Corporation Law
Case study Christopher Skase and quintex
Quintex was an Australian investment company offering media consultancy and development services in the whole of Australia. It was in situated in Melbourne, Victoria and had several branches across the continent. Quintex was initially formed as a retail and broadcasting company and performed well in its early days of business. In 1989, the company scrambled down due to bankruptcy. One of the company directors Mr. Tedd Harris highlighted the circumstances of the collapse to the public as personal interference of the chief executive in the running of the business. He stated that Mr. Skase was channeling company revenues to his other private companies including the seven network TV station and a number of hotel resorts and clubs across Australia and Asia. These transfers were unauthorized and involved huge amounts of money. In the early 1980s, quintex was estimated to be over 1.5 Australian billion dollars and by the time of collapse, the company was in debt of over 700, 000 million Australian dollars. Skase was one of the most successful businessmen in history of Australia whose life in business ended in jeopardy.
Formation of quintex
In Australia, There are two main forms of companies proprietary (private) companies and public companies. Before Skase, quintex operated as a public registered company in Tasmania. In 1975, Skase bought quintex and slowly transformed it to one of the biggest corporations in Australia
The company was limited by share capital and guarantee and had no limitations to its liability level. This meant that the company was registered as a company with share capital and the activities and interests of the company were not to be individually controlled although this was not the case to be later on. In order to register a company in Australia, the owners must submit an application form to the ASCI. Quintex was an already existing company (before Skase) having fulfilled all the requirements of opening a company in Australia. The requirements for setting up a company in Australia include
The company type (public in the case of quintex)
The companies desired name. For a name pass to be granted, the name given should not coincide with that of another existing company carrying the same activities as the ones you are aspiring to conduct (Bainbridge, 2008, p.77).
Names, addresses and contact details of both the parties who are registering as members to the company.
The esteemed directors should disclose their family names, addresses and background details.
The esteemed company secretary should present a written consent declaring their willing fullness to be associated with the company.
The form should outline the desired physical location and address of the company. It should also indicate business hours for public companies.
for limited companies(public companies) the form should indicate clearly the
The amount and lass of shares each shareholder is willing to contribute (pay) and hold on registration. This consent should be forwarded in written form (mulligan, 2008, p.43).
The jurisdictional state at which the company wishes to operate in should also be indicated in the form. Quintex was deemed to operate in Victoria but its services were to be rendered nationally.
For companies like quintex which are public and are limited by shares, the corporate act (2001) indicates that
If shares will be issued for noncash consideration--the prescribed particulars about the issue of the shares, unless the shares will be issued under a written contract and a copy of the contract is lodged with the application (section3).
After quintex accepted to sale itself to Skase, they agreed not to change the name but only review the service charter. After verifying the details, the ASCI took the liberty to give the company an ACN (Australian Company Number) and a certificate of registration that stated the name of the company, registration dates, the company number, its jurisdiction state of operation (Victoria) as provide in the corporate act 2001 chapter 1274 section 7A.
Company powers, duties and obligations (quintex)
1. The Constitution
After registration, a public company becomes a legal entity on its own. Quintex operated independed for fifteen years adhering to all the requirements of the constitution. Skase did not honor the provisions of the company constitution and controlled the activities of the company as if it were proprietorship. The board members were not happy with the conducts of Skase and in October 1989 they all refused to consent to an order that 13.5 million AU dollars be transferred to a privately owned company. Most of the directors threatened to resign and this led contributed to the collapse of quintex. The company was legislated by its legal capacity and powers provided by the ASCI and were bound to follow certain rules and regulation imposed by the government (Ferber, 2008, p23). The company in its constitution discussed the companys abilities and its code of conduct. However, the constitution did not include contracts entered into before incorporation of the company. The parties involved in the contract were free from liability and were not subject to indemnity. The constitution of the company outlined the management, the stake holders of the company and the rules which can be altered or changed. Skase did not enquire for change of rules but rather enacted his own rules to fit his personal interests. In changing a companies name, the ASCI has the mandate to direct the terms involved and it must provide a certificate of incorporation including the details of the new face of the company. In acquiring quintex, Skase did retain the company name but changed management overtime and increased its operations.
The 2001 corporate act indicates that the ASCI have the mandate to control the activities of third party involvement in the activities of companies. The ASCI registers agents and has the right to conduct inspection on the conduct of agents. If the conduct is not satisfactory the ASCI has the power to retrieve the certificate of operation. That is what happened in the dawn of the 1990s world wide economic recession for quintex.
The duties of directors, other officers and employees
The ASCI and the labor association of Australia control the activities of employees and other parties working on the interest of the company. The controller of companies reacted to the voice of the company directors in revoking the operation certificate for quintex. The ASCI states that the employees of a company are the primary stakeholders of the company. They are obligated to work only for the interest of the company and to the satisfaction of the utmost good faith principle. Director Tedd Harris reacted under this rule in informing the ASCI on the activities which were revolving behind the scenes at quintex. Employees are not supposed to be involved in activities which contradict the interests of the company and should not work in two companies with similar interests. Although Skase was the owner of quintex, he was an employee of quintex since he was in their salary list and was mandated to conduct his other personal businesses without the interference of the smooth running of quintex. Skase funded his luxurious life using company funds for example, in 1988 he held a Christmas party amounting AU450,000 dollars at the expense of the company. Employees of quintex were bound to use their skills to the fullest for the benefit of the company and had a civil obligation to fulfill their positions in the company. In quintex, all the stakeholders of the company were at liberty to disclose and vote freely on issues regarding to material or individual interests.
Directors are the leading figures of a corporate venture. The law provides that the individual must reside and must be an Australian citizen. Any person who is past the age of 18 years can be a director. Quintex had on board a total of eight directors and two of them were citizens of Australia. This was according to the provisions of quintex. However, Skase hired and controlled the board to fit his personal interests. He wanted people he could control and delegate. He even hired individuals dismissed from managerial positions who were not liable to be appointed as a director. Almost half of the board consisted half of his personal friends.
Appointments of directors must be presented to the ASCI within 28 days after the appointment. Directors delegate the companys activities and analyze investment proposals. In quintex, Skase determined what was to be done and the directors were just but his spokes persons. They are personally liable as trustees to bad debts and other demeaning financial obligations experienced by the company. The directors are vested with the power to delegate who is to be employed and who is not. In 1989, the board was tired of Skase and threatened to vote him out. The directors appoint the managing director of the company and they have the right to access the financial systems of the company at any time they feel like. Skase was in total control of the internal audit arm and this compromised the value of audit reports. Directors salaries are determined by a resolution by the companys management. After the directors of quintex refused to grant Skase his wish (transfer of funds), he demanded an increase in salary without a resolution. Their remuneration is not secret and members have has the power to review and question the directors salaries. However, this applies for public companies but for proprietary companies the directors delegate and determine their own salary undependably. Skase was acting against this provision by delegating his own salary. Directors can resign at will but a written document must be submitted stating the reasons of resignation. In 1989, of the company directors resigned from board leading to the resignation of the other members. In public companies, directors can not vote out a fellow director but members can remove a director from the bar.
Appointment of company secretaries follows the same criteria as that of company directors except for heshe is appointed by the directors themselves. In quintex, Skase appointed the company secretary and in 1984 the ASCI addressed wrote to the company requesting them to provide for details of their company secretary. A person must submit a letter of consent so that heshe can be accepted as a company secretary. The ASCI must be notified within 28 days after the appointment. Skase conducted his business at his own pace and did not meet the requirements of the ASCI.
Related parties must seek an approval from the members of the company and are adhered to the consequences incase of breach of agreement. In quintex, related parties were his trading allies and personal investors of the company. In the early 1980s, Skases ego in business appealed many investors and this saw a number of local and foreign investors injecting huge amounts of money to the business. The Section 167 indicates that an individual is termed as a member of a company if
He counts among the founders of the company and his name appears on the registrars office
If he accepted to be incorporated after the registration of the company and his name appears on the registrars books or after the conversion from being limited by guarantee to shares (Duncan, 2005, p.65).
In joining quintex, Skase adhered to the above requirements but along the way Skase adopted any body willing to invest in his business ideas as a member. Skase was brave enough to adhere in only those matters of little relevance to him and those which did not contradict his financial gain from the company. He wanted to run a public company as a private company and did all he could to centralize all the powers of the company to himself.
Meetings
In public companies, a director can call a directors meeting. He should clearly give out his motives of calling the meeting. An early notice must be given to each director individually unless the matter to be discussed is of urgency. In a public company the quorum of directors to convene a meeting is two. Majority rules in passing resolutions in a directors meeting (Kapoor 2007, p.41). In quintex, majority was Skase himself. Skase did not require the consent of the other directors to pass a resolution.
A members meeting can be called by directors, court or by a fellow member. Just like a directors meeting an early notice must be issued to each member. For a member to be eligible to give a company a resolution notice heshe must have over 5 support in votes that may be counted in a general meeting or over 100 member quorum of esteemed voters on the meeting. The notice must be presented formally (writing) and the movers must sign it.
The companys internal auditor must be present at the meeting and should give a comprehensive report on the financial positions of the company. Skase appointed and fired his auditors at will. If an auditor did not perform his duties to the personal satisfaction of Skase, heshe risked losing hisher job at quintex any time.
A company is required to hold an annual general meeting (AGM) eighteen months after its incorporation (public companies). Skase delegated when meetings were to be called. He matched the interests of quintex to the ones of his other private companies. Companies are entitled to call for an AGM meeting two times annually and immediately after the fifth month after the end of the companys financial year. The main aim of calling an AGM meeting is to
Inform all the stakeholders of the achievements and activities of the past year. The auditors report was detailed not to inform the members of the missing money until it was not possible to hide any more.
Form a committee for the coming financial year. Skase appointed the committee himself
To inform all the stake holders of deemed reforms on the constitution of the company. Skase did consider the pleas of other stake holders in reforming the constitution of quintex.
A clear sample of the agenda must be indicated on the meeting notice. The following outlines a proposed agenda on an AGM meeting notice as provided by the 2001 corporate act but in quintex, Skase would analyze the contents to be presented in the agenda and had them edited to his satisfactory.
Apologies and reasons for absenteeism
Readings of meetings from the previous meeting
A detailed report from the chairman. Skase usually had his assistant conduct most of his readings for most of the times he was out attending personal matters.
A detailed report from the secretary of the company
A detailed report on the financial position of the company. This should indicate the esteemed dividends per share for listed companies.
Election of a committee for the following financial year
Comprehensive minutes should be noted to form an agenda for the following year. Resolutions are passed upon harmonization of the achievements. In quintex, resolutions passed by the members were bound to be edited to fit the requirements of Skase.
Issue of shares
Section 124 of the corporate act gives companies the power to issue shares. Quintex did not distribute returns to the stake holders of the company. In stead, he channeled all the money to his personal accounts. Quintex was deemed to issue bonus shares to its members annually but Skase had his plans too.
Bonus shares- The term bonus refers to the amount in excess paid o stake holders of a company in terms of dividends. The corporate act demands that after the financial analysis on the performance of the company is carried out, the company should direct and allocate dividends to the stake holders depending on the amount of shares held. Bonus shares are issued with the aim of enlarging the amount of share ownership by members but not to increase the company value. Bonus shares are issued according to the constitution of the company. Skase only issued bonus to only stakeholders who threatened to take legal action against quintex.
Winding up of quintex
In Australia a company can be wound upon notification of the ASCI. The parties responsible to the company musty make sure that the company is wound up in a certain procedure that doesnt leave debtors and creditors in dilemma as provided by the constitution of the company and the subsection number 601NF(2) of the corporate act 2001. The circumstances for winding up of quintex were by a court order. The court might decide to wind up the company because of its ultra vires acts to the purposes at which it was formed to perform. The court placed the company under the care of receiver managers to evaluate and deal with the creditors and debtors of the company.
Most receiver managers in Australia declined to receive quintex in their care demanding the arrest of Skase first. Skase had fled to exile in Majorca, Spain after realizing that his debtors were in hot pursuit for him. Skase fled with all the revenue projections of the company though he claimed cases of bankruptcy. He was quoted as extending his life of luxury to Spain and he even tried to resurrect his empire there.
The media claimed the Australian government of failing to arrest Skase and judge him for his fraudulent conducts in using management funds for his personal matters. Skase fled Australia leaving behind bank and individual debts o over AU 700,000 dollars. Christopher Skase died in exile on 2001 as one of the most controversial businessman Australia has ever experienced in its history. A film depicting his life was released projecting that the only way to get Skase was only by kidnapping him.
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