Chapter 3 – Constitution

Effect of Constitution

- If company got constitution. Who are bond? Company, directors and members.

S.33(1) – contract between company and members

- contract between members

- If there is a breach, who can sue? The members can sue.

- Constitution is not a contract with outsiders!
- When members want to sue, members can only enforce constitution in the capacity as a
member.
- In exam, maybe you are told the terms of the company’s constitution.
- Then someone breach the terms.
- We want to know, as a member, can we sue? Can.
- If an outsider, can we sue? Cannot. No contract with outsider.
- If members want to sue, is the member enforcing the constituition in the capacity of a
member or an outsider?
- If member enforcing as an outsider, then explain on the case of Eley.
- If member enforcing as a member, then explain on Rayfield or Salmon, etc cases.

Alteration of Constitution

- Focus on the conditions/requirements of the alterations:

1) must be able to pass special resolution

- explain on SR (S. 292) – 75%

- 21 days notice.

*Remember, 1 share = 1 vote. Exp, if got 3 shareholders and all with equal shares. 2 voted yes
and 1 voted no. Does it pass SR? Nope. Only 66%

2) Vote bona fide for the benefit of the company – Allen v Gold
- read up on bona fide.

- bona fide means the alteration must benefit all members and not only majority.

Exp: Greenhalgh v Ardene

- In this case, the court feels that the removal of pre-emptive rights is beneficial to
everyone,
- Nobody is bound by the restriction.
- Therefore, removal of pre-emptive rights is bona fide.

- You need to justify why you say it is bona fide or not bona fide. No right or wrong
answer for this.

3) Alteration cannot conflict with CA16

4) Prohibition in the constitution

- if constitution itself state that for that section, it can’t be altered. Then that section cant be
altered.

- If question didn’t tell you, then you can just assume there is no prohibition.

Step to answer

1) One party want alter constitution. Alter to what? Write down.

2) Need to tell whether the requirements can be satisfied?

- Can SR be passed? – see how many SH are there? How many shares are allocated? How many
agree to alteration?

- Bona fide – the alteration beneficial to everyone? Including the company?

- Does it conflict with CA16?

- Is there a prohibition in constitituition?
3) If can pass all requirements, then the parties can alter the constitution.