VIC Commercial Law - The Effect of Company Spin-offs on Members?

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Henry

Member
10 December 2017
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Hello all.

I am not an investor and know nothing about company or commercial law. I am, however, a member of an Australian Wide Breed Society with around 3500 members. As only one body is recognised by the world governing body, the Society is an Australian monopoly. The Company Articles clearly describe an organisation that exists to provide services with no requirement to make or attempt to make a profit (although financial responsibility to stay viable is, of course, implied) and there haven't been any proposed changes to these Articles since their inception in the 1970s.

The current (elected) Board of the Society has informed members it is considering creating two spin off companies but has not provided the details of their proposed structure. Between them, these companies would have responsibility for action of the majority of the requirements laid down by the Company Articles which are broad enough to encompass any business that needs conducting by the Society as a society. The Society is only a small employer by definition of the Fair Work Act, 2009 and there would be no requirement for the spin off companies to operate in a separate location.

Some members have concerns with this proposal as we cannot see how such a move would be beneficial to the membership. As things stand if the Board fails to meet the Company Articles members can take action but I am wondering if these companies can be created in a way that removes this possibility. I have read that if businesses create spin offs shareholders receive a compensatory share interest in the new company but am unsure of the effect on membership and members’ rights.

So I am seeking help on the following should these companies be created:

What, if any, cost or benefit would there be to members?

Will members remain solely members of the parent company with little or no influence on the spin offs?

Will members have a say in the election/appointment of Directors of the spin offs?

Is there a maximum term Directors of the spin offs can be appointed for or can an unlimited tenure be assigned?

Will the parent company be seen to be meeting its Company Article obligations by contracting the spin offs to undertake those responsibilities?

Will the spin offs be subject to the parent Company Articles?

If the spin offs don’t act in such a way that company articles are met what action is available to the membership of the parent company (if they are not members of the spin off company)?

If a rival company is created to provide the same service as a spin off, will the parent company have to go through a tender/contract process under the Competition and Consumer Amendment (Competition Policy Reform) Act, 2017?

If members believe the creation or configuration of these companies is a disadvantage, what action is available to them?

And finally: There is a Board election taking place after which the majority of the Board may not wish to create these companies. Is there a way to stay their creation until after this election?

I realise there is a lot here but any help would be much appreciated and for which I thank you in advance.
 

Rob Legat - SBPL

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Before any of this can be considered, we need to know what kind of 'animal' it is (pardon the pun). Is it a company or a registered association? If it is a company, the type of company that it is can make a difference.

If you're not sure, you can do a free search to find out. Go to www.asic.gov.au. Click on "Companies and organisations" under "Search our registers" on the right hand side. Search the name of the body and tell us:

- The letters that appear at the end of the name (eg "Pty Ltd", "Ltd"); and
- Further down the search result, the "Type" that is shown (eg "Australian Public Company, Limited by Guarantee").
 

Rod

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Many of your questions are good questions that should be put to the existing board.

If the current board doesn't agree to delay the establishment, you may need to call an extra-ordinary meeting to try and resolve many of these issues, including a delay.
 

Henry

Member
10 December 2017
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SB it is a company so the Board can create spin off companies. It is a "Ltd" company (members are aware they will have to contribute a set sum should the company become insolvent) incorporated in NSW then extended into a company decades ago with an ABN, not an ARCN. Do you need to know more please?
Rod if the current Board would answer questions I wouldn't have to bring them here. From the little I can find out at least one of the current Board and that person's life partner are to be Directors of at least one of the spin offs but the clique that generated the proposal are avoiding giving details of the proposal I believe they have already sent to solicitors to candidates or other Board members who oppose them. Can we call an extra-ordinary meeting and make them give us these details? and if we don't like them how do we stop it?
 
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Rod

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Look at the company constitution on how to call an extraordinary meeting. You can also ask for a copy/ask to view the share registry to get details of other members.
 

Rob Legat - SBPL

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You've answered the first question, but not the second.
 

Henry

Member
10 December 2017
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Hi SB or anyone else. Any chance of some answers? Sorry but I need to ascertain if we need to take this situation to a lawyer. TIA
 

Rob Legat - SBPL

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Since the company is limited by guarantee, it's essentially a not-for-profit venture. Since there is no shareholding, there is no intrinsic 'benefit' to being a member. The company cannot provide dividends, or distribute capital.

It doesn't appear that that is your mindset however, as you're using terminology like "monopoly", "benefit to the members", and "rival company".

I would suggest re-looking at the situation from "what's best for the purpose of the company" standpoint, and ask the board if they're doing the same. It may change/answer the questions you've put above.
 

Tim W

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Hi SB or anyone else. Any chance of some answers? Sorry but I need to ascertain if we need to take this situation to a lawyer. TIA
Can you perhaps explain to us what your personal interest is,
what you stand to gain or lose by any change, and what it is
about the the management structure of the breed association (what animal?)
that matters to you, in such a way that it could give you standing in a dispute about it?