Sheahan v Londish

INTRODUCTION 180 I have had the benefit of reading the reasons for judgment of Hodgson JA and Young JA. This makes it unnecessary for me to recount the facts or, generally speaking, the statutory provisions in question.

Section 249B 181 Although the Joint Stock Companies Registration Act 1844 (UK) permitted deed of settlement companies to achieve corporate status simply upon complete registration of their deeds of settlement, it took some time for the separateness of the legal personality of the registered company and the implications of that separateness to be unequivocally accepted. There were references to the registered company as "they" and as a "partnership" in the early cases and even in the Act of 1844 itself (see, for example s 25 para 12). The natural meaning of the word "company" as a plurality or group of persons was (and is) persistent. 182 One of the problems that inevitably besets a conferral of separate legal personality is that of identifying those human decisions, states of mind and acts that are to be attributed to the body corporate. In earlier times, the common seal provided the answer: whenever it appeared the corporation (chartered or statutory) had acted, and wherever it did not appear, the corporation had not acted. But exceptions had to be allowed to this "positive corporate seal rule" and this "negative corporate seal rule". (For the relationship between these rules and the contracts of the early registered joint stock company, see K E Lindgren, "History of Rule in Royal British Bank v Turquand" (1975) 2 Monash Law Review 13). As will be seen below, formalism is also the solution that the Australian Parliament has now adopted for the same kind of problem in a different guise - the one person company. 183 The first "modern" Companies Act was the Companies Act 1862 (UK) (the Limited Liability Act 1855 and the Joint Stock Companies Act 1856 had intervened but were shortlived). It was under the provisions of that Act that Salomon v Salomon & Co [1897] AC 22 was decided. In that famous case, Mr Salomon transferred his solvent business to a company which he had caused to be registered under that Act. Its paid up capital consisted of 20,007 shares of £1 each, of which Mr Salomon held 20,001, and his wife and five children one each of the remaining six. He could outvote them - easily. The sale price was satisfied by the issue to Mr Salomon of the 20,001 shares and of debentures secured by a floating charge. 184 Following bad times, the company was wound up. The debentures would exhaust all available funds and there would be insufficient funds left to pay unsecured creditors. 185 The House of Lords held that the question whether Mr Salomon enjoyed the benefit of a liability limited by shares depended only on whether the terms of the Act of 1862 were satisfied. Section 6 of that Act provided that seven or more persons might, by signing a memorandum of association and satisfying the requirements of the Act in respect of registration, form a company with or without limited liability. Their Lordships held that there was not to be read into the Act an implied requirement that the members must represent seven independent minds, and noted that it was even possible for all members but one to hold their shares on trust for that one. 186 Such notions, nowadays commonplace, had not found favour before the primary judge, Vaughan Williams J, or a unanimous Court of Appeal. 187 For a century, Salomon's case has been synonymous with the truism that the registered company is, in contemplation of law, a separate person from its members. But at least respect was paid to the idea that a company must have more than one member, even if the company was the "alter ego" of one of them. That was until, in Australia, the 1990s. 188 Before turning to the change then made, I digress to note the special concession that was made a little earlier in favour of a proprietary company's holding company. That concession was in the nature of an exception to the provision that if the number of members of a registered company fell below the statutory minimum and the company carried on business for more than six months while the number was so reduced, the persons who were members while it carried on business after that period and who knew of the insufficiency of members were severally liable for payment of the company's debts contracted during that time (the "carrying on business provision"). The company and those members were also guilty of an offence, but I will not refer to this aspect further. 189 In the Companies Act 1936 (NSW) the requirement of at least two or seven members, according to whether the company was registered as a proprietary company or not, was found in s 9, while the carrying on business provision was located in s 347. Section 347 did not, however, contain any kind of holding company exception. 190 That exception was introduced into Australian law by the Companies Act 1958 (Vic). Section 15(1)(h) of that Act made the minimum number of members two for a proprietary company and five for a public company, while s 31 contained the carrying on business provision, but that section expressed in parentheses an exception in favour of a proprietary company, the whole of whose issued shares were held by a holding company which was a public company (the public holding company exception). The following year Tasmania followed the Victorian example in s 30 of its Companies Act 1959. For the other States and the Territories, the public holding company exception had to await the enactment of the uniform Companies Act and Ordinances of 1961 and 1962. 191 The advent of this particular kind of one member subsidiary gave rise to the question how its decision or act was to be identified and distinguished from that of its holding company. The answer was provided in s 117(4) of the Victorian Act (and s 103(5) of the Tasmanian Act). That subsection provided that where a minute was signed by a representative of the holding company stating that any act, matter or thing, or any ordinary or special resolution required by the Act or by the subsidiary's memorandum or articles to be made, performed or passed by or at a general meeting of the subsidiary had been made, performed or passed, that act, matter, thing or resolution should, for all purposes, be deemed to have been duly made, performed or passed by or at a general meeting of the subsidiary (I will call this "the minute provision"). 192 The minute provision addressed a consequence of the limited acceptance of the possibility of a proprietary company carrying on business with only one member and was a forerunner of s 249B(1) of the Corporations Act 2001 (Cth) (henceforward, the Act) which is of present concern. 193 The Victorian and Tasmanian provisions were carried forward into the uniform Companies Act and Ordinances of 1961-1962, s 14(1) (minimum number of members), s 36 (the carrying on business provision, again incorporating the public holding company exception) and s 140(6) (the minute provision). 194 The provisions were then carried forward in the Companies Act 1981 (Cth) (the Companies Code) s33(1) (minimum number of members), s 82(1) (the carrying on business provision), s 82(2) (the holding company exception) and s 244(6) (the minute provision). No longer did the holding company have to be a public company, that is to say, a non-proprietary company. It sufficed that it was a company incorporated under the Code or any corresponding previous law of the jurisdiction or the corresponding law of a participating State or Territory - hence now "the holding company exception" omitting the word "public". 195 In 1989 the four provisions mentioned were carried through into the Corporations Law s 114 (minimum number of members), s 186(1) (the carrying on business provision), s 186(2) (the holding company exception) and s 249(7) (the minute provision). 196 In addition to the general requirement in s 114 that a proprietary company must have two or more members and that any other company must have five or more members, s 221 also required that a proprietary company have at least two directors and a public company at least three. 197 It is against the historical background recounted above that the amendments to the Corporations Law in the 1990s fall to be considered. 198 The First Corporate Law Simplification Act 1995 (Cth) (the FCLSA) provided for a more general acceptance of the one person proprietary company. 199 The FCLSA amended ss 114 and 186 (members) and 221 (directors) of the Corporations Law by substituting one for two members and one for two directors in the case of a proprietary company, leaving five members and three directors required in the case of a public company. Accordingly, it was made possible for corporate personality to be achieved from the outset with only one person as a proprietary company's shareholder and director. The single member might be a human being or, as previously, a company. 200 Many consequential amendments were made to the Corporations Law by the FCLSA. These are referred to by Rafal A Zakrzewski in "The Law Relating to Single Director and Single Shareholder Companies" (1999) 17 C & SLJ 156 at 159-160. For example, the effect of an amendment to s 249(1)(a) was that so far as the articles did not make other provision, a quorum was constituted by, in the case of a proprietary company with only one member, that member. 201 For present purposes, however, the most significant amendment was the introduction of s 255A which replaced the minute provision. Section 255A provided: (1) If a proprietary company has only one shareholder and the shareholder records the shareholder's decision to a particular effect, the recording of the decision counts as the passing by the shareholder of a resolution to that effect.