Chapter 4 – Constituting Companies (Mini summary relevant for Chapter 22 – Transacting by Companies 1) Legal effect of the internal governance rules
s140 states that:
“a company’s constitution (if any) and any replaceable rules that apply to the company have effect as a contract: a) Between the company and each member
b) Between the company and each director and company secretary c) Between a member and each other member
Under which each person agrees to observe and perform ... the rules so fas as they apply to that person”. Enforcing the internal governance rules
First, s140 is limited in that it provides for the internal governance rules to have effect as a contract only between certain persons. So: • The internal governance rules to not operate as a contract between a member and officer. • The internal governance rules cannot be enforced by outsiders: Eley v Positive Government Security Life Insurance Co Ltd Second, to the extent that s140 confers rights or obligations on a member, it does so only if (and while) the person is a member and only in their capacity as a member. Applicants for membership may be unable to enforce the statutory contract until they are registered as members: Bailey v NSW Medical Defence Union Ltd Third, a member cannot enforce compliance by the company with a procedural requirement in the internal governance rules where failure to comply with that requirement can validly be excused by member majority in general meeting. (See Ratification in Chapter 14) Fourth, a members rights to enforce the internal governance rules under s140 may be limited to those of the rules that confer rights that are personal to the member in its capacity as such. (Eg. The right conferred under the replaceable rules in s250E would be an example of such a right) Consequences of not observing the internal governance rules (Relevant Part to Chapter 22) Part 2B.4 is drafted so that the replaceable rules act as contractual terms binding on a company, its...
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