Question 5

In 1985, Rail Ltd.'s constitution had the following clause: 'Rail Ltd has been formed to make, sell and hire railway carriages and wagons.'

In 2009, the Board of directors was discussing the possibility of entering into a contract for the financing and the construction of a new type of car that may revolutionize the car industry. One of the directors, Wayne, was concerned that this plan may breach the company's constitution. The directors' brushed Wayne's concerns aside noting that a company's constitution is now viewed as an archaic and largely irrelevant document. Subsequently a unanimous resolution was passed authorising this new business plan for the company and contracts were signed with a number of dealers to provide parts for the new cars. When the members of the company discovered what happened, they were not happy. The company's solicitor reassured the members that everything would be fine, by stating that the contracts were not binding because they do not comply with the object clause of the constitution.

Advise on the following:

a) Outline the effect of a company's constitution. [you must refer to the Corporations Act} Are the directors, apart from Wayne, correct in saying that a company's constitution is now irrelevant?

This question deals with s125(2) which effectively removes the concept of ultra-vires. The question raises issues dealt with by s125(2) and s 140(1). (Read chapter 6 [6.2] and [6.3] in Anil Hargovan et al, Australian Corporate Law, LexisNexis, 7th edn, 2021.)

please help me with this