Question

Chamberlin Ltd is an unlisted company with three directors: Seraphina, Brad and Kyle. At a
recent board meeting the directors passed a resolution that Chamberlin Ltd would purchase
$1,000,000 worth of stock from Alpha Pty Ltd. Alpha Pty Ltd’s sole director and shareholder
is Jonathon, Seraphina’s husband. The majority of Chamberlin Ltd’s shareholders are not
happy with the directors’ decision and they wish to insert a clause into Chamberlin Ltd’s
constitution that all stock must be purchased from Red Cabbage Ltd.
REQUIRED:
With reference to the provisions of the Corporations Act 2001 (Cth), advise Seraphina, Brad
and Kyle the other directors of Chamberlin Ltd of the procedures they are required to follow
when considering the contract with Alpha Pty Ltd.

Answer 1

The corporation's Act of 2001 applies to companies and other entities such as partnership firms, companies with sole directors or owners, and any other Non-Profit Organisation. The act is prevalent in Australia, and it deals with acquisitions, takeovers, formation, and dissolution. The first factor that the Chamberlin Ltd must keep in mind is that it should register itself. The registration of the firm is essential for the execution of the contract. The registered companies can enter into any contract and sue any other company for the non-performance. The directors must sign the contract. It is because commitment is an enforceable agreement until the parties perform their responsibilities. Section 127 states that the company should seal the contract and its name to ensure that it is binding on both the parties. However, if the company does not have its seal, its directors can sign under their name. The directors in the current scenario are Seraphina, Brad, and Kyle. Also, while dealing with Alpha Pty Ltd., the directors must keep in mind that none of them gets any unaccounted profits. The company's owner is Seraphina's husband, and it might be possible that she gets additional gains or profits. While dealing with the other party, the company should consider all the factors. Hence, the directors should also assure the stakeholders that there will be no losses and unaccounted profits.

Answer 2

They need to follow "CHAPTER 5 of External Administration". Thereby the subpart "PART 5.1 of ARRANGEMENTS AND RECONSTRUCTIONS" and article 414 which mentions, "Acquisition of shares of shareholders dissenting from scheme or contract approved by a majority" should guide the principles in this case. Since the transfer of shares has not been approved by the shareholders, therefore, this procedure has to be followed.