• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Corporation Law - Case Study Stately Funeral Homes Ltd

Extracts from this document...


Corporations Law Case Study Stately Funeral Homes Ltd is an unlisted public company that offers luxurious funeral services for the high-end market in the family's "Manor". The executive directors are Morticia (she is also CEO) and Gomez Addams, and Thing T. Thing. Each holds 20 shares. Fred and Lillian Munster, and Wednesday and Pugsley Addams, all hold 10 shares each. Both the Board and shareholders recognise Morticia's "excellent and most successful management." However, another lavish funeral home, Hampshire Haven, opens in the neighbourhood and competition becomes fierce. Stately decides it needs to expand its operations to get some competitive advantages. At the next Board meeting, Morticia makes a convincing business case for Stately to incorporate a subsidiary to buy Highway to Paradise Pty Ltd ("H2P"), a business that runs 3 hearses in the local area. With H2P, and some modifications to the family Manor, Morticia tells the Board that Stately could "process" triple the number of "clients" per day. Morticia assumes everyone knows that, through one of her companies, Morticia owns a 5% stake in H2P. So she simply says "if we go ahead with this, remember I'm interested." Stately incorporates a subsidiary, Freeway to Paradise Pty Ltd (F2P) to acquire H2P. However, F2P needs another $90,000 to complete the purchase. Gomez and Thing each purchase 45,000 $1 shares in F2P, so that it has sufficient funds. The deal goes through and, although they pay top market value for H2P, Stately immediately triples its daily funeral services. Business is very good. Stately's success comes to the attention of Simple Serenity Ltd, a large ASX-listed no-frills funeral operation with 113 locations nationally. ...read more.


It was held the directors had breached their duty, despite their good intentions. Liability did not depend on fraud, or whether the profit should have gone to the company; it arose from "the mere fact of a profit having been made".14 They should have obtained the members' approval. Similarly, Gomez and Thing bought the shares to allow the subsidiary to acquire H2P, but they did not declare full details to the company's members or obtain their approval. Applying Regal,15 it is likely they would be liable to pay back their profits. (237) Question 3: The share issue, resolution to sell and sale contracts Facts/Issues: Thing and Gomez caused Stately to issue 100 shares each to themselves, so they could pass the resolution to sell. If the issue is set aside, the resolution did not have the required 75% member approval and might be set aside. Gomez also wants to rescind the sale. Law: Directors have an equitable fiduciary duty to exercise their powers in good faith, and for a proper purpose: Bailey v Mandala Private Hospital Pty Ltd;16 Whitehouse v Carlton Hotel Pty Ltd.17 Section 1322(2) CA allows a court to set aside a resolution where it has procedural irregularities that cause substantial injustice which cannot be remedied any other way. Where directors breach their fiduciary duty, rescission may be ordered: Transvaal Lands Company.18 The company must seek rescission, as the duties are owed to the company - 'it is the board of directors, as part of their management power who decide to litigate in the company's name'.19 Application: Share issue: The power to issue shares must be used to raise capital for ...read more.


16 Bailey v Mandala Private Hospital Pty Ltd (1987) 12 ACLR 641. 17 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285. 18 Transvaal Lands Co v New Belgium (Transvaal) Lands & Development Co [1914] 2 Ch 488. 19 Harris et al, above note 4 (p438). 20 Ngurli Ltd v McCann (1953) 90 CLR 425. 21 Above note 16. 22 Above note 17. 23 Above note 2. 24 Above note 18. 25 Gomez would likely be held not to be acting in good faith (Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313; [2002] NSWSC 583); alternatively the action may not be in the company's best interests. **Some students only answered question 3 by analysing s237(2), however this does not address all components of the question that was asked. Nevertheless, I awarded a passing mark if a reasonable discussion and application was made by the student. 26 Harris et al, above note 4 (p255): "the right to rescind may be lost when ... the contract has been affirmed." 27 Above note 16. 28 Above note 17. 29 Hannes v MJH Pty Ltd (1992) 10 ACLC 400. 30 A resolution may form the basis for complaint: Wayde v NSW Rugby League Ltd (1985) 180 CLR 459. 31 Under s233, the court can make 'any order it considers appropriate', including any of the orders listed in s233(1). See Hannes above note 29. 32 Peters American Delicacy v Heath (1939) 61 CLR 457, as discussed in Harris above note 4 (p561); Gambotto v WCP Ltd (1995) 182 CLR 432 involved circumstances encompassing conduct "oppressive to the minority." ?? ?? ?? ?? 2 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Commercial Law section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Commercial Law essays

  1. Corporations in law. A corporation under Company law or corporate law is specifically ...

    It goes without saying that the owners in such an entity are not held liable for the firm's obligations in excess of the value of their investment therein. In fact; a company is equal in law to a natural person.

  2. Company law - directors duties

    It requires that the director is tested against an objective standard, namely, what we can expect from a person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as the director, in relation to the company.

  1. Company Law, s.33 CA '06

    In Wood v Odessa Waterworks Co 13 Stirling J considered that "the articles of association constitute a contract not merely between the shareholders and the company, but between each member and every other." Lord Herschell in Welton v Saffrey 14 was of the opinion that "there is no contract between the individual members of the company."

  2. Limited liability

    Moreover, a minimum capital could operate so as to oblige entrepreneurs to reflect on their personal responsibility before incorporating and it could be an efficient means of preventing frivolous incorporation.46. ii) Imposing liabilities on managers or shareholders In principle, as a consequence of the separate corporate personality, there is no such liability in English company law.

  1. the resurgence of transnational commercial law

    considerable number of transnational commercial rules but also through rising the quality of these laws. Thanks to the international expertise involved in such conventions. In addition the success of these institutions and other global conventions was basically due to a willingness by the international trade community to provide a number of rules governing international commercial transactions.

  2. Commercial Law Coursework

    Directors found guilty of wrongful trading could also be further penalised under s.215(4), with the courts having the power to determine that any debts owed by the company to the director "rank in priority after all other debts owed by the company and after interest on those debts".

  1. Coporate Law and Limited Liability. There are certain circumstances in which courts will have ...

    business entity.Limited Liability Company (LLC)'s have two major and distinct sets of rights and powers. In fact, the concept of separate legal personality goes hand in hand with the doctrine of limited liability. The main importance of the limited liability concept is that it protects the company and its members,

  2. Business Law Assignment. Find the case of Archbolds (Freightage) Ltd. v S. Spanglett ...

    How is a ?contract of sale of goods? defined in this Act? Where did you find that definition?[2] (2 marks) 1. A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work