Short answer questions 1.What is the function of a company's constitution? 2.What are 5 provisions that you would expect to see in a company's constitution? 3.What are replaceable rules? How may they be replaced? 4.How can the constitution be changed? 5.How can the constitution be enforced?

Problem question

A.Fintec Ltd is a small fintec company based in Ultimo developing blockchain technology for trading solar powered energy between households in Sydney. The company's managing director is Andrew, who is also the major shareholder in the company with over 60% of the ordinary shares. Andrew also owns convertible preference shares that if converted into ordinary shares will be equivalent to 20% of the issued share capital.

As a young company Fintec Pty Ltd doesn't have a great deal of tangible assets and its cash flows are minimal so it rewards its 10 employees with share options in the company and a small base salary. The options can be exercised to convert into preference shares that carry dividend rights and no voting rights but they can convert into ordinary shares at the option of the holder. The terms of the employees' bonus remuneration contracts are referenced to the company's constitution with tiers of bonus payments fixed in levels specified in the constitution. The terms of the remuneration contract are renegotiated at the end of each financial year to reward the best employees with a higher tier of remuneration.

Assume recent tax changes have made this form of remuneration unattractive so management decides that the company should change it remuneration policy by paying a combination of cash bonuses with dividends. Andrew convenes a members' meeting to vote on changing the constitution to alter the remuneration structure set out in the constitution. Andrew also decides that the company does not have enough shares and this is discouraging outside investment so he proposes to change the constitution to require all existing shareholders to purchase more shares on a 2 for 1 basis. Lastly, Andrew is concerned about employees converting their preference shares into ordinary shares so he proposes to change the constitution to provide for the conversion right to be only at the option of the company. The meeting is set down for 1 March 2021 and if the constitutional amendment is passed it would take effect immediately. Andrew exercises his option to convert his preference shares into ordinary voting shares after announcing the proposed meeting.

Xiao Wang is a senior coder for Fintec and is really unhappy with these proposals so he seeks your advice on 10 February 2021. Advise Xiao Wang as to his legal position in relation to the constitutional change.

Reference

Key concepts The decision making organs of the company How decision making power is divided up between the organs How management power is exercised What decision making power members have and how this can be exercised

Key sections Corporations Act 2001 (Cth) ss 9 (definition of special resolution), 124, 131-141, 198A, 198C, 198D, 1070A

Key cases Bailey v NSW Medical Defence Union Ltd (1995) 184 CLR 399 Eley v Positive Government Security Life Assurance Co (1875) 1 Ex D 20 Gambotto v WCP Ltd (1995) 182 CLR 432 Hickman v Kent or Romney Marsh Sheep-Breeders' Association [1915] 1 Ch 881