COMPANIES ACT Flashcards

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1
Q

What is section 4?

A

The solvency and liquidity test.

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2
Q

What is section 20?

A

Validity of company actions.

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3
Q

What is section 76?

A

Standards of directors’ conduct.

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4
Q

What is section 77?

A

Liability of directors and prescribed officers.

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5
Q

What does section 4(1) say?

A

A company satisfies the solvency and liquidity test if considering all reasonably foreseeable financial circumstances of the company art that time:
1. the assets of the company equal or exceed the liabilities of the company
2. it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of 12 months after the date on which the test is considered or distribution.

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6
Q

On what principles is the solvency and liquidity test based on?

A

As long as the test is satisfied, creditors will not be prejudiced if the capital of the company is used other than for the ordinary business purpose of the company.

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7
Q

What are the two types of solvency that the test requires?

A
  1. Factual solvency
  2. Commercial solvency
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8
Q

What is factual solvency?

A
  1. Balance sheet test
  2. Based on all reasonably foreseeable financial circumstances that assets are in excess of liabilities
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9
Q

What is section 77(3)(a)?

A

Acting without authority.

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10
Q

What is section 77(3)(b)?

A

Reckless trading.

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11
Q

What is section 77(3)(c)?

A

Fraud.

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12
Q

What is section 77(3)(d)?

A

False or misleading statements.

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13
Q

Which section deals with the registration of a company?

A

Section 14.

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13
Q

What is section 77(3)(e)?

A

Unlawful distributions.

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13
Q

Which section deals with the legal capacity of a company?

A

Section 19.

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14
Q

Which section deals with the MOI, shareholder agreements and rules of company?

A

Section 15.

15
Q

Which section deals with amending the MOI?

A

Section 16.

16
Q

What does section 19(1)(b) hold?

A
  1. Company has all the legal powers and capacity of an individual except to the extent that a juristic person is incapable of exercising any such power or having any such capacity.
  2. The company’s MOI provides otherwise.
17
Q

What is section 20(1)(b)?

A

A statutory estoppel that precludes either the company or the other contracting party from relying on the limitation on company’s powers to assert that the contract is void.

18
Q

What does section 20(1)(a) hold?

A

If a company’s MOI restricts the powers of a company, no action of the company is void by reason only that the action was prohibited by the restriction or as a consequence of that restriction, the directors had no authority to authorise the action by the company.

19
Q

What does section 20(2) hold?

A

Allows for ratification by special resolution of an ultra vires contract.

20
Q

What does section 20(3) hold?

A

No ratification of action that is in contravention of the Act.

21
Q

What does section 20(5) hold?

A

Shareholders/prescribed officers/directors’ entitlement to institute legal proceedings to restrain company from doing anything inconsistent with the limitation imposed by the MOI, proceedings are without prejudice to any rights to damages of a third party who obtained rights in good faith and did not have actual knowledge of the restriction.

22
Q

What does section 20(6) hold?

A

Shareholders’ right to claim damages against any person who fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act or the limitation in the MOI.

23
Q

What is section 20(7)?

A

Turquand rule.

24
Q

What is the Turquand rule?

A

Rule that keeps an outsider’s duty to inquire into the affairs of a company within reasonable bounds and prevents the company from escaping liability on the basis of non-compliance with an internal formality, and protects third parties dealing with the company in good faith.

25
Q

What is section 20(9)?

A

Allows for lifting of the corporate veil.

26
Q

What does section 20(9) hold?

A

If a court finds that the incorporation of the company, any use of the company or any act by or on behalf of the company, constitutes an unconscionable abuse of juristic personality of the company as a separate entity, court may pierce the corporate veil.

27
Q

What is section 76(2)(a)?

A

Duty not to misappropriate corporate opportunities.

28
Q

What does section 76(2)(a) hold?

A

A director of a company must not use the position of director, or any information obtained while acting in the capacity of director to gain an advantage for themselves or for another person other than the company or to knowingly cause harm to the company.

29
Q

What is section 77(2)(a)?

A

Company’s right to hold director liable for breach of fiduciary duties and for any loss or damage suffered as a result of the breach.

30
Q

What is section 77(2)(b)?

A

Allows for company to claim delictual damages as a result of a breach of duty of care, skill and diligence, any other provision of the Act that is not mentioned and the MOI.

31
Q

What is section 77(3)(a)?

A

Director’s liability for loss/damages suffered as a result of an ultra vires contract.

32
Q

What is section 77(3)(b)?

A

Director’s liability for loss/damages suffered ebcause they acquiesced in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by section 22(1).

33
Q

What is section 77(3)(c)?

A

Director’s liability for loss/damage suffered because they were party to to an act or omission that was a for a fraudulent purpose.

34
Q

What is section 77(3)(d)?

A

Director’s liability for loss/damage suffered because they were signatories to the publication of material that was false or misleading in a material respect.

35
Q

What is section 77(3)(d)?

A

Director’s liability for loss/damage because they failed to vote against a number of issues or distributions etc.