Australian Corporate Law; Four Friends Pty Ltd’s Critical Case Study

Question 1

As per the scenario given under consideration contract which has been entered into by Four Friend Pty Ltd with Jack and Jill must be seen in the light of legal provisions of Australian Corporate law. Law explains the fact that both parties to contract must agree on the same thing at the same time and subsequent dispute avoidance can only be ensured if agreement and parties to agreement are given proper consent and due consultation before final execution of terms and conditions as mentioned in the agreement. In accordance with the information in the scenario it seems that on behalf of company Maxwell and Rupert have entered into an agreement with Mr. Jack and Jill and now owing to subsequent differences among management of Four Friends Pty Ltd things have become more and more complex and also worrisome for Mr. Jack and Jill since they had no idea about internal constitution of the company in respect of vegetarian concept. In view of the situation two things have raised which demand attention of concerned parties as to whether such agreement was in accordance with the objectives of an organization and whether condition of approval of meeting of a company for contract exceeding $10,000 was obtained (Johns, F. (1993). It is apparent from available information that Mr. Maxwell and Rupert have tried to gain something in terms of profitable opportunities into the market owing to growing demand and popularity of the business and also aim behind such deal was to move towards other dimension of the business I-e to consider available option of meat products introduction to masses so as to pocket profitable opportunities available into the market.

 It is apparent from available information that business of the company is being managed by four major shareholders and without their mutual consultation it is not possible to initiate any venture or enter into any agreement with any other party just with the motive of gaining profit or to enjoy profitable opportunities available into the market. Australian corporate law clearly indicates the fact that for corporations entering into an agreement it is must that common seal of company be there so that in near future any legal complications can be handled accordingly to ensure continuity and validity of an agreement. As per Section 127 of corporation law 2001 any agreement on part of the company may be executed under common seal of the company for execution of documents. Apart from that as per such law all things as per contract must be executed in accordance with constitution of the company.

From the given scenario it is quite evident that Mr. Jack and Jill has entered into an agreement with Mr. Maxwell just on the basis of business repute of Four Friends Pty Ltd and also on the view that such person is representing a credible organization and thus possess sound authority to enter into an agreement. First thing is that agreement worth $20000 was signed without having consent of company and its board of directors which clearly indicates that it is against the constitution of company and secondly Mr. Jill did not approach the company for verification of the fact that as to whether such person is representing organization in good faith therefore in view of such issues and available evidences it cannot be considered as a valid contract since without knowledge of company and also by ignoring internal constitution of the company such agreement has been entered into by mentioned parties and vice versa.

Question 2

It is quite evident from the fact that four friends coined an idea of introducing a business that will offer masses vegetarian dishes and it was clear that no other dish apart from that will be acceptable on part of an organization. Such policy and strict rule of the company became able to provide it long lasting benefits and it became able to enjoy sound financials and cliental across the corners of the country. It was mentioned in the constitution of the company that other than vegetarian products no other dish will be allowed in the company that can be offered to its valued and potential customers. Offer of Mr. Jill to purchase shares of Mr. Maxwell seems quite strange in view of the given circumstances since it is quite evident from the available facts and figures that there has been a raised internal dispute among shareholders and management of the company owing to such contract worth $20000 that has been signed without knowledge of the company (Sharma, V. D. (2004). Directors and founders of the business are not ready to compromise over their rule which covers only vegetarian products while Mr. Maxwell has concern towards profits and other aspects available for business of the company into the market which is quite strange in view of situation.

Assumption which has been raised by Mr. Maxwell in view of his will to give surprise to management and also to provide company an additional edge for the company in terms of future business and profits cannot be justified at all since all such activity has been done without prior knowledge of the company and also against policies and rules. For contract to be legal under Australian Corporate Act 2001 all things must be cleared and decided in letter and spirit at initial level and all parties to the contract must agree on all things at the same time.

When contracts are entered into with internal and external stakeholders of the company all things are defined and explained in crystal clear manner and such aspect that Mr. Maxwell if had well knowledge of the strict policies and rules of company then things would have been different do not hold much weight since at initial level both Mr. Maxwell and Will were informed about their due role in the organization and things will be decided accordingly with the passage of time owing to mutual consultation. Above all assumption of prior knowledge of things could have prevented expansion although possesses sound voice towards good faith but as per law it seems not much valuable and worthy for carrying and execution of contract respectively.

 Question 3

Will of the management to remove Mr. Maxwell and Rupert from the company in view of the situation under consideration can be seen in the context of case raised owing to entering into agreement with Mr. Jill without providing company proper information in this regard and such aspect indeed proved a sorry figure in view of professional courtesy and business ethics. At starting level when both Mr. Maxwell and Rupert entered into an agreement with the company it was mentioned in clear cut manner that company will follow certain rules for business continuation and among these various aspects were covered like to provide vegetarian restaurant and also vegetarian catering services.

Apart from that business of the company will be managed by directors of the company and both of these parties will have no say in management affairs unless otherwise agreed and also it was agreed that board of directors will have power to appoint any managing director of the company (Black, B. S., Cheffins, B. R., & Klausner, M. (2006). Apart from these aspects one of the most important was that any contract whose value will exceed $10000 will require prior approval of the company. Both Mr. Maxell and Rupert have ignored and by passed all of the available legal and formal requirements in view of deal with Mr. Jill which has not only made frustrated but also aggressive management of an organization and now it has intention to exclude these two persons so as to ensure continuity of its business as per initial commitment and idea perceived by four founder members of an organization.

Mr. Maxwell and Rupert hold 20 percent shares at individual level in a company does not mean that they have been granted authority to enter into any sort of agreement with external parties and also ignore internal rules and regulations just for profit making and other business motives. As per Section 126 of corporations Act 2001 any person who is representing an organization under express and implied authority and also as per section 129 of that act other party cannot rely on the assumption that such person is representing an organization just on the basis of mere statement or claim respectively. Mr. Maxwell was also not sole director or sole secretary of the company as per Corporations Act 2001 in the agreement with Mr. Gill therefore in view of it same contract does not also hold weight in the eyes of law and also in accordance with the management of an organization. Through passing of special resolution of directors of company as per law prevailing in Australia for corporations it both Mr. Maxwell and Rupert can be removed from their position in the company. All such procedure will be undergone through proper legal procedure and also in the light of prevailing precedence available in similar industry since very first time same has happened for Four Friends Pty Ltd. Removal of both persons from office can only be made possible in view of available space for the management of Four Friends Pty Ltd in accordance with Corporations Act 2001.

Question 4

As per requirements of ASIC amendment to the constitution of the company requires following of certain procedure since it affects future dynamics of business and also business structure of an organization. Apart from that industry position and perception among business circles also develop in terms of positive or negative sense towards the company owing to major or substantial changes in its internal constitution thereby regulating whole of corporation and vice versa. Notice for any major change towards the constitution of the company requires providing notice to shareholders at least 21 days before convening of a meeting followed by a special resolution and detailed description of each and every aspect in terms of proposed change must be mentioned in the notice of meeting and vice versa. Four Friends Pty Ltd is being managed by four persons and these are committed to serve the masses owing to unique and something different concept of vegetarian products and catering services in this domain only and all such seems indeed strange but after all such is supported by the Corporation Act 2001 therefore same cannot be considered as something illegal or otherwise (McCrudden, C. (2007). Business of such corporation has run successfully over the course of time and indeed it become able to pocket hefty business and also lucrative offers from valuable clients and parties but its management does not show flexibility towards its main motto. Recently when Mr. Maxwell entered into an agreement with Mr. Jill situation even became worse owing to not following of rules and constitution of the company that forced its management to consider the impact of it on future dynamics of the business. Alteration to the constitution will affect overall business functions of company and it must not be aimed at just to prevent Mr. Will from selling of his shares to Mr. Maxwell since same may lead to perception that management has altered internal constitution just for the protection of personal interests by ignoring real aims and objectives of an organization.

In accordance with the information in the scenario it seems that on behalf of company Maxwell and Rupert have entered into an agreement with Mr. Jack and Jill and now owing to subsequent differences among management of Four Friends Pty Ltd things have become more and more complex and also worrisome for Mr. Jack and Jill since they had no idea about internal constitution of the company in respect of vegetarian concept. In view of the situation two things have raised which demand attention of concerned parties as to whether such agreement was in accordance with the objectives of an organization and whether condition of approval of meeting of a company for contract exceeding $10,000 was obtained. Conclusively it can be perceived that intention to amend the constitution of the company must aim at overall benefits of an organization in the long run in accordance with directions set out in the corporations act 2001 and not just for personal advantages at all and vice versa. 

References:

{1} Langton, M., & Longbottom, J. (Eds.). (2012). Community futures, legal architecture: foundations for Indigenous peoples in the global mining boom. Routledge.

{2} Kinley, D., & Chambers, R. (2006). The UN Human Rights Norms for corporations: The private implications of public international law. Human Rights Law Review, 6(3), 447-497.

{3} Johns, F. (1993). The invisibility of the transnational corporation: an analysis of international law and legal theory. Melb. UL Rev., 19, 893.

{4} Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.

{5} McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).

{6} McCrudden, C. (2007). Buying social justice: Equality, government procurement, & legal change. Oxford University Press on Demand.

{7} Sharma, V. D. (2004). Board of director characteristics, institutional ownership, and fraud: Evidence from Australia. Auditing: A Journal of Practice & Theory, 23(2), 105-117.

{8} Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of political economy, 106(6), 1113-1155.

{9} Demirag, I., Sudarsanam, S., & Wright, M. (2000). Corporate governance: overview and research agenda. The British Accounting Review, 32(4), 341-354.

{10} Black, B. S., Cheffins, B. R., & Klausner, M. (2006). Outside director liability: A policy analysis. Journal of Institutional and Theoretical Economics JITE, 162(1), 5-20.

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