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Replaceable Rules:

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The replaceable rules govern the internal management of companies if the company does not have a constitution and this role was formerly fulfilled by the articles of association. The Company Law Review Act adopts a policy of simpler drafting of the previous articles, but more significantly, has restructured the rules into the Corporations Law integrated where relevant, instead of collected together in a schedule. The replaceable rules apply to all companies that are registered after 1 July 1998. For companies in existence prior to 1 July 1998, their memorandum and articles are taken to be their constitution. However, if these companies repeal their constitutions then the replaceable rules will apply instead. Comprehensive and detailed legal advice from a Commercial Lawyer may be of invaluable in this aspect of company law.

The replaceable rules operate as rules of internal management, this concept is largely redundant for sole shareholder/director companies, thus the replaceable rules do not apply for such companies. Instead, the Act sets out some basic rules for sole shareholder/director proprietary companies, especially regarding the rights and powers of the director as follows such as for the appointment of directors for single director/single shareholder companies, the powers of directors of single director/single shareholder proprietary companies, the power of a single director/single shareholder proprietary company to sign, draw, accept, indorse or otherwise execute negotiable instruments, the remuneration of a single director who is also the single shareholder of the company and reimbursement of all expenses incurred by that director in connection with the company’s business.  Obtaining proper legal advice from a Commercial Lawyer may be greatly beneficial to fully understand the replaceable rules.

Although a sole shareholder/director proprietary company may still have a constitution, the rules in prescribed in the Corporations Act cannot be modified. The significance of the word “replaceable” is that proprietary companies can modify any of the rules whereas certain rules are mandatory for public companies. For the time being, only one rule is mandatory for public companies which is the right of members to appoint a proxy.

It is important to understand the applicable of replaceable rules. Replaceable rules do not apply to proprietary companies with a sole shareholder/director. The replaceable rules also do not apply to pre 1 July 1998 companies where those companies merely alter the constitutions, as opposed to repeal it entirely.  There is a specific procedures involved in modifying or replacing the replaceable rules. A failure to comply with the replaceable rules is not a contravention of the Corporations Law but a contravention of the replaceable rules may be used as evidence in other proceedings These include a relief for oppression or an application for winding up. Sound legal advice from a skilled Commercial Lawyer may be advantageous in this respect.

If you would like further information or wish to discuss your replaceable rule matter with us please do not hesitate to contact us by telephone on (02) 9233 4048 or by email to info@navado.com.au. 

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