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Conflict Between Constitution And Shareholders Agreement

1. Incorporation of the undertaking 2. Corporations Act 2001 (Cth) 3. The effect of the Common Law was to remove the power of directors to issue shares and reserve them for shareholders; and Brereton J. rejected the directors` argument regarding the invocation of the inconsistency clause. His honour argued that, although the relevant provisions of the Constitution and the shareholders` agreement both dealt with the issuance of shares of the corporation, the requirements in that regard were not contradictory, as they each had a different purpose. One shareholder argued that the issue of shares was not valid because 75% of the holders of the shares had not given their consent following a change in the rights of the shares. The clause in the shareholders` agreement did not lead to the abolition of the prohibition of different class rights without the agreement of the holders of 75% of the shareholders of the class concerned. Live Board Holding`s articles of association provided that the company`s directors could induce the company to issue shares, including preferred shares.

However, if the issue of shares directly or indirectly altered the rights of a class of shares, the approval of at least 75% of the shareholders of that class was required. As a general rule, shareholders and their legal advisers would consider that in the event of an inconsistency in a shareholders` agreement, a provision of the shareholders` agreement would almost always prevail over a clause in the Constitution dealing with the same subject-matter. However, this case is a reminder that this assumption is not always correct. In September 2013, Cody Live Board Holdings Ltd wanted to raise a capital of approximately $1 million. To this end, the Board of Directors issued preferred shares to new shareholders to exchange funds and issued common shares to existing shareholders. Shareholders` agreement – requires that any decision on the issuance or granting of rights to “shares” or securities of the company be taken by decision by a majority of shareholders. The agreement contained an “inconsistency clause” in the event that, in the event of a conflict between the shareholders` agreement and the company`s constitution, the shareholders` agreement gave priority. Existing shareholders argued that the directors would not be able to issue the preferred shares to Bligh Capital without the agreement of 75% of the common shareholders, as this would vary the existing rights of common shareholders within the meaning of the Constitution. . . .

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