Case Study

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COMPANY LAW

CASE STUDY

Case Study:
AgChem Pty Ltd is interested in acquiring a factory owned by Black Pty Ltd. Black Pty Ltd is a wholly owned subsidiary of Grains Pty Ltd. Black is proposing to sell the land to AgChem at a 10% discount to its market value.

Question:
a) Is the approval of Agco’s shareholders required under chapter 2E of the Corporation Act? b) Is the approval of Grains Ltd’s shareholders required?

ISSUE OF THE CASE:
Whether or not Agco’s should require approval from shareholder to acquiring a factory from Black Pty Ltd.

RELEVANT LAWS:
In this case the following sections of Corporation Act 2001 should use: Section 210
Section 228
Section 229
ASIC v ADLER 2003 NSWCA 131

APPLICATION OF FACTS
The major facts be required to be demonstrated to qualify whether or not shareholder approval required, the below diagram classified certain questions

IS THERE A FINANCIAL BENEFIT?

YES
“NO” Chapter 2E does not apply
Is it being given by a public company or an entity that a public company controls?

YES
“NO” Chapter 2E does not apply

Is it being given to a related party of the public company?

“NO” Chapter 2E does not apply
YES

Does one of the statutory exceptions in Division 2, Part 2E, 1 apply?

“NO” Shareholder approval is required under section 208
“YES” Shareholder approval is not required

The procedural requirements in Division 3 of Part 2E. 1 must be followed

Is there a financial benefit?
Financial benefit is not strictly defined in the corporation Act. Instead, section 229 contains instructions about how the expression should be interpreted. It states that the expression should be interpreted broadly and with regards to the commercial effect of what is done, rather than its legal form. In determining whether a financial benefit is given:

a) Give a broad interpretation to financial benefits being given, even if criminal or civil penalty may be involved; and b) The economic and commercial substance of conduct is to prevail over its legal form; and c) Disregard any consideration that is or maybe given for the benefit, even if the consideration is adequate.

Examples of giving financial benefit:
a) Giving or providing the related party finance or property; b) Buying an asset from or selling an asset to the related party; c) Leasing an asset from or to the related party;
d) Supplying services to or receiving services from the related party; e) Issuing securities or granting an option to the related party; f) Taking up or releasing an obligation of the related party. Justification:

After consideration above examples of financial benefit, the answer is yes, there is a financial benefit has been received by Agco’s from Grains Pty Ltd. Which is 10% discount from the market value of a factory.

Is it financial benefit given by a public company or an entity that a public company controls? When is an entity controlled by a public company?
An entity (such as a company, partnership or unincorporated joint venture) is controlled by a public company if the public company has the capacity to determine the outcome of decision about its financial and operating policies.

Justification:
The financial benefit is given by a public company, Black Pty Ltd, is wholly owned subsidiary of Grains Pty Ltd which is an unlisted public company.

Is it financial benefit given to a related party of the public company? Related party is defined under section 228 of the corporation Act 2001, they include Controlling entities:
An entity that controls a public company is a related party of the public company. Directors and their spouse:
The following persons are related parties of a public company: a) Directors...
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