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University of Melbourne Law School Research Series |
Last Updated: 28 September 2009
UNLOVELY AND UNLOVED:
CORPORATE LAW REFORM’S PROGENY
By Cally Jordan*
ABSTRACT
“Oscar Wilde would have regarded our modern Corporations
Law not only as
uneatable, but also indigestible and incomprehensible”
(Sir Anthony Mason, 1992)
There is no dispute; it is unlovely and unloved.
Complex, ungainly, internally
inconsistent, conceptually troubled; the
Corporations Act 2001(CA 2001) is a
mishmash of old law, ad hoc amendments,
provisions pulled willy-nilly from different
legal systems, statements which
are not law at all, ideological posturing, and
drafting styles that swing
wildly from the colloquial to the technical. Despite massive
efforts at law
reform in the last fifteen years, and continuous tweaking, the CA
2001
remains, as Sir Anthony Mason found it, indigestible and
incomprehensible.
The state of the legislation, at odds with the dynamism of the Australian
economy over this same period, raises some intriguing questions.
Is corporations
law not just
“trivial”, as Bernard Black provocatively suggested
a few years ago, but completely
irrelevant? In this case, does law not
matter, not a whit? Is corporate law reform not
worth the economic candle?
Why is consistency and coherency in business law not
valued in Australia? Is
this an atavistic response of an old common law system, a
deep-rooted
aversion to “codification”?
This paper looks at some of the consequences of this state of affairs,
arguing that a
better corporations law would be of benefit to Australia. The
paper identifies some
points of departure: a separate business corporations
statute, elimination of the
bifurcation of directors duties (as between the
statute and the general law),
substitution of a comprehensive personal
property security regime for the
troublesome insolvent trading provisions and
reconceptualisation of the complexities
of capital maintenance rules.
*Associate Professor, University of Melbourne Law School. The author would
like to
acknowledge the very able assistance of Kat Brazenor and Tom Bevan in
the
preparation of this paper. The usual disclaimers apply. © Jordan
2008
“Oscar Wilde would have regarded our modern Corporations Law not
only as
uneatable, but also indigestible and incomprehensible” (Sir
Anthony Mason, 1992)
“[E]very significant amendment to the corporations legislation since
[1998]...has
added substantially to complexity and, it has to be said, has
created obfuscation”
(Justice R.P .Austin, October 24, 2007).
INTRODUCTION
There is no dispute. The Corporations Act, 2001 (CA 2001)1 is unlovely
and
unloved2. Complex, ungainly, badly drafted, internally inconsistent,
conceptually
troubled; it is a mishmash of old law, ad hoc amendments,
provisions pulled willy-nilly from different legal systems, statements which
are
not law at all, ideological
posturing, drafting styles that swing wildly from
the colloquial to the technical, and as
one of my compatriots once quipped in
a different context, resembles no less than a
rider galloping “madly
off in all directions”.3 Despite massive efforts at law reform in
the
last fifteen years, 4and continuous tweaking5, the CA 2001 remains, as
Sir
Anthony Mason found it, indigestible and incomprehensible.
1 Corporations Act 2001 (Cth), Act No 50 of 2001.
2 The Corporations Act
2001 (Cth) comprises over 2200 sections, divided into 26 chapters. Roman Tomasic
opines in ‘The Modernisation of Corporations Law:
Corporate Law Reform in
Australia and Beyond’ (2006) 19 AJCL 2 at 22 and 33 respectively that the
Act has “a haphazard chapter structure” and is “economically
burdensome”;
John Farrar notes in his book, Corporate Governance in
Australia
and New Zealand (2001) at page 6 that Australians “have a
tendency to over-legislate [in the area of corporations law] and the
result is
obese and user-unfriendly legislation”; and D Goddard describes the
Australian approach as an example of how not
to reform companies law in
‘Company Law Reform – Lessons from the New Zealand Experience’
(1998) 16 Company and Securities Law Journal 236 at
254.
3 With apologies
to Stephen Leacock, “Gertrude the Governess, or Simple Seventeen”,
in Nonsense Novels (1911).
4 As the result of a corporations law
‘simplification task force’ established by the Commonwealth
Attorney-General in
the 1980s, the First Corporate Law Simplification Act (Cth)
was passed to amend the corporations legislation in force at the time.
When the
responsibility for reform of corporations law was shifted from the
Attorney-General’s office to the Commonwealth Treasury,
the Corporate
Law
Economic Reform Program (CLERP) was instituted with the aim of reviewing
corporations legislation. In 1998, the Company Law Review Act 1998 (Cth) was
passed – some of the changes wrought by this Act survive in the modern
Corporations Act 2001 (Cth), for example, the Small Business Guide contained in
Part 1.5. Further changes were effected to Australian corporations law by the
first wave of CLERP reforms, the Corporate Law Economic Reform Program Act 1999
(Cth). Finally, after
significant constitutional strife (further explained at
n [ ] below), the Corporations Act 2001 (Cth) was
What is there to like
about the CA 2001? It seems that its main virtue, in the eyes of
the business
community, is the one-stop shopping it provides,6 obviating the
necessity for
multistate filings. Constitutionally, this was a hard won advantage, and
one
which arguably would not necessarily have had to be such a costly, timeconsuming
battle, had the courts demonstrated a greater
inclination to reconsider
questionable precedent. 7 Administrative convenience though may have come at a
high price.
passed, the result of the states agreeing to refer their constitutional
powers in respect of corporations to the Commonwealth. Between
2001 and 2007,
significant changes were made to the Corporations Act 2001 (Cth) as a result of
the passing of the Financial Services Reform Act 2001 (Cth) and the Commonwealth
Criminal Code – these reforms affected the financial services and markets
and criminal offence provisions
of the Act respectively. Further CLERP reforms
(known as CLERP 7, 8 and 9) also took effect during this time. In 2005, the
Corporations Amendment Bill (No 1) 2005 (Cth) was passed, clarifying the
personal liability of directors of corporate trustees, in addition to
regulations designed to support
the reforms made the Corporations Act 2001 (Cth)
by the Financial Servies Reform Act 2001 (Cth). See Elizabeth Boros and John
Duns, Corporate Law (2007) 12-22; and Ford’s
Principles of Corporations
Law, Chapter 2.
5 Since its inception in 2001, the Corporations Act 2001
(Cth) has been amended by 32 different pieces of legislation.
6 Elizabeth
Boros and John Duns, Corporate Law (2007) 16.
7 Historically, Australian
corporations law existed in the form of state legislation, a state of affairs
that was eventually concluded
to be undesirable and an impediment to national
consistency. In 1989, the Hawke Government passed the Corporations Act 1989, a
national piece of corporate law legislation. The power relied upon to pass this
legislation was the ‘corporations power’
contained in s 51(xx) of
the Australian Constitution. The power conferred upon the Commonwealth by this
section allows
legislation to be passed “with respect to foreign
corporations and trading and financial corporations formed within the limits
of
the Commonwealth”. However, at the time of the passing of the Corporations
Act 1989, there existed conflicting interpretations of what the word
‘formed’ within section 51(xx) meant. The narrow interpretation of
the word was that the power bestowed on the Commonwealth was confined to
companies already formed,
thereby rendering the Commonwealth incapable of
legislating with regards to the registration of new companies. The broader view
was
that the power extended to all companies formed within the Commonwealth, to
the obvious exclusion of foreign corporations. The Corporations Act 1989 was
based on the broader interpretation of s 51(xx) – however, challenges by
the states prevented proclamation of the act, and ultimately the High Court of
Australia in NSW v
Commonwealth (1990) 169 CLR 482 held that
‘formed’ meant ‘already formed’ and so the Corporations
Act 1989 was constitutionally invalid. The Commonwealth and the states then
attempted to collaborate on corporations law issues – a
‘cross-vesting scheme’ was instituted, such that for the purposes of
administration and enforcement, state law was treated
as if it was federal law.
Jurisdiction was ‘vested’ in both the Federal Court and the state
courts to hear matters under
the legislation. However, a series of High Court
decisions including Re Wakim; Ex parte McNally (1999) 198 CLR 511 held that this
scheme was constitutionally invalid, a conclusion which also rendered invalid
all previous decisions of the Federal Court on point
(therefore requiring
legislation to be passed to retrospectively validate them). Ultimately, the
states and territories agreed to
refer their constitutional powers over
corporations to the Commonwealth Parliament for the purpose of a national
legislative scheme
– the Corporations Act 2001 (Cth). See also Suzanne
Corcoran, ‘Corporate Law and the Australian Corporation: A History of
section 51(xx) of the Australian
Constitution’ (1994) 15 Journal of Legal
History 131.
Secondly, the hard work of the Corporations Law Simplification
Task Force8,
although perhaps now taken for granted, should not be
underestimated. According to
one member of the Simplification Task Force,
“the First Corporate Law Simplification Act...rewrote company law,
drastically
simplified the text and substance of the law of proprietary
companies (incidentally killing off the unnecessary complication of a
separate
Close Corporations Act by meeting all of its objectives within company law), and
materially simplified the law of public companies, with surprisingly little
litigation going to the superior courts to resolve the meaning of the new
provisions. The Task Force’s remit was to simplify
the drafting, keeping
the substance intact, except where there was a consensus for
incremental
change, but they marshalled support so effectively that they
carried through a
wholesale reform within that remit.” 9
Thirdly, there has been innovation10, some uniquely Australian responses to
local
circumstances. In some instances though (the approach to statutory
directors’ duties11
for example), the case for Australian
exceptionalism is not persuasive.
The problems with the reforms though are not the result of a lack of either
good ideas
or understanding of the issues at the forefront of modern
corporate practice. There
were lots of good models and studies around, the
Canada Business Corporations Act12,
the New Zealand Companies Act13, the
Revised Model Business Corporations Act in
the United States14, the efforts
of the American Law Institute on Corporate
Governance15, the Review of the
Hong Kong Companies Ordinance16 and, beginning
in 1998, the extensive studies
of U.K companies law undertaken by the Department
8 [dates]
9 Email to the author from George Durbridge, dated April 20,
2008.
10 E.g., the inclusion of a new Part 1.5 in the statute, a
non-statutory “Small business guide”. In the spirit of the plain
English drafting of the Simplification
Task Force, the Small business guide,
sets out the basic features of a proprietary company and its operation. However,
as noted infra at page [ ], the inclusion of this non-statutory material
in the statute itself may cause some confusion as to its import and its
normative force.
11 Discussed infra at page [12].
12 RSC 1985, c
C-44.
13 1993 (NZ).
14 (2005).
15 American Law Institute, Principles
of Corporate Governance: Analysis and Recommendations – Volumes 1 & 2
(1994).
16 See, for example, Consultancy Report of the Review of the
Hong Kong Companies Ordinance (1997).
of Trade and Industry in London17,
which culminated in the Companies Act 2006
(UK)18. Traces from these various
sources can be detected throughout the CA 2001,
albeit occasionally to
untoward or surprising effect.
Undoubtedly, the process of the law reform efforts during this fifteen year
period
provides some explanation of the results. The initial efforts, perhaps
in response to
Sir Anthony Mason’s stinging comments, 19 were focussed
on form not substance:
simplification and the use of plain English
drafting.20 Not surprisingly, it proved
devilishly difficult to disentangle
form from substance. In the process, major changes
were made in approach, in
effect constituting a major shift in the conceptual
underpinnings of parts,
but not all, of the legislation.
Then ideology intervened, with the renaming of the reform efforts, the
Corporate Law
Economic Reform Program (CLERP), and their repackaging as part
of an economic
agenda of a newly ensconced government. The reform efforts
themselves were
shifted from the Attorney General’s Office to the
Treasury, although the enactments
that immediately followed were largely
unchanged from those proposed (but not
enacted) by the Simplification Task
Force. 21 And corporate law reform ever since
17 Now known as the Department for Business Enterprise and Regulatory Reform:
see, for example, Company Law: Flexibility and Accessibility
(2004) 04/994;
Company Law Reform: Small Business Summary (2005) 05/1780; Company Law Reform
Bill: Regulatory Impact Assessment (2005)
05/2081.
18 Companies Act 2006 (UK)
c 46.
19 Anthony Mason, ‘Corporate Law: The Challenge of
Complexity’ (1992) 2 Australian Journal of Corporate Law 1, 1.
20 See
the comments of George Durbridge, supra [ ]. See also, Roman Tomasic, ‘The
Modernisation of Corporations Law: Corporate
Law Reform in Australia and
Beyond’ (2006) 19 AJCL 2; Ford’s Principles of Corporations Law,
Chapter 2.
21 The Corporations Law 1989 (Cth) came into force on 1 January
1991. The previous legislation had established the Companies and Securities
Advisory Committee (post-2001, this body is known as CAMAC, the Corporations and
Markets Advisory Committee), a body charged with
advising the relevant
Commonwealth minister on proposed law reform and other matters pertaining to
corporations law. It was responsible
for publishing discussion papers for
community consultation, and ultimately reports tendered to the Minister.
However, during the
1990s some corporations law reform projects were pursued
independently of CAMAC – the Commonwealth Attorney-General’s
deparment established a Simplification Task Force that operated between
1993-1996. The recommendations of this body were enacted
in corporate law
simplification acts. However, a change of government in 1996
led to the
shifting of the responsibility for corporations law from the
Attorney-General’s department to the Treasury, where
a Corporate Law
Economic Reform Program (CLERP) was established. Under the CLERP initiative,
many of the reform proposals developed
by the Simplification Task Force were
enacted. For further details, see Ford’s Principles of Corporations Law at
3.360-3.380;
Roman Tomasic ‘The Modernisation of Corporations Law:
Corporate Law Reform in Australia and Beyond’ (2006) 19 AJCL 2 at
27.
has remained in the Treasury.22 Unfortunately, the work of the
Simplification Task
Force was arrested in mid-flight; planned restructuring
of the legislation was left
undone.23
On the other hand, corporate activity is the motor of a free market economy,
and until
the very recent financial shocks reverberating around the world,
the Australian
economy has experienced impressive, unprecedented and
uninterrupted growth over
the entire period of the legislative imbroglio.
Does this mean that corporations law
doesn’t matter?24 Is corporate
legislation as “trivial” as Bernard Black argued
so
disingenuously in 1990?25 Are efforts expended on improving the state of
corporate
legislation in Australia simply not worth the economic candle?
Such a response would be disheartening.26 There are compelling arguments to
be
made in support of addressing the statutory morass of the CA 2001.
Economic efficiency is one argument. A better statute would reduce compliance
costs
(primarily in the form of legal fees) associated with the statute. The
cynical might
22 Some concerns were raised, anecdotally, with the author as to corporate
legislation being drafted in Treasury: inadequate legislative
drafting skills,
insufficient institutional memory, seeming ad hocery and ideologically driven
reforms. On the other hand, another
commentator vigorously denied this as
“mischievous nonsense”; email to the author, supra n. 9.
23 The
“patchwork appearance” of the CA 2001 “is a result of the
simplification programme having been interrupted
half-way. The CLERP programme
did enact the Bills left to it by the simplification programme, but the
remaining simplification work
was never taken in hand, relevantly including the
tidy-up act which would have completed the restructuring and re-numbering of the
Act.” Email to the author, supra n.9.
24 One of the arguments posited
in the influential “law and finance” literature has been that
“law matters, and
may even be a determinative of economic development. See
one of the latest in this series of papers, La Porta, Rafael, Lopez de Silanes,
Florencio and Shleifer, Andrei, "The Economic Consequences of Legal Origins",
Journal of Economic Literature, forthcoming available
at SSRN:
http://ssrn.com/abstract=1028081.
25 Bernard Black, ‘Is Corporate Law
Trivial? A Political and Economic Analysis’ (1990) 84
Northwestern
University Law Review 542. Black asserts what he himself acknowledges to be an
‘extreme hypothesis’, namely
that state corporate law is trivial.
Black’s approach is to examine mandatory corporate law and assess its
triviality with
reference to four considerations. These considerations are:
whether the rules are ‘market mimicking’, i.e. mandatory
but with no
‘bite’; whether the rules can be avoided by ‘advance
planning’; whether a rule that has started
out as irrelevant has now
become relevant, and thus subject to change by ‘the political forces that
[lead] to the trivialization
of corporate law’; and finally, whether the
rule covers such rarely occurring situations that it remains unchanged by the
relevant
political forces in corporate law. In the course of his article, Black
considers the common themes present in academic discourse
on corporate law, as
well as exceptions to
triviality. Finally, he looks at the implications of
triviality of corporate law, for both the legislature and the judiciary.
26
Something that is also acknowledged in Anthony Mason, ‘Corporate Law: The
Challenge of Complexity’ (1992) 2 Australian Journal of Corporate Law
1.
cite the immediate impact on legal fees as a motivating factor in the
toleration of the
status quo evidenced by the legal profession. More likely
though, it is simply a
manifestation of the well-documented phenomenon of
path dependency and interest
group politics in corporate law?27
A better statute might also promote a culture of compliance. Where the
statute makes
no sense, either because it is confusing or commercially
unrealistic, it risks losing its
normative force. There may be token
compliance at the margins or in highly visible
situations, but otherwise the
law becomes a dead letter. Are there areas of the CA
2001 which might fall
into this category, the capital maintenance requirements, for
example?28
Arguably, a better statute could also reduce the volume of litigation
generated by a
difficult statute. Given the size of the economy, is there a
disproportionately large
number of corporate law issues which find their way
to the courts, and in many cases
all the way to the High Court, for judicial
consideration? 29 In this area of the law,
although the judiciary will ably
resolve the dispute, judicial principles so laid down in
response to highly
specific factual situations, may not be optimal as a general
matter.30 And,
to judge by the comments of Sir Anthony Mason and Justice R.P.
Austin, the
judiciary may be justifiably exasperated with the demands which such
a
difficult statute places upon them.
Then there is the facilitation of international transactions. The state of
Australia’s
corporations law statute is no longer a purely domestic
matter. Australian
exceptionalism, intended or not, also has a cost
internationally. To the extent that the
CA 2001 does not meet the usual
expectations of international business partners, it
adds an additional layer
of cost and complexity to international transactions. When
international
transactions are derailed or delayed by arcane processes, ghosts from
27 See Lucian Bebchuk and Mark Roe, ‘A Theory of Path Dependence in
Corporate Ownership and Governance’ (1999) 52 Stanford Law Review
127.
28 Corporations Act 2001 (Cth) Part 2J.1, ‘Share capital
reductions and share buy-backs’. This proposition has not been tested
empirically and is merely anecdotal.
It may be a fruitful avenue for further
investigation.
29 Statistics on the number of corporations law decisions in
the High Court were not readily available; again, this may be an area
of
fruitful future research.
30 See Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR
432.
another century, the first reaction of international participants is to
look for an
alternative route around an annoying local impediment. Somewhat
incredulous
encounters with the CA 2001 by international business people also
detract from the
enviable reputation of Australia as a place of innovative,
effective regulation (which it
is in some areas31) and a dynamic, modern
business community.
A second, and somewhat tangential, consideration in the international realm
is the
significance of Australian legislation and regulation as a model for
emerging and
transitional economies in the Asia-Pacific region. A
controversial but widely
accepted view in the world of international
development is that the origins and nature
of a legal system may determine
the level of development of a country’s financial
system.32 Argued the
other way around, the existence of a vibrant financial system
would indicate,
as a precondition, a well-functioning system of commercial and
financial
legislation, worthy of emulation in the search for similarly stellar
economic
results.
With its large number of foreign students and visiting scholars, Australia is
exporting
its legal system; the visitors take it home with them, often in an
uncritical fashion,
both the good and the less good. Thus the outdated and
less than optimal aspects of
the CA 2001 receive an undeserved validation (by
virtue of unrelated desirable
economic activity) and are propagated
throughout the region.
31 The “Aussie model” of dual financial regulators, the
“twin peaks” approach, is currently of interest to
US regulators;
see, e.g., “Sharks circle Paulson’s Aussie plan”, (London)
Financial Times, April 2, 2008, 11. The
idea of the ‘twin peaks’
model of financial regulation is that there are two financial regulators: in
line with recommendations
made by consultative Committees, the Australian
government created the Australian Securities and Investment Commission (ASIC)
and
the Australian Prudential Regulation Authority (APRA). APRA was intended to
be responsible for prudential regulation, whereas ASIC’s
responsibilities
were specified to be market and disclosure regulation. The ‘twin
peaks’ model therefore depends upon
creating two highly specialised
agencies, each with clearly demarcated and comprehensive roles in the regulation
of financial services.
This model is thought to be
better than a model which
depends upon one single “mega-regulator”, as a single regulator with
all functions may become
too powerful, and may not realise maximum efficiency in
carrying out all of these functions. For more information, see Cooper, J,
et al,
ASIC paper, ‘The Integration of Financial Regulatory Authorities –
the Australian Experience’ (2006), a
paper presented to the Securities and
Exchange Commission of Brazil, 30th Anniversary Conference.
32 See the latest
in the long series of “law and finance” papers, La Porta, Rafael,
Lopez de Silanes, Florencio and Shleifer,
Andrei, "The Economic Consequences of
Legal Origins", Journal of Economic Literature, forthcoming available at SSRN:
http://ssrn.com/abstract=1028081,
pp 4, 12.
Such an outcome may not directly
impact the Australian business community. On the other hand, Australia is an
active participant in
international development in the Asia Pacific, and has an
interest at various levels in the economic development of its neighbours.
Australian legal practitioners and business people are present throughout the
region. Legislation can be viewed as another potential
high value export,
intangible though it may be.
At a more fundamental level though, the state of the CA 2001 raises the question of the place of legislation generally in the Australian legal system. What is the point of legislation? What should a statute do? How does a statute interact with case law, past and future? Why would consistency and coherency in statutory drafting not be valued? To the contrary, why would such characteristics be sniffily dismissed as efforts at “codification”, and we don’t do that here?
A suspicion of “codification”, and statutory law generally, runs
deep in old English
law traditions, an atavistic response perhaps associated
with political trauma such as the French Revolution or an ancient preference
for
authority residing in the judiciary as opposed to the legislature. Of course,
these predilections in the modern UK itself have
been turned on their head since
the entry of the UK into the European Union (EU). The significant structural
changes to UK companies
law that took place in the 30 or so years following the
UK’s accession to the EU where driven, both for better and for worse,
by
continental codified law as manifested in European Commission Directives. Mostly
for the better for companies law, according to
Gower, who welcomed as a positive
influence the structural analysis and intellectual rigour of these
systems.33
Such a view might explain an otherwise inexplicable phenomenon. How is it
that
Canadian and US corporate legislation is so much better drafted, and is
accorded
greater stature and deference, than the CA 2001? Even where
provisions of the latter are directly derived from the former? The legislatures,
the business communities, the legal communities make it so. Legislation is
perceived to be preferable to, and to
33 See, e.g., the discussion on Impact of Community Law in Paul L Davies,
Gower’s Principles of
Modern Company Law (1997, 6th ed),
54ff; also, Cally Jordan, ‘Towards a Commonwealth Model of
Companies
Law’ in F M Patfield (ed) Perspectives on Company Law: 2
(1997).
oust automatically, case law for business law solutions.34 For
example, the creation
of a statutory derivative action is assumed to override
the application of the
exceptions to the rule in Foss v. Harbottle35. No need
for a statutory signpost to that
effect.36
An explanatory factor here may be the comfort level of both US and
Canadian
legislators with the concept of “codification”, in the
sense of systematic, structured
and principles-based legislation. There are,
of course, glaring exceptions to this
proposition, but, again on the other
hand, some fine examples too: the Canada
Business Corporations Act (CBCA) and
the Revised Model Business Corporations
Act (US) among them. Canada is a true
civil code jurisdiction (thanks to Quebec),
and the beneficent civil code
influences of clarity, consistency and organisation have
permeated the
traditional English common law approach to statutory drafting, and a
more
European acceptance of the primacy of legislation. In fact, the drafting
and
organisational style of the old Quebec civil code37, of Napoleonic
origins, was a
direct influence on the 1975 CBCA.
Codification is also an accepted part of the US legislative landscape. There
are many
US codes, although they may bear only a remote resemblance to their
European
cousins. But related they are. An often ignored aspect of the US
legal system is the
strong French (and codal) influences in the 19th C,
influences which continue to be
perceptible, to this day.38
34 For a more detailed analysis of this phenomenon, see Cally Jordan,
‘The Conundrum of Corporate Governance’ (2005) 30 Brooklyn Journal
of International Law 983. Delaware may be an important exception to this
proposition, where both the judiciary and the legislature appear to be equally
significant
in the development and interpretation of business law precepts. But
few jurisdictions can boast of the experienced and specialised
judiciary which
Delaware has created.
35 Foss v Harbottle [1843] EngR 478; (1843) 67 ER 189. The Canadian
Dickerson Committee said about the Canadian statutory derivative action
contained in the Canada Business Corporations Act RSC 1985 c 44, that
“[i]n effect, [the] provision abrogates the notorious rule in Foss v
Harbottle and substitutes for that
rule a new regime to govern the conduct of
derivative actions... [W]e have relegated the rule to legal limbo without
compunction,
convinced that the alternative system recommended is preferable to
the uncertainties – and obvious injustices – engendered
by that
infamous doctrine” – ‘Proposals for a New Business
Corporations Law for Canada (1971), Vol. 1, para 482,
as cited in Pearlie Koh
Ming Choo, ‘The Statutory Derivative Action in Singapore: A Critical and
Comparative Examination’
[2001] BondLawRw 3; (2001) 13(1) Bond Law Review 64 at 66.
36
Corporations Act 2001 (Cth) s 236(3).
37 The Civil Code of Lower Canada
(1866), largely inspired by the Napoleonic code of 1804, was
replaced in its
entirety by the Civil Code of Quebec in 1994.
38 See H Patrick Glenn, Legal
Traditions of the World (3rd ed, 2007): “Law in the United states
is
generally seen as adhering to a common law ’family’, but today
this is far from obvious. In many
In terms of reconceptualising Australian
corporations law, the fundamental question is
where to start. The lessons of
the Simplification Task Force of the 1990s must be
taken to heart; form and
substance must both be addressed.
FORM AND STRUCTURE
The CA 2001 continues to be built on the chassis of old UK companies law,
with now
disparate elements “bolted together” (as one of the
author’s colleagues put it39) into a
fantastical multipurpose vehicle.
The Mad Max approach to corporate law. 40
But, of course, this is no longer
19thC companies law at all. It is a compendium of
modern capital markets
regulation, insolvency law, secured transactions. It goes on.41
As difficult
as it may be to untwist all these strands, it would be a gargantuan task
to
recreate a coherent whole, in effect an Australian corporate commercial
code.42 The
most persuasive argument for one comprehensive piece of
legislation dealing with
virtually all of the aspects of corporate activity,
would be that it is comprehensive.
respects U.S. law represents a deliberate
rejection of common law principle, with preference being
given to more
affirmative ideas clearly derived from civil law. These were not somehow
reinvented in the United states but take over
directly form civilian sources in
a massive process of change in
adherence to legal information in the
nineteenth century” (at 249).
39 Associate Professor Paul Ali, University of Melbourne Law School.
40
The story behind the comprehensive approach to the CA 2001 is a fascinating
mixture of constitutional drama and publisher-drive
expediency. “Until
1991, we had four principal codes, and the original Corporations Law represented
little more than a bundling
of those into one Act....Those of us who lived by
the Codes used to carry about with us both Vol 1 (the Companies Code) and Vol 2
(the Takeovers, Securities, Futures and Interpretation Codes). The two volumes
were easier to pack into a briefcase than one big
volume, but that was about
all: the provisions so often interlock that you needed to have both. The bolting
together brought about
some economy in definitions, and some gain in uniformity,
both because one definition of ‘association’ etc replaced four,
but
no great change. The Simplification Task Force looked at whether the
Corporations Law could be split into a companies volume
and a markets volume, by
re-enacting it as two statutes, or just restructuring one statute in such a way
as to facilitate printing
it in two volumes. The idea did not fit the political
rhetoric of the day: the Commonwealth had just brought us out of a archaic
welter of separate statutes into a modern and convenient unitary statute. ...In
the end, the publishers killed off the idea, by indicating
that they would put
it all in one volume, however it was structured.” Email to the author from
George Durbridge, dated April
20, 2008.
41 The impact of the Financial
Services Reform Act 2001 on the CA 2001 has been castigated in particular, as
“the outstanding, vastly expensive and ghastly failure of the last few
years. Logical and rigorous it may have seemed but in the end it has been a
policy and political failure which has been partly fixed
by a patchwork of hasty
regulations and exemptions, and which has burnt all of the capital which
reformers had accumulated through
cautious and well-prepared reforms in the
1990s.” Email to the author from George Durbridge, dated April 20,
2008.
42 Mind you, Napoleon did it in a few years, but the result was
primarily a compilation of commercial practices developed over several
centuries, whereas the Germans took their time (some 75 years) to produce a
rigorously consistent, theoretically “perfect”
commercial
code.
But to be useful, it must also be coherent. However, neither
comprehensiveness nor
coherency was the motivating factor in this approach;
rather, the “amalgamation” of
the disparate rules served to prop
up the Commonwealth’s constitutional claim to
regulatory
authority.43
Sadly, coherency was the victim. The CA 2001 is clutter and complexity rife
with
inconsistencies and anachronisms. New provisions, often thumb in the
dyke “fixes”,
are wedged in alphanumerically (s. 50AAA, for
example, or s. 601AI).44 At least the
complexity of the alphanumeric
provisions may provide a clue to their vintage and
how they may need to be
interpreted in light of older provisions.
The definitional section 9 is a minefield. There are the usual, inoffensive
if inelegant,
shortcuts: “unfair loan has the meaning given by
section 588FD”. Later definitions
sometimes cause confusion with
earlier statutory provisions. An “officer” is defined
to include
a “director”, which is also defined. The key statutory provisions
on
directors’ and officers’ duties (ss. 180, 181, 182) refer to
“directors and other
officers”. Is this a deliberate distinction,
or redundant drafting? Other “definitions”,
are in fact
substantive provisions: see the new s. 9A(3), the meaning of rights
issue
with its detailed conditionalities.
Then there are the anachronisms,
provisions derived from the very earliest of
companies statutes in the UK,
which no longer serve their original or any other useful
purpose. Take s.115
of the CA 2001:
A person must not participate in the formation of a partnership or association that: (a) has as an object gain for itself or for any of its members; and (b) has more than 20 members unless the partnership or association is incorporated or formed under an Australian law.
Compare this provision to section 4 of the Companies Act 1862 (UK),
the
consolidation of the original Joint Stock Companies Registration and
Regulation Act
1844 (UK):
...no Company, Association, or Partnership consisting of more than Twenty Persons shall be formed...for the Purpose of carrying on any other Business that has for its Object the
43 Email to the author, dated April 22, 2008.
44 Renumbering of the
statute was on the agenda of the Simplification Task Force, but never carried
through by its successor, CLERP.
Email to the author from George Durbridge,
dated April 20, 2008.
Acquisition of Gain by the Company, Association, or Partnership or by the individual
Members thereof, unless it is registered as a Company under this Act or is formed in
pursuance of some other Act of Parliament, or of Letters Patent...
Now the derivation of s.115 of the CA 2001 is pretty clear; apart from
modernising
the capitalisation of nouns (a hangover from the 18thC) and a bit
of rephrasing, the
provisions are more or less identical.
But what is the point of s. 115? The original UK provision marked the
beginning of
modern UK companies legislation and was an early form of
investor protection, by
requiring public registration of entities offering
subscriptions to the public.45 The CA
2001 has an entire regulatory framework
comprised of hundreds of statutory
provisions, based on modern securities
regulatory regimes elsewhere, designed to
promote investor protection.
Section 115 serves no modern purpose.
Worse, it is not as though s. 115 has been inadvertently overlooked, tucked
away for a
century or so, unnoticed in the statutory attic, so to speak. It
has been amended in
modern times46 to permit exceptions to the statutory
limit of 20 members (for law
firms, no less); it is commented upon in leading
textbooks. 47 But no one has asked
the fundamental questions: why do we have
it and why don’t we get rid of it. 48
Then there is the non-law. Part 1.5 –Small Business Guide is not
legislation at all. It is
a useful summary of legislative provisions, but
certainly that could be provided
outside the statute (and avoid the confusion
its inclusion creates). It is unlikely that
small businesspeople will be
found trolling the statute for this information, especially
given the state
of the current statute.
It would be of much greater utility to have a modern, well-drafted
business
corporations act of the Canadian or New Zealand variety, that would
be accessible to
45 The US securities regulation regime, beginning with the Securities Act of
1933, looked back to the 19thC UK statutes as its inspiration;
offers to the
public require the filing of “registration statements”.
46 The
Corporations Regulations 2001 contain the regulation 2A.1.01, which specifies
the exact number of partners in a partnership as permitted by exceptions to the
principle contained in s 115. The
maximum number of members permitted under
these exceptions was increased by virtue of the amending Corporations Amendment
Regulations
2006 (Cth). These regulations took effect as of 17 February
2006.
47 See Ford’s Principles of Corporations Law, 1.240.
48 To be
fair, the comparable provision in the UK was only repealed in 2002 (Statutory
Instrument
2002/3202, 21 December 2002); available at
http://www.opsi.gov.uk/si/si2002/uksi_20023203_en.pdf.
business people (if
they were inclined, as few are, to consult statutory sources). Leave behind the
old statute to deal with all of
the marginal varieties of company that may
continue to exist. And encourage the preparation of a comprehensive annotations
and official
commentaries for the use of practitioners and the judiciary.
Twenty years ago, looking to Canada and the United States, the New
Zealanders
coined the term “core companies law” and began the
process of unpacking old UK style companies law into discrete statutes.
This
process had itself been prompted,
although imperfectly executed, in the UK
under pressure from EC companies law
directives. Here in Australia, Ralph
Simmonds (then Dean of Law at Murdoch
University) urged the reformers of the
1990s to do the same.49 His advice went
unheeded, now making the task even
more difficult.
Does it matter? Is it worth the effort? As one practitioner commented to the
author
(and the author, to test the theory, did it), it is possible to,
literally, tear the statute
apart and clip together the useful bits on
“core companies law” into a fairly readable
package.
On the other hand, if it is possible to do this so readily, why not do it,
legislatively.
Of course, it is not quite so simple. And a lot of the
“useful bits” are themselves open
to question. But the exercise
would offer more than just satisfaction to those with tidy
minds. It would
aid in the reinvigoration and reconceptualisation of business
corporations
law in Australia. The CA 2001 is becoming an oddity in the modern
common law
world. More and more, recourse is had to Canadian and US approachesto business
law. In future, no doubt, the new Companies
Act 2006 (UK) will also serve as a
touchstone. The debates invoked by Sons of Gwalia50, that perfect storm
49 Ralph Simmonds in his article ‘Dismembering the Corporations Law and
Other Law Reform: Should Something More be Added to
the Law Reform
Agenda?’ (1995) 13 Company and Securities Law Journal 57, argued that
“separation into distinct statutes in this country should be on the local
reform agenda for the law of the new
millennium” (at 57). He felt that the
success of the New Zealand approach came from “the attention the New
Zealand reformers
paid to the question of what belong[s] in a corporations law,
and what did not” (at 59; emphasis his). Ultimately, Simmonds
advised the
would-be reformers of Australian corporations law that “[m]odernisation
and simplification... are not enough. Modernisation
– addressing the
out-of-date, the technically inapt or the policy-poor in the corporations law
– is rightly considered
to be important. So too is simplification –
getting the statute into a more intelligible form of communication –
shorter
if possible, clearer at least. However, these are not enough because we
are doing too much in one statute... we need to [divide the
Corporations Act] up
into different statutes” (at 63).
50 [2007] HCA 1.
of old companies
law principles, modern securities regulation and insolvency, could
perhaps be
resolved without recourse to the highest court of the land. Unpacking the
CA
2001 into separate statutes would promote a more obvious, and
conceptually
sound, characterisation of principles and issues.
SUBSTANCE
The reforms of the 1990s were marked, and marred, by too little real change
and too
much compromise in the face of clear choices. As noted above, it is a
futile exercise
to attempt to change form without consideration of substance.
This may be one of the
factors militating against rationalisation of the CA
2001. It is not a simple exercise
and reform fatigue has set in.
But assuming that such an obstacle could be overcome, what areas of companies
law
are worth reconsideration, particularly in light of recent developments
in the UK and
now habitual recourse by counsel and the courts to Canadian and
US approaches for
guidance? Here are some first impressions.
Officers and Directors’ Duties
The statutory treatment of directors duties51, is perhaps the most surprising
aspect of the CA 2001. Somewhat similar statutory statements
of directors duties
are found in other Commonwealth statutes (in Canada and New Zealand, for
example) and in most US state legislation
(following the RMBCA, or its
predecessor).
There are some differences in wording and import in the
statutory statements of
directors duties in the CA 2001. “Skill”,
for example, has been dropped from the duty
of care in s. 180(1) and the
“proper purpose” doctrine (scathingly rejected in Canada
although
not in New Zealand or the UK) is perpetuated in the duty of good
faith
provisions of s. 181. In addition, there is a statutory statement of
the “business
judgment rule” (s.180(2)). There is no statutory
formulation of the business judgment
rule in the United States, where the
rule originated. There, it remains a judicial
doctrine.
51 Ch. 2D extends beyond directors duties strictly speaking, to include
officers and in some cases employees.
The creation of statutory directors
duties was controversial in the UK, as it was in
Hong Kong and Australia. The
reticence appeared to stem from concerns that a
statutory statement could
narrow or dilute the duties developed over decades by the courts. The courts
would be deprived of their
ability to inject nuance and discernment into their
decisions, particularly in hard cases. Some support for this view could be found
in the fact that one of the most important commercial jurisdictions in the
United States, Delaware,52 does not have a statutory statement
of directors
duties (whereas nearly every other state does). However, the Delaware story is a
unique one.53 To this author, the hesitations
over a statutory statement of
directors duties smack more of the generalised suspicion of statutes that
permeates older common law
jurisdictions.54
The Australian approach in the CA 2001 evidences this tension between legislative and judicial solutions. It appears to be a fudge, a nod of the head to both sides of the debate, resulting in an unusual and surprising result. There is a statutory statement of directors duties. However, it has been interpreted as solely creating a civil penalty enforceable only by the regulator55. The general law, the common law, continues to provide the source of traditional directors duties in Australia.
This bifurcation of directors duties is perplexing, and adds unwarranted complexity to an already complex area. The courts themselves have pragmatically tried to resolve the issue by stating that the content of the statutory and the general law duties is one and the same. 56 If so, what purpose is served by the bifurcation? Why have the statutory statement at all? Certainly civil penalties or standing for the regulator could be provided for in a more usual way.
52 The Southern District of New York (physically found in the Wall Street
area) is the other.
53 Delaware ferociously protects the discretion of its
judiciary. Three points must be noted though. The Delaware statute is famous
for
its management friendly bias. The Delaware courts are highly
specialised,
sophisticated, commercial courts; complex commercial litigation is one of the
major
industries in Delaware. And thirdly, as Mark Roe has so intriguingly
suggested in ‘Delaware’s
Competition’ (2003) 117 Harvard
Law Review 588, the Delaware legislature and its judiciary
deliberately
provide scope for great flexibility of interpretation of Delaware corporate law
so as to preempt, if necessary, recourse
to federal legislation in this
area.
54 See supra [ ].
55 There is a separate criminal offence
created in section 184 of the Corporations Act 2001 (Cth) for breach of the
statutory duties of good faith, use of position and use of information.
56
See ASIC v Adler [2002] NSWSC 171; (2002) 41 ACSR 72 at 166; Sheahan v Verco [2001] SASC 91; (2001)
79 SASR 109; Daniels v Anderson (1995) 37 NSWLR 438.
Then there is the
anomaly of the statutory business judgment rule. No generalised
statutory
directors duty of care, but a statutory exculpation, applicable to both
the
statutory duty of care and “their equivalent duties at common law
and in equity” (s.
180(2)). The language is somewhat difficult. Does s.
180(1) create multiple duties?
Does the duty of care sound in equity? It
would appear that the exculpatory statutory
business judgment rule (as
proposed at a time when a comprehensive form of
statutory directors duties
was contemplated) survived whereas the proposal for the
underlying statutory
duties did not. Was there an ideological spin to this? Was it
seen as a
“pro-management” gesture, clumsy, but in the great Delaware
tradition?
Be that as it may, the situation is now even more anomalous. After long
debate, the
UK has adopted statutory statements of directors duties57 and
made it very clear that these statutory duties, although informed by
the general
law, displace and take
precedence over it.
Insolvent Trading
Given the hesitations concerning the creation of a statutory statement of
directors
duties, it is somewhat ironic that s. 588G (and its predecessor
provisions) creates a
statutory director’s duty, in this case, to
prevent insolvent trading.
It is important though to situate this duty in its context. The provisions
relating to a
director’s duty to prevent insolvent trading appear in
Chapter 5 of the CA 2001,
“External administration”, and more
precisely, Part 5.7B, “Recovering property or
compensation for the
benefit of creditors of insolvent company”. Division 3 of Part
5.7B is
entitled “Director’s duty to prevent insolvent trading”.
So, conceptually, ss. 588G and following, are primarily insolvency
provisions, which
elsewhere would be found in separate insolvency
legislation. That s. 588G is
characterised as a director’s duty at all
is a misconception. Parallel provisions, in ss
588V and following, impose
liability on holding companies in certain circumstances
for insolvent trading
of subsidiaries; statutory veil piercing.
57 Companies Act 2006 (UK) c 46, Chapter 2, ss 170-181.
The statutory
scheme provided for in Division 3 of Part 5.7B is complex, unwieldy,
and
arguably of little real benefit to unsecured creditors. There is a little
chart
included in s. 588G (1A) as an aid to sorting through the
provisions.
This is also relatively old law of UK derivation and has been the
object of a fair
amount of judicial and academic scrutiny. Opinion is divided
on the utility of the
provisions. Certainly there is some sympathy for the
plight of unsecured creditors
(possibly, although not conclusively, the
ultimate beneficiaries of the regime). On the
other hand, the direct and
indirect costs associated with the regime appear
unjustifiable.
First of all, the regime runs counter to one of the sacred tenets of
corporations law,
limited liability. In effect, together with s. 588V
(liability of holding company for
insolvent trading by subsidiary), the
provisions create a statutory form of piercing the
corporate veil, to reach
both corporate controllers (the holding company) and,
exceptionally even for
veil piercing dogma, directors.
Supporters of the provisions maintain that, despite relatively little
litigation involving
the provisions, they serve to promote consensual
settlements among creditors,
companies and corporate directors. However, as a
commercial matter, in the context
of conducting business as an ongoing
concern, the provisions are a director’s
nightmare. Corporations, like
the rest of us, may be going into and out of insolvency
on a daily basis. As
Boros and Duns put it: “The Australian approach, which is to
take a
relatively hard line against directors, is in a number of respects a crude
one
both in terms of policy and practice”.58
Detractors of the regime point out that no comparable provisions exist in US
or
Canadian corporate law. Mind you, provisions comparable to 588G and 588V,
were
they to exist in either the US or Canada, would not be found in
corporations law at all,
but rather in separate bankruptcy and insolvency
statutes.
58 Elizabeth Boros and John Duns, Corporate Law (2007) 58.
But the absence
of comparable “director’s duties for insolvent trading” in
Canada and
the United States may be a clue to the underlying problem in the
Australian (and UK)
statutes. The insolvent trading regime is designed to
protect unsecured creditors by
promoting their chances of collection in the
face of the insolvency of the corporate
debtor. One of the main commercial
law differences between Canada and the United
States on the one hand, and
Australia and the UK, on the other, is the absence in the
latter of a
satisfactory, comprehensive, personal property security regime. 59 In
North
America (and New Zealand), it is very easy for a creditor, virtually
any creditor, to
become a secured creditor. And because of the comprehensive
nature of the
registration system for security interests, it is also
relatively simple to ascertain the
extent to which a potential debtor’s
property may already be encumbered.
Thus, arguably, implementation of a comprehensive personal property security regime (along Canadian or New Zealand lines), in addition to the other benefits it would bring to the commercial community, would permit the elimination of a troublesome and complex area of the CA 2001. Happily, the Attorney-General’s office in Canberra is currently working on reforms to create an Australian personal property security regime which would be much closer to the New Zealand and Canadian models.60 In implementing a separate personal property security statute, the trick would be not to forget to revisit, with a view to eliminating, the insolvent trading provisions in the CA 2001.
Share Capital Rules
The share capital rules contained in Chapters 2H (“Shares”) and
2J (“Transactions
Affecting Share Capital”) also merit
reconsideration. There have been numerous and
welcome adjustments to these
rules61 in attempts to modernise them and keep up with
59 Here again, New Zealand has followed the North American model: see the
Personal Property
Securities Act 1999 (NZ).
60 “An exposure draft of
an Australian PPS Bill is being prepared which I hope will be released publicly
in the next month or
so. The Bill takes a functional approach to personal
property securities and be underpinned by a new PPS register. As you can
imagine,
we’re working very closely with the States and Territories.
We’ve also had excellent support form the business community,
including
the banks, who recognise the efficiencies to be gained through a national PPS
system.” Email to the author from Ian
Govey, Attorney-General’s
Office, Canberra, dated April 11, 2008.
61 Chapter 2H comprises the sections
254A – 254Y, and Chapter 2J comprises the sections 256A – 260E. Each
Chapter has
been amended by four acts. Chapter 2H has been amended by the
Treasury
rapidly evolving capital raising practices. However, the provisions
jostle somewhat
uneasily together. For example, if you eliminate the concept
of par value (s. 254C),
have the conceptual underpinnings for bonus shares
(s.254A) been knocked out.
In other respects, the amendments to the capital maintenance rules in Chapter
2J may continue to generate unjustifiable impediments
to legitimate capital
raising and
restructuring. Unlike the insolvent trading rules, which may be
worrisome in theory
but relatively marginal in practice, the share capital
rules are at the very heart of
corporate law. The complexity of Chapter 2J
creates ample fodder for corporate law
examination questions, but headaches
for the corporate world.
Shareholders certainly deserve protection from dilution and other
manipulative
machinations involving the capital structure of the corporations
in which they are
invested. As for creditors, their interests may be
protected in other ways. The share
capital transactions chapter begins with a
laudable statement of principle in terms of
balancing the interests of
shareholders and creditors when engaging in what would be characterised as a
reduction of capital (not
otherwise specifically permitted by the
statute).
But it is well understood that the old “impairment of capital” rules
have
never served creditors particularly well.
Given the breadth and complexity of the capital maintenance rules in Chapter
2J, the
question should be asked: are they more honoured in the breach. That
is to say, are
they more or less ignored except in highly visible
transactions? Such a situation
would do little to promote a corporate culture
of compliance. In international
transactions, the provisions provoke
consternation and frustration as they are at odds
with the expectations of
international practice.
The Revised Model Business Corporations Act in the US provides a very
elegant
alternative. Any “distribution” ( a defined term which
makes no distinction between
Legislation Amendment (Application of Criminal Code) Act (No. 3) 2001 No. 117
(COM), the Corporations (Change of Incorporation) Regulations 2002 No. 168
(COM), the Corporations Legislation Amendment Act 2003 No. 24 (COM) and the
Financial Sector Legislation Amendment Act (No. 1) 2003 No. 116 (COM). Chapter
2J has been amended by the Treasury Legislation Amendment (Application of
Criminal Code) Act (No. 3) 2001
No. 117 (COM), the Financial Services Reform Act
2001 No. 122 (COM), the Corporations Legislation Amendment Act 2003 No. 24 (COM)
and the Corporations Amendment (Insolvency) Act 2007 No. 132 (COM).
capital
distributions or distributions out of profits, encompassing dividend
payments,
share buybacks, reductions in capital, etc) is subject to a
solvency test comprised of
both a balance sheet and a cash flow test.
Directors are subject to personal liability if
they get it wrong and
shareholders may be required to disgorge unlawful
distributions.62
CONCLUSIONS
Despite the massive amounts of legislative change in the 1990s and beyond,
the CA
2001 remains a troubled and unsatisfactory piece of legislation.
Unlovely and unloved. It is hard to escape the conclusion that the
legislative
reforms of the 1990s represented a missed opportunity, one that was seized in
neighbouring New Zealand. If anything,
addressing the difficulties now, may be
more difficult than it was fifteen years ago. There are the usual constitutional
difficulties
that dog major change in the commercial law area (a problem which
the UK and New Zealand do not share with Australia); the usual
issues of path
dependency and interest group pressures; reform fatigue.
Reconceptualisation of the overall framework of corporations legislation
involves
disentangling a matted complex of legislative stands reaching far
into the commercial
world. Many issues remain difficult ones and do not
present easy answers. At the
least though, there is a compelling argument for
liberating the basic business
corporation rules from the confines of the CA
2001. If at the same time it were
possible to rationalise and reconceptualise
some of the more problematic areas such as the treatment of directors duties or
share
capital transactions, all the better.
But in terms of ending this discussion with some food for thought, perhaps it
is time
to take a page from the book of regulatory competition. Do Canada and
the United
States have such well regarded business corporations statutes in
part because there
are so many of them (over 60 in all). Lots of room for
experimentation, variety and
choice? Should Victoria or New South Wales
provide a sleek, modern business corporations vehicle to give the bloated old CA
2001 a
run for its money? After all,
there are no constitutional difficulties
in doing so.
62 See the Revised Model Business Corporation Act (2002, 3rd ed): § 1.40 for a definition of ‘distribution’; § 6.40 for ‘Distribution to Shareholders’; § 8.30 for ‘Director Standards of Conduct’; and § 8.23 for ‘Liability for Unlawful Distributions’.
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