Recent Changes to Corporate Capacity and Agency
| Author | Stephen J. Gates |
| DOI | 10.1177/0067205X8501500303 |
| Date | 01 September 1985 |
| Published date | 01 September 1985 |
| Subject Matter | Article |
RECENT CHANGES TO CORPORATE CAPACITY AND AGENCY
BY
STEPHEN
J.
GATES·
1
INTRODUCTION
When
the
1983
amendments
were
made
to
the
national
companies securi-
ties legislation,l it was
stated
in
the
accompanying
explanatory
memoran-
dum
that
one
of
the
purposes
of
the
new provisions was
to
"abolish
the
doc-
trine
of
ultra
vires" -
an
ambitious
aim given
the
tenacity
of
the
doctrine
despite widespread criticism
on
many
grounds,
perhaps
best
summed
up
in
the
comment,
"[u]ltra vires was
the
expression
of
asocial policy
that
failed."2
Of
course, it has
now
been realised
that
the
1983
amending
Act
did
not
achieve its
stated
purpose.
It
may
have achieved a
partial
elimination
of
the
doctrine
but
it has left alarge
area
for
its
continued
operation
in adifferent
form
and
in some respects has opened new opportunities
for
development.3
These aspects
are
explored below
but
it should be
noted
here
that
one
curious side
of
the
new provisions
is
that
no
explanation was offered
of
the
defects in
the
previous
statutory
provisions, ss 67-68
of
the
Companies
Act
(Cth) ("the Act")
and
its forerunner, s20
of
the
State
uniform
companies
legislation,
nor
was it explained how the new
ss
67-68 were intended
to
remedy
those defects.
The
new regime was simply offered as a
better
general solu-
tion
to
the
ultra
vires
problem.
Unfortunately,
in this case, it is
not
the
final
solution.
The
change represents aswitch
from
the
precedent
of
s 6
of
the
American
Model Business
Corporation
Act,4
on
which
the
previous s
78
and
its fore-
runner
were based,
to
the
precedent offered
by
the
Canada
Business
Corpo-
rations Act, S.C. 1974-1975 c.33,
ss
15-17,5
and
comparable
Canadian
*BA LLM (Syd), Lecturer, Faculty
of
Law, Australian National University.
ICompanies and Securities Legislation (Miscellaneous Amendments) Act, No.
108
of
1983
ss
33, 34 and 125.
2WL Cary
and
MA Eisenberg, Cases and Materials on Corporations (5th ed. 1980) 38.
3JWilkin, "Ultra Vires
...
is
alive and
well
and living in Australia" (March
1984)
Victorian
Law Institute Journal 256;
R.
Baxt, "Ultra Vires - A Postscript" (March, 1984)
54
The Char-
tered Accountant in Australia 43.
4Legislation based.
on
the Model Business Corporation Act still exists in some form in the
majority
of
American States.
S
Canada
Business Corporations Act, S.C. 1974-1975 c.33,
ss
15-17 provide:
"15. (1) Acorporation has the capacity and, subject to this Act, the rights, powers and privileges
of
anatural person.
(2) Acorporation has the capacity to
carryon
its business, conduct its affairs and exercise
its
powers in any jurisdiction outside.Canada to the extent that the laws
of
such jurisdiction permit.
16. (1)
It
is
not necessary for aby-law to be passed in order to confer any particular power
on
the corporation or its directors.
(2) Acorporation shall not
carryon
any business
or
exercise any power that it
is
restricted
by its articles from carrying on or exercising, nor shall the corporation exercise any
of
its powers
in amanner contrary to its articles.
(3)
No
act
of
acorporation, including any transfer
of
property to
or
by acorporation
is
in-
valid by reason only that the act
or
transfer
is
contrary
to
its
articl~s
or
this Act.
17.
No person
is
affected by
or
is
deemed to have notice
or
knowledge
of
the contents
of
adocument concerning acorporation by reason only that the document has been filed by the
Director
or
is
available for inspection at an office
of
the corporation."
Section
18
deals with the authority
of
agents
and
compares with new
ss
68A-68B
of
the Com-
panies Act
1981
(Cth).
1985] Recent Changes to Corporate Capacity
and
Agency
207
Provincial Legislation, such as the British Columbia
Company
Act
R.S.B.C.
1979 c.59,
ss
21-26
and
the
Alberta
Business
Corporations
Act, R.S.A.
1981
c. B-15,
ss
15-18. However,
the
Australian provisions
are
sufficiently differ-
ent from such precedents to require examination in their own right. Neverthe-
less,
Canadian
case law may offer some indication
of
future questions
for
resolution in this country.
The Effect
of
New Sections 67-68
In
many
cases the most immediate questions
can
be expected
to
be transi-
tionalones
-relating
to
the precise
manner
in which the application
of
the
new provisions has commenced. These have been consigned
to
the end
of
this article as having less importance in principle, though the answers
under
the present federal scheme are by
no
means simple.
The
new provisions contemplate arange
of
possibilities for
the
modern
memorandum
of
association. These may be reduced
to
three main categories:
Category
A:
Companies Without Objects
but
with Plenary Powers
These are
the
companies
that
take
advantage
of
the new provisions from
the time
of
formation
or
by subsequent alteration
of
the
memorandum
pur-
suant
to
new s
73(1
)(a). They have:
(i) the plenary powers conferred by s67;
(ii)
no
objects stated in the
memorandum
of
association; and;
(iii)
no
express "limitation clauses" in the
memorandum
-
that
is, no res-
trictions
or
prohibitions
of
the kind permitted by s67(2).
Statutoryex-
amples concerning alterations
to
the
memorandum
may be found in s
73(3)-(4A)
and
concerning alterations to the articles in s76(2)-(3)
of
the
Act.
Category
B:
Companies With Objects
But
No
Limitations
Most companies formed before
the
commencement
of
the 1983 amending
legislation, providing they have
not
since removed their objects clauses, will
fall into this category. In addition, it
is
of
course still optional
to
incorporate
with objects: s37(lA). They have:
(i) objects stated in the
Memorandum;
(ii) in respect
of
matters arising
under
the repealed provisions only,6the
statutory
powers in former Schedule 2, unless expressly excluded
or
modified in whole
or
in part by the
memorandum
or
articles;
(iii) the powers conferred by new s
67
(with effect
from
the commencement
of
the 1983 amending Act, 1
January
1984)
(iv)
ho
express limitation clauses in the memorandum -that is, no provisions
restricting .or prohibiting the exercise by the company
of
either powers
in the
memorandum
or
the powers conferred by s67.
Category C: Companies With Express Limitations
Companies otherwise within categories A
or
Bmay also have
one
or
more
express limitation clauses in the
memorandum.
Under
the new provisions
6This assumes
the
result
of
the
discussion
of
the
provisions governing
the
effect
of
repeals,
below.
208 Federal
Law
Review
[VOLUME
15
the
presence
of
such aclause in a
memorandum,
whether it contains objects
or
not, raises special considerations
that
warrant
separate treatment. Limi-
tation clauses fall into two basic categories. The first type
of
limitation clause,
permitted by s67(2),
is
one
that
restricts
or
prohibits the exercise by the com-
pany
of
any
of
the s67(1) statutory powers. Presumably, amere objects clause
does
not
constitute arestriction in the relevant sense. This
is
further con-
sidered below.
The
presence
of
s67(4),
to
be discussed next, suggests
that
s67(2)
is
confined to limitation clauses included in the
memorandum
(or
articles) since 1
January
1984, the commencement
of
the
new provisions.
It
is
not clear from s
67
(2) whether the restriction
or
prohibition must be express
or
whether
an
implied restriction
or
prohibition will be enough
to
cause
the
s67(1) powers
to
be read down.
It
would seem, consistently with s67(4),
that
there need be no specific reference
to
s67(1) itself
or
the
powers it
mentions.
The
second type
of
limitation clause, given continuing effect by s67(4),
is
any restriction
or
prohibition included in the
memorandum
(or
articles)
before 1
January
1984
that
restricts
or
prohibits the exercise by the
company
of
any
of
its powers. Presumably, this
is
areference
to
the powers as framed
before the
1983
amendments, which could raise nice questions
about
the exact
source
of
the underlying powers
that
are subject to the prohibition
or
re-
striction.
The
purpose
of
s67(4) would seem to be
that
any
pre-1984 limita-
tions should continue to apply, whether the powers are derived from a
pre-1984 source, by statute
or
constituent document,
or
by
virtue
of
the new
s67. In this respect, while some
of
the established principles
of
interpreta-
tion applicable to
corporate
constitutions presumably would apply,7the
reversal
of
principle wrought by the new s
67
would justify a
more
literal
approach
to
the scope
of
any restrictive clauses. Even so, the possibility
of
some implied restrictions
cannot
be ruled out.8These observations would
seem equally applicable
to
limitation clauses drawn since the commencement
of
the new provisions.
2
THE
SCOPE
OF
CORPORATE
CAPACITY
The
clear intention
of
the ne\v provision
is
that
category Acompanies
at
least should have plenary powers and be completely free
of
captious argument
over limits
to
legal capacity. However, some comments
are
appropriate
con-
cerning the drafting
of
new s67. Firstly, it should be noted
that
s
67
(1)
and
(3) apply only to companies,
not
corporations. Presumably, the s5(1) defini-
tion
of
a"company" applies, with the result
that
recognised companies look
to
the statute
of
their jurisdiction
of
incorporation for their statutory powers
in
other
jurisdictions (except for power
to
hold land conferred by s506).
7See H A Stephenson &Son
Ltd
(in
liq) vGillanders Arbuthnot &Co (1931)
45
CLR
476"
488-9 per Dixon J.
8Aparallel might be drawn with one
view
of
the capacity
of
the early statutory railway com·
panies in England. See the views
of
the
Parke
B(Lord Wensleydale) expressed in The SoutJ
Yorkshire Railway and River Dun Company vThe Great Northern Railway Company
(1853:
9Exch 55, 84, 89;
156
ER
23, 36,
38
(affirmed
on
other grounds (1854) 9Exch 642;
156
ER
274)
and
approved by Martin Bin Bateman vAshton-under-Lyne Corporation (1858) 3 H &
N323, 335-336;
157
E R 494, 500.
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