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Corporations Law Lee Farming

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Corporations Law Lee Farming

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1. Explain what is meant by an entrenched provision and why David in your case study may want to have such provisions included in the company’s constitution.In answering your question please refer to the relevant provisions of the Corporations Act?
2. What type of authority do you think Michelle has to order the amount of stationery and the i pad. In your opinion do you think the company is bound to pay Office works or not?

1. Companies are alternative business vehicles to sole trader proprietorship. The advantages of companies over the later cannot be matched. A company’s strength is the separate legal personality concept that allows for a differentiation between the management from ownership as part of corporate governance (Lee v. Lee Air Farming Ltd, 1961). Additionally, company can perform acts as a body corporate, own property, borrow and lend money, sue and be sued in its own corporate name. Notably, a company accommodates more business activities, a feature that corresponds well to David desire once the Racing Parts Pty Ltd. expands in future (Corporations Act, 200, s.148).
Presently, David wishes to be the sole director and shareholder, the Corporations Act (2001) is readily available once he adds more people on board as companys’ employ more people, with an option of more than one director. Companies increase capital and investment base, provide for risk sharing as liability of shareholders is limited to the extent of their contribution. David is concerned on the concept of company property and members dealing with company’s affairs without his consent or misappropriating the same. As decided in the case of (Regina v Phillipou, (1989), there is a like hood of shareholders stealing from their own company. They are therefore to be charged separately with theft from the company. The procedure to incorporate and manage Companies in Australia is stipulated under the Act (Corporations Act, 2001 s. 147).
With all the above in perspective, an entrenched provision is key to protect David’s interest as the founder of Racing Parts Pty Ltd. An entrenched provision is a fixed clause, so basic in the constitution of the Company to strictly require any amendment, repeal or resolution intending to be passed in relation to company’s affairs, to get consent from members (Corporations Act, 200, s.136 (2)). It acts as protective “gear” and equated to the eternity clause, mostly associated with the difficulty to amend the constitution. Amendment are difficult to do though not impossible, however the same is an uphill task. The Corporations Act, 2001 s.136 (3)) provides for an entrenched provision in Articles of Association. Overall, the provision protects the interest of minority shareholders against prejudicial act by majority. The Corporations Act, 2001 s.136 (1)) states that for a special resolution to have effect, 75% majority shareholders must votes. Additionally, the provision ensures that company affairs and decision affecting its operation are discussed and agreed on. Notably, David intends to invest his properties in the business. The Corporation Act, s. 51E) and Personal Properties Securities Act, 2009 read together with an entrenched provision should go to protect  secured creditors of the company including David, and  outline that debenture holders are to be paid first in case of liquidation and the company to insure the said properties.
2. As a general principal of law, directors of the company are agents of the company and or employees whereas the shareholders are the sole owners of the company. Therefore, directors are granted with actual authority to act for the company and bind it in contracts, so long as their actions are in good faith, for the success of the company and are due diligence, skill and care is exercised in their performance. The principle of actual authority was emphasized by Lord Diplock in Hely-Hutchinson v Bray head Ltd (1968) case. In this case, the director who continued to enter into contracts, binding the company with the permission of the board of directors, was held to have had actual authority. Moreover, the case pointed to three circumstances that must exist for actual authority to exist; among them consent from the board, delegation to another party, reliance of the said party authority by third parties.
Therefore, Michelle acted on instructions from Tom, the director of Racing Parts Pty Ltd and a general manager. Tom had therefore created an agency relation by simply giving authority to Michelle to order stationery and ipad, office works of the company from third parties. A complete Agency relationship must have the three parties (Principal, agent and third party). Notably, the principal requires the agent to act on his or her behalf in dealings with third parties. Third parties must place reliance on the representation of the agent to enter into contracts, knowing that they are dealing with the principal.
Indeed Tom delegated to Michelle, and under agency relationship, she acquires ostensible (apparent) authority. In Freeman and Lockyer v Buckhurst Park Properties Ltd (1964), ostensible (apparent) authority arose for the agent acted from a principal with actual authority and entered into binding contracts. In the above case, a director of Buckhurst, thus an agent of the company gave an order to architects Freeman and Lockyer for one of Buckhurst projects. The company later withheld payments once the invoices were presented to them, alleging that the said director had no authority to enter into such contracts on behalf of the company. This is an implied authority governed by doctrine of estoppels. It simply allows the agent to act with ostensible authority and at the same time, stops the principal from denying such authority was given to the agent. In the circumstance, Michelle acts of dealing with the suppliers are valid. Therefore, Racing Parts Pty Ltd.  through Tom as the principal, contract with the suppliers. The doctrine of estoppel prevents the company from shifting liability to third party for contracting with Michelle (a part time receptionist) or to Michelle herself. They are personally liable to pay for delivery of the said office works.
Corporations Act (2001) (cht).
Freeman and Lockyer v Buckhurst Park Properties Ltd (1964) 2 QB 480 Hely-Hutchinson v Brayhead Ltd (1968) 1 QB 549Lee v Lee’s Air Farming Ltd [1960] UKPC 33 Regina v Phillipou (1989) 89 Cr App R 290

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