Corporate law deals with the development and processes of the corporation and it is connected to commercial and contract law. Further, the company is a legal entity which is developed under the laws of the state and incorporated in it (Bottomley, 2016). Corporate law includes all the legal issues and problem faced by the company while carrying out business operations. The present research is based on case study of Austin retail ltd which has issued a prospectus seeking to raise $12 million via an issue of 12 million $1.00 shares. The present research will include, different corporation act and case law. Apart from this, advice to Austin retail Ltd and other parties will be provided as they can rely on any defenses available to them under the Corporations Act 2001.
According to the given scenario, Austin retail has issued a prospectus seeking to increase $12 million via an issue of 12 million $1.00 shares. For this purpose, it has present formal appeal to the proper authorities. In the prospectus Austin retail state that its orders of the book were in excess of $25 million over the next three years. Hence, the estimate provided by Austin was wrong as because of poorly researcher consultant report which was provided to Bob Brown. He was a commercial sales manager of Austin retail Ltd. Further, Bob assumed that provided advice was wrong and failed to inquiry the report. Therefore, he let along DB consultant in order to carry out their own inquiry. From the inquiry, it is analysed that overall order of books was $ 15 million over 3 years. Dendy security Ltd the underwriter for Austin retail did not query the DB consultant report or the advice which is provided by Austin Retail.
Dendy Securities was the named financier in the plan and as the offer offering was completely bought in there was no need to respect the authoritative guarantee it made to Austin Retail under the endorsing understanding.
At the time when prospectus was formally appealed to the court of ASIC, Austin retail enhanced its general retail advertising for its goods. The $12 million shares were issues with a premium of 25c making the issue price $3.75. After 3 months when the share was an issue, the $25 million forward orders collapsed to $ 7 million over 2 years. According to ASIC, it may be because of a new entrant into a market. Further, Board of Austin was aware of it and to resolve this issue they conducted board meeting. The share price of Austin retail was fall to $2.50 in the news. The institutional, expert and retail speculators who purchased the offer at $3.75 in view of the outline are provoked and daunted at the fortunes of Austin Retail and are looking to recuperate their misfortunes.
Issues arise on this fact is related to the issues a prospectus in order to enhance $12 million via and issues of 12 million $1.00 shares. Wrong information related to the books order was provided by Bo Brown to Dendy securities. Along with this at the time of prospectus was lodged with ASIC, Austin retail raises its general advertising goods After the three months when the share was issued $25 million forward orders collapsed to $7 million in next two years. Hence retail investor and professional who bought the shares at $3,75 as per provided in the prospectus are upset and they dismayed at the prosperities of Austin retail in respect to recovering all the losses (Kennedy, Murray and Leichter, 2016).
One of the important objectives of the corporation act 2001 is to motivate investment and to protect investment of public by requiring full and correct disclosure of appropriate information about the doings of public businesses.
As per the general rule which is provided in the corporation act 2001 no one can raise capital in Australia without issuing a disclosure. In general term, the disclosure is being a prospectus but it can also be a form of discloser documents. As per the section 727 it is completely forbidden the offer of securities to stockholders without disclosure. Similar to this as per the section of 703 no one cannot contract out of the fundraising provisions.
Section 706 stated that an offer of securities for issues need disclosure to the investor under part 6D of the act unless section 708 and 70AA otherwise.
At the time when in firm director fails to prevent the company from incurring the debt then the defence is available under the corporation act for the board of directors in such a circumstance. A different defence available for directors are known as must have reasonable ground to expect that the firm was solvent at the time of debt was incurred. Had reasonable grounds to ensure that the firm would remain solvent while debt will have incurred. Apart from this director can rely on the advice provided to them by experts and they have reasonable ground to believe that: another person who was competent and reliable provided appropriate information related to the company solvency (Stiglitz and Rosengard, 2015). Director requires to shows that they need only had reasonable ground to believe these matters.
As per corporation act, 2001 empowers companies to issues share. Companies have power to issues share with any person whenever they want. At the time when a company wants to issues new shares, it is a matter of board of directors. As it is based on assumption that an injection of capital is required for the financial operations of the firm from time to time. There are some restrictions which are applied while issues shares. The restriction can be self-imposed by the firm internal rules. For example, the firm may have positioned constraint in its constitution on its future ability in respect to issues few types of shares. Further, in replaceable rules, it includes 254D of the corporation act 2001, in which requirement is of the proprietary firm who wish to issues shares at the first offer those shares which already hold shares. It is a pre-emptive rights provision which protects shareholders against dilution of their interest in the firm through future share issues. There are some other restrictions which are available in the corporation act 2001. For instance, a firm cannot issue shares at the time when issues would be unfair toward the existing shareholders (Bottomley, 2016). Directors have no right to issues shares for improper reasons such as to take over etc. For example, in the case of Ampol petroleum Ltd RW Miller ltd emerged out of takeover battle in order to take control over the RW Miller Ltd. Among them, they want to acquire all other shares in Miller.
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Miller's reaction was to make the directors issue to Howard Smith, who had influenced its own particular takeover to offer, 4.5million offers, which diminished the Ampol and Bulkship shareholding to 36%. The chiefs battled that they had represented legitimate purposes in that the Howard Smith takeover offer was more ideal to the organization. However, this contention was dismissed by the court and the offer issue was refuted on the premise that the directors had broke their obligation to represent legitimate purposes.
A firm can only issue preference shares at the time when constituent sets out the particular right of those preference shares. Here, the company cannot buy or issue without following the set procedures as per the company constitution. Certain issues of shares are deemed to vary the rights existing shareholders under the 246C. for instance, issues of preference shares ranking equally with existing preference share can be deemed to vary the right of existing shareholders unless till constitution provides (Taylor and Taylor, 2017).
The offer of securities:
The fundraising and disclosure requirement that regulate the offer of shares in Australia which is included in chapter 6D of the act. In the prospectus, a company needs to seek to list on a stock exchange. It is essential to have the full prospectus, for instance, where an organization looks to list on a stock trade. The Act includes a basic disclosure necessity in order to the full prospectus which givens which prospectus should have the greater part of the data that financial specialists and their expert counselors may sensibly need in order to make an informed assessment of the following:
The rights and liabilities which is attached to the securities that are offered.
For issues the security it is essential to provide financial positions, performance and assets, and liabilities.
In the prospectus, information should be provided to the extent to which relevant people are included while preparing a prospectus.Under Corporations Act 2001, 180(2), the business judgment lead can't be used by officials for explanations behind an insurance to a revocation of obliged trading. The business judgment run works for to commitments under Corporations Act 2001, 180 being the general commitment of care and determination and vague general law commitments. A further obstruction is open to an official where the boss was wiped out or had some other legitimate reason behind not sharing in the organization of the association at the time the commitment was caused (Bandara and Nguyen, 2015). The guards consolidate the figuring out how to protection the association from realizing the commitment causing obligation. In order to prove defence need to reflects
- The action which is consider from the view to appointing an administrator of the firm.
- At the time of taking action for appointing an administrator of the firm was taken.
- The outcome of the action which shows that an administrator of the form and other important matter
Offers of securities do not need to be exposed to investors which are included in the chapter 6D. Under this, if any securities are being offered under a right issue in which class of securities is quoted securities and other information of section 708AA.
Restriction on advertising
Under the section 734 of the corporation act, it is strictly prohibited to advertise and publicity of offers. Therefore, the company cannot advertise or publish a statement which is directly or indirectly reflection of the offer.
Misleading statement as per the corporate law, a determination which is to be include in a legal document required to be based on reasonable grounds. In other words, legal document should contain the complete, reliable and accurate information. If data present in the legal document are found to be unreliable and incomplete then in such situation , the parties might have to face legal issues because, as per the law presenting the incomplete information intentionally or unintentionally considers to be as misleading act.
As per the corporation act, a party who has suffered loss from the misleading act by another parties, then in such situation defaulter party has to pay compensation. According to the law of Corporations Act 2001, an individual is restricted from the act of offering security if false statement appears in the legal document. A per the corporate law security amount if offered by the defaulter party for hiding the false statement then as per the corporate act it is illegal act. If this provision is not followed by any of the person that they have to bear civil or criminal liability. The situation which has demonstrated by corporate law is that disclosure of the document dependents on situation.
Hence, according to the given facts investors have some rights against Austin retail Ltd and other parties is also liable for this fact. As Dendy securities provided wrong advice to Austin retail Ltd in order to issued prospectus with the aim of raising fund up to $12 million. But there are $7 million of orders are collapsed due to which share price of Austin retail was fall. Hence, directors of the firm and advisers are liable for the loss from which retail investors, the institutional, and professional who bought the shares of Austin retail. As per the corporation act 2001, it is director’s liability when things go wrong. Therefore, investors can rely on defense available to them.
- Bandara, Y.M. and Nguyen, H.O., 2015. Port infrastructure pricing policy and practice: a case study of Australia and New Zealand seaports. Australian Journal of Maritime & Ocean Affairs, 7(2), pp.110-131.
- Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance. Routledge.
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- Kennedy, R., Murray, C. and Leichter, J., 2016. Dental implant treatment following trauma: An investigation into the failure to complete Accident Compensation Corporation funded care. New Zealand Dental Journal, 112(1).
- Stiglitz, J.E. and Rosengard, J.K., 2015. Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.
- Taylor, S. and Taylor, M., 2017. The Aroma of Opportunity: The Potential of Wine Geographical Indications in the Australia-India Comprehensive Economic Cooperation Agreement. In The Importance of Place: Geographical Indications as a Tool for Local and Regional Development (pp. 81-107). Springer, Cham.