Fundamentals of Strategy

Topics: Debt, Law, Tort Pages: 11 (4323 words) Published: October 27, 2014

In the beginning, state that all sections are in reference to Corporations Act 2001 unless stated otherwise. Company finance and fundraising
Equity (share) Finance
Issue of shares
Company has power to issue shares: s124(1)(a)
Management powers: s198A
Company can determine terms of issue and rights and restrictions: s254B Issuing shares that have pre-emptive rights (for proprietary companies only): s254D Classes of shares
Ordinary shares Preference shares
Right to vote at general meeting
No automatic entitlement to dividends
Claim surplus assets (remaining assets after deducting liability) when company winds-up Generally no voting rights Cumulative entitlement to dividends
Priority of payment of dividends
Priority of repayment of capital on winding-up
No share of surplus assets on winding up
May be redeemable for cash/convertible to ordinary shares
Preference shares can only be issued if the right attached to preference shares are set out in constitution, or approved by special resolution (75%): s254A(2) Dividends
Dividend can only be paid out of profits if :s254T(1)
-> 1/3 Assets exceed liabilities
-> 2/3 Fair and reasonable to shareholders as a whole -> 3/3 Does not affect the ability to pay creditors
Assets and liabilities should be calculated by the accounting standards at relevant time s254T(2) If company insolvent, or payment would cause insolvency, cannot be paid. If do - breach of duty -> because directors have a duty to avoid insolvent trading: s588G(1A) Dividend is declared at directors’ discretion (final decision): s254U -> a) amount, b) time, c) method (cash? Shares? etc) Failure to pay can amount to oppression, fraud on minority: Sanford Disclosure

- Proprietary companies must not engage in any activity that would require disclosure: s113(3) - Disclosure for share issue is required for public companies to investors unless exception s708 applies: s706 Exceptions in s708 includes

Small scale offerings =under 20 investors/$2 million/12months -> exception yes: s708(1) Sophisticated investors = above $500k investment or assets of $2.5 million or income of $250k: s708(8) Through financial services licensee = licensee is satisfied that the person has experience in assessing merits and risks: s708 (10) Professional investors = $10million in assets, superannuation fund, financial services licensee:s708(11) Senior managers and related bodies or their families: s708(12) No consideration (if company issues shares for free, no need to disclose): s708(15) Disclosure Documents (Can only be issued by public companies) Prospectus (Full disclosure doc): s709

Short form prospectus: s712
Offer info statement: s709(4)
Profile statement: s721
Debt Finance
Company can grant security/give charge (= security interest) over assets: s124(1) Charge = now called security interest = security over assets in favour of creditor (bank = lender) Personal Property Securities Act 2009 (New regime from January 2012) Security interest: Interest in personal property provided for by a transaction that secures payment or performance of an obligation: s12 PPSA (= security over assets in favour of creditor, so when not meet interest payment for loan, lendor sells that secured asset to recover what they have lent to the company) Circulating asset: Grantor has authority for transfer or property in ordinary course of business, free of security interest: s340 PPSA Attached: A security interest is attached (to a colleteral -담보물) when: s19 PPSA 1/2 Grantor has rights in the property (does the company own that property?) 2/2 Value is given for the security interest (loan received?) Perfected: A security interest is perfected (to a colleteral) if: s21 PPSA 1/2 The security interest is attached

2/2 Effective registration occurs
Priority rules: s55 PPSA
Priority between perfected interests determined by order of registration Perfected security interest has priority...
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