XYZ Co Ltd has a constitution, which prohibits a managing director from entering any contract worth more than $100,000, unless the directors have agreed to the contract. The company's constitution also contains an objects clause, which restricts the company's business activities to the manufacture of environmentally friendly foodstuffs. Jeff, the company's managing director, signs off on a contract worth $500,000 with a coal excavation company; the contract was not approved by the directors and is in contravention of the company's constitution.

2. The breach of the company constitution is so severe that the contracting parties should have been aware that it was a breach of the company constitution, and consequently the contract is invalid.
3. The company can invoke the objects clause and clearly decline to perform the contract.
4. The company itself will not be liable for the contract, but the managing director himself will be personally liable for the contract on the basis that the constitution has been breached
5. The contract is not invalidated by the company constitution; the company will be liable irrespective of the managing director's breach of the company constitution

1 points

QUESTION 2

What are the replaceable rules?

1. The replaceable rules are a company's internal rules and are binding on all companies, irrespective of whether a company has its own constitution
2. The replaceable rules are the new rules imposed by ASIC on all companies; they replace inappropriate provisions that a company may have historically developed in its constitution
3. The replaceable rules are found in s 141 of the Corporations Act; they cover all aspects of the company's internal rules and can be used instead of a company constitution
4. The replaceable rules refer to the fact that a company does not need either the replaceable rules set out in s 141 or even a company constitution

1 points

QUESTION 3

What did the case ofHickman v Kentemphasise about the nature of the company constitution and the replaceable rules as they apply to members?

1. InHickman v Kent, the court found that members, who were in dispute with a company, could not be denied the right to take a matter to court, as the constitution is always a contract between a company and its members
2. The case determined that it is the role of the court to interpret a company's constitution and internal rules
3. InHickman v Kent, the member was bound by the constitution to take a dispute to arbitration before going to court; this procedure could be enforced by a court as the constitution is a contract between a company and its members, when the rights in the constitution affect them in their capacity as a member
4. InHickman v Kent, a court determined that members were not bound by inappropriate rules, which have been set within a company constitution.