Legal Advice On Corporate Governance Issues: Essay.

Better Super Ltd and the other shareholder seek your advice as to the following:

1. Does the board of Waldmart have the power to issue bonus shares and can the shareholders at the upcoming AGM legally compel the board not to issue the share?
2. Can the shareholders stop the directors from increasing and paying the proposed dividend because it is commercially unwise to do so?
3. If shareholders vote against the remuneration report and a second strike is achieved, what will be the consequence of Waldmart Ltd and its director?

Issue and Answers related to Bonus Shares

The board of Waldmart have the power to issue bonus shares and now the shareholders can legally compel the board not to issue the share at the upcoming AGM.

According to the Corporation Act 2001 of Australia the sec 254T and 254A are establish the facts of the issue of share the bonus and debenture and the bonus of shares by the directors of the company. As per the Corporation Amendment Bill 2011 shows such circumstances where the second strike applied in the company[1].  The directors have the obligations as per the sec- 180-182 of the Corporation Act of Australia. As per these sections, the directors apply their duties for maintaining and controlling the share capitals of the shareholders. ASIC v Foretescue Metals Group Ltd is one of the same cases that can relate with this issue. They must do their works with proper care and a sensible way. The directors also look after the members of the company where they have the power to resolve if any conflicts have arrived between the shareholders[2].

As per the sec 254A of the Corporation Act 2001 of Australia, the directors have the powers to issue the bonus to the shareholders of the company. This act applies the statues of share bonus. At the time of issuing the bonus share, the directors must look after the priorities of both the company and the shareholders. No conflicts can arise their duty when they issuing the bonus to for the shareholders and that must not conflict with the profit of the company[3]. The decision must be form as per the favor of both. The bonus only issued when the company can accept the circumstances of sharing the bonus. The ability of sharing bonus only depend on the as per the capability of the company. When the bonus issued the share capital that always remain equal for each of the shareholders. As per the case study, the remuneration reports have been published for prevent the second strike by the shareholders of the company. The company can issue the bonus shares as per the rules of the company[4].  Whereas, the shareholders also have the rights to do the second strike if the company failed fulfill the requirements. The directors of the company give the offer to issue the bonus share for the shareholders because it will distract them from the second strike. The company as well as the directors never breaches their duties toward their shareholders. ASIC v Foretescue Metals Group Ltd. is one of the famous where the same issue arises as like Waldmart’s case. However, as per the Corporation Act 2001, the shareholders of the Waldmart have the rights to reinvestigate and claim the share capital as per their rights. They can challenge the decision of the shareholders as per the issuing the bonus shares.

Conclusion

As per the case study, the shareholders of the Waldmart have the right to compel the decisions of the directors of the company about the issuing the bonus shares. The company can issue the bonus shares as per the rules of the company.  Whereas, the shareholders also have the rights to do the second strike if the company fail to fulfill the requirements[5].

Rules related to Bonus Shares

As per the case study, the issue is whether the shareholders stop the directors from increasing and paying the proposed dividend because it is commercially unwise to do so.

As per the sec 254A of the Corporation Act 2001 the directors have the rights to issue the bonus shares to the shareholders according the terms and conditions of the company. In one of the famous case, The Bell Group Ltd V Westpac Banking Corporation (No 9) [2008] WASC 239[6] is the case where the breaching of duties of the directors has applied. According the sec 124 of the Corporation Act 2001 of Australia, the act will only applicable when no remuneration report publish at the time of issuing the bonus. The issuing bonuses are free as per the structure of the company. If the director of the company fails to satisfy the terms of the duties, then it will be the breach of the duties[7]. 

When the directors have allow the issuing bonus shares, then the shareholders must accept the offer but they can give back the offers to the company because they are the creditors of the company. As per the sec254A of the Corporation Act, the dividend amount sharing through the company is not make any limits where the guarantee are capable as per the company’s rule.

As per the case study, the issues that have been dealt in Waldmart, with the dividends are stated in the section 254 T of the Corporations Act where it establishes the principles and the other facts, which have been related to dividend share amount of the shareholders in Australia. The directors in the company can issue the dividends only if they are sure of the fact that the company will not face any financial loss and this  must done as per the best interest of the company. The profit amounts always give as dividend to the shareholders of any company. In this case, the Waldmart Ltd directors have  be sure about the fact that the assets of the company are more in comparison to the liability of the company making it easy for the company to clear off all its debts[8].

It becomes the directors’ duty to be fair and trustable to the shareholders before declaring its dividends. However, if the directors have attracted their shareholders for getting shareholders consent in relation to the remuneration report in order to avoid strikes from taking place in the company they must apply the proper rules and proper communication with the shareholders because the shareholders have equal rights to have their dividend as per their investments. . However, in this case the issue arises when the directors making the decision which was not formed as per the best interest of the company and its shareholders so that the company does not face any financial crisis. The shareholder have the right to compel against the directors of the company having full knowledge about the decision being changed  which  made as well as being aware of the fact that the decision that has been made and not cause any financial loss to the company. This is not form in the best interest of the company and its shareholders[9].

Application of Rules related to Bonus Shares

Thus, the shareholders decided to compel the decisions of the shareholders that can be done in the Annual General Meeting of the company, as the directors of the company did not make the decision in respect to the interest of the company and the shareholders. Here, the breach was established as per the duties of the director of the company. In the case, QBE Insurance Group Ltd v AISC this issues has been applied that the directors of the company did not issue the dividends to determine the company[10].

Conclusion

As per the case study, it can be stated that The shareholder have the right to compel against the directors of the company having full knowledge about the decision being changed  which  made as well as being aware of the fact that the decision that has been made and not cause any financial loss to the company. This is not form in the best interest of the company and its shareholders.

As per the case study, whether there will be any consequence of the directors of Waldmart Ltd if the shareholders vote against the remuneration report and a second strike is achieved.

Remuneration is the basic salary amount that employees get for the employment in the company. The nominal or minimum wages that employee have at the time of his employment is the lowest remuneration as per the Corporation Act 2001. The shareholders of the company are also performing as indirect employees in the company[11]. The shareholders who are the indirect employee of the company get their remuneration as per their investments in the shares. As per the act, remuneration is the rights of the shareholders when they hold the shares for the company.

The detail descriptions of remuneration reports always included in the reports of the director where the director makes it confirms that there must be details of the remuneration amount, payment details, share policies and the interest of the shares. In the Annual General meeting, the shareholders give their votes for the remuneration reports. The directors are always make it sure that no conflicts will arise at the time of providing the votes. They have the rights to maintain the process when shareholders give their votes[12].

The two-strike test in the Corporation Act 2011defines the process of providing votes, which give the rights to the shareholders to votes against the remuneration reports. When nobody give the votes for the remuneration reports and the quantity of the votes must be 25% or more than it must. In the vote, process if needed then the re-election must be happen in between 90 days. In the vote process, the directors of the company have no rights to vote for the re-election. The quantity of the vote if exceed more than 50% or the minimum 50% then the directors in between 90 days, should arrange for a spill meeting. The details of the spill meeting should include in the Annual General Meeting of second strike which must published by the directors. In the details, the directors must mention about the circumstances of the resolutions where shareholders use the proxy voting process[13].

Conclusion related to Bonus Shares

The details of nomination of the voting candidates must mention in the spill meeting. When the Annual General Meeting will happen, the directors will vacate their positions for the next directors. When the voting process get over and the nominated candidate elects, the managers of the company cease the office. In between, if the directors of the company not satisfy as per the shareholders the directors will treat requirement and the vote process not process in between the 90 days then it as an offence. In the proxy voting process, if the proxy holders do not give their votes, then the amount automatically transfers to the chairperson. The chairperson must give their votes to all the proxy holders[14]. The remuneration report must disclose by the company, where the company must consultant with the consultants. The proxy voting process only allows the shareholders to give their votes where the voting process cast as per the directed proxy requirements. The proxy voting not process separately. As per the remuneration report, the voting process of the proxy holders continues as the present of the directors of the company[15]. 

In the Waldmart Ltd, the shareholders can give their votes against the remuneration reports. If such acts happen then the second strike took it place. It is the liability of the directors that they will arrange the spill meeting for proxy voting[16]. In the spill meeting, the directors will mention about the proxy voting process of the remuneration report. They must arrange the meeting in between 90 days before the spill meeting happen[17].

Conclusion

As per the case study, it can conclude that the powers to issue the bonus shares are given to the directors. The directors have also right to apply their rights with duty of care. The duties always sever not only the company but also towards the shareholders and the employees. As per the sec 254A of the Corporation Act, the powers to issue bonus stated with the proper application of the acts. In the sec 180-183 of the Corporation Act, describe the powers of the issue bonus.  The two-strike test defines the procedure of giving votes, which provide the rights to the shareholders to give votes against the remuneration reports. The directors of Waldmert can arrange the spill meeting for the shareholders if the two strikes take place. Hence, while considering the re-election the managing director of the company will not be involved in this process.

References

ASIC v Foretescue Metals Group Ltd

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Insurance Group Ltd v AISC

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