QLD Commercial Law - Is Declaration with JP Valid?

[ken19801980]

Hi everyone,

I would like to help my helpless brother XXX to ask /check a declaration with a JP.

The whole content is as follow:

"I, XXX, of the ABC company, declare that take notice that as from 11 May, the partnership between XXX and YYY of ABC company has dissolved.

XXX has resigned from the partnership.XXX has relinquished his shares in the partnership. YYY will continue to operate the business under the name: ABC company and shall be responsible for all the debts and liabilities thereof.

In relation of there is any unknown debt that was taken on by xxx will before the relationship of if there is money owning to an unknown entity XXX will be solely responsible
for covering these costs.



"XXX" signature
"JP" signature"


Is that valid under Commercial Law? Can YYY take his shares according to that for free? There are 2 shareholders XXX and YYY own this company.

Thank you to anyone who can help!

 

[Rod]

Partnership and company are used in different places of your post. These have different legal meanings and without knowing the legal basis underpinning the query it is not possible to reply in any meaningful way.

Please clarify if the arrangement is a PTY LTD company or a partnership. Or are there two legal entities and there is some kind of agreement between the two.

 

[ken19801980]

Partnership and company are used in different places of your post. These have different legal meanings and without knowing the legal basis underpinning the query it is not possible to reply in any meaningful way.

Please clarify if the arrangement is a PTY LTD company or a partnership. Or are there two legal entities and there is some kind of agreement between the two.

Thank for your response Rod! It is a PTY LTD company.

 

[Rob Legat - SBPL]

Firstly, as Rod said, there's a huge mixup of terminology. Most of what's written doesn't apply to private, proprietary limited corporations (ie Pty Ltd companies). Under the law these are a separate legal entity: capable of incurring debts, starting court proceedings and responding to court proceedings in their own name (amongst other things).

The way the letter is written appears to approach the scenario as if it were a partnership of individuals, doing business in their own names under a collective name. That's a totally different animal, with different laws and requirements. To put it simply, a company is not a partnership (and vice versa) and cannot be treated as such.

Next, you can't just 'relinquish' shares (assuming the shares issued in the company are ordinary shares). There's a raft of requirements about share buy-backs. In small private companies they're often avoided altogether. Instead, one party usually buys the shareholding of whoever wants out. The important message, you can't generally just walk away from the shares and be done with it. YYY can't just 'take' the shares, they have to be transferred.

With respect to the debts, unless there are personal guarantees involved, it is the company that is responsible for paying the debt - not the directors or shareholders. There's no point in saying YYY will be responsible for the debts. The case is different if the directors have given personal guarantees in respect of the company's debts.

It is quite often usual for these guarantees to be taken as many small companies lack significant asset backing to chase if things go wrong. If guarantees have been given, XXX can't just 'walk away' from them. Whoever the guarantee is given in favour of has to agree to release XXX from the guarantee.

In a similar manner, if XXX incurred debts in the company's name while in the position to do, the debts are the responsibility of the company.

Lastly, that letter is not a declaration (regardless of the JP signature). A Justice of the Peace can witness declarations made in accordance with the Oaths Act, but that letter has neither the form nor the legal requirements to make it a declaration of oath or affirmation. At best it could be argued that the JP's signature could be used in support of an argument that the signature appearing for XXX is truly XXX's signature, but even that's not certain.

Overall, you could conclude that the letter is evidence of an intention to remove someone as a director and shareholder of the company. But the use for that would be situational at best, and of no practical use as an effective document for what it apparently appears to be aiming at.

 

[ken19801980]

Hi Rob, thank for your help! Can we hire you to deal with this case?

After XXX signed the declaration, YYY went to transfer the shares of XXX himself on ASIC online by 484 form. Then ASIC accepted it automatically. Then we had asked ASIC why they did it, they required we find a lawyer to solve it ourselves.

So sorry, I have checked the paper again. There are some words there that goes ''solemnly and sincerely declare that:" and "I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Oaths Act 1867"

XXX wants to take his shares back. Can you give us a hand please!

Can I have your email and tell me the charge? (we are overseas, but we are so serious).

Thank you so much Rob

Firstly, as Rod said, there's a huge mixup of terminology. Most of what's written doesn't apply to private, proprietary limited corporations (ie Pty Ltd companies). Under the law these are a separate legal entity: capable of incurring debts, starting court proceedings and responding to court proceedings in their own name (amongst other things). The way the letter is written appears to approach the scenario as if it were a partnership of individuals, doing business in their own names under a collective name. That's a totally different animal, with different laws and requirements. To put it simply, a company is not a partnership (and vice versa) and cannot be treated as such.



Next, you can't just 'relinquish' shares (assuming the shares issued in the company are ordinary shares). There's a raft of requirements about share buy-backs. In small private companies they're often avoided altogether. Instead, one party usually buys the shareholding of whoever wants out. The important message, you can't generally just walk away from the shares and be done with it. YYY can't just 'take' the shares, they have to be transferred.



With respect to the debts, unless there are personal guarantees involved, it is the company that is responsible for paying the debt - not the directors or shareholders. There's no point in saying YYY will be responsible for the debts. The case is different if the directors have given personal guarantees in respect of the company's debts. It is quite often usual for these guarantees to be taken as many small companies lack significant asset backing to chase if things go wrong. If guarantees have been given, XXX can't just 'walk away' from them. Whoever the guarantee is given in favour of has to agree to release XXX from the guarantee.



In a similar manner, if XXX incurred debts in the company's name while in the position to do, the debts are the responsibility of the company.



Lastly, that letter is not a declaration (regardless of the JP signature). A Justice of the Peace can witness declarations made in accordance with the Oaths Act, but that letter has neither the form nor the legal requirements to make it a declaration of oath or affirmation. At best it could be argued that the JP's signature could be used in support of an argument that the signature appearing for XXX is truly XXX's signature, but even that's not certain.



Overall, you could conclude that the letter is evidence of an intention to remove someone as a director and shareholder of the company. But the use for that would be situational at best, and of no practical use as an effective document for what it apparently appears to be aiming at.