Decide if a company or business structure is right for you
2. Choose a company name
3. Decide how to operate your company
4. Understand your legal obligations as an officeholder
5. Get consent from officeholders, members and occupiers
6. Register your company
7. Understand your legal obligations regarding your company name, ACN and ABN

Read pp 71-72 of Harris which outlines the procedure for registering a company. In addition, review pp59-71.

 

Once registered, a company has:

• separate legal personality;
• perpetual succession;
• all the powers of a natural person + special corporate powers;
• the capacity to sue and be sued in its own name;
• the power to own and dispose of property; and
• limited liability.

Read Harris chapter 4, paying close attention to the cases discussed. In addition to examining the consequences of registration listed above, we will consider some of the potentially less desirable consequences of the separate personality doctrine. These include (and should be a focus for your readings):

• the outcome in Macaura v Northern Assurance Co Ltd (1925) AC 619;
• the risk of business failure being transferred to the creditors of the company;
• the risk of employees suffering loss if their employer company has no assets; and
• the risk of victims of tort being unable to recover compensation where the company that is the wrongdoer has no assets.

You should find a lot of these issues are quite pertinent in the current economic

climate.

 

A particular focus for this lecture will be the notion of limited liability and ‘the corporate veil’. Once a company is registered, it is said that a ‘corporate veil’ exists which separates the corporation from its members and controllers. This is the effect of both limited liability and separate legal personality. However, the corporate veil also has the potential for abuse. The courts have often talked about circumstances in which the corporate veil should be ‘lifted’ or ‘pierced’ in order to ‘get to’ the persons and companies behind it. Whilst this process is often referred to, in many circumstances the separate legal personality of the corporation is still recognized and other doctrines (such as agency) are simply applied. Review Harris chapter 4 and note the circumstances in which members/controllers of a company may be held liable. The implications of the doctrines of separate legal personality and the corporate veil become particularly relevant in relation to corporate groups. The application of the doctrine in Salomon v Salomon to corporate groups means that each company in a corporate group is considered to have separate legal personality from each other company. Combined with the notion of the corporate veil, this means that a parent company, in principle, will not be held liable for the debts or actions of its subsidiary. In practice, this is circumvented in a number of circumstances by the giving of guarantees between group companies. However, it does mean in a number of circumstances that a wealthy parent company may not be required to fund the debts of a poor subsidiary. Review the readings from Harris focusing on the application of Salomon v Salomon to corporate groups and note the circumstances in which parent companies have been held liable for their subsidiaries. A recent example of some of the problems around the separate legal personality doctrine and the resulting privilege of limited liability is in relation to the James Hardie series of cases. The recommended reading includes an article by Peta Spender, which deals with some of these issues.