Reference no: EM132870872

In 1985, Rail Ltd's constitution had the following clause: '

Rail Ltd has been formed to make, sell and hire railway carriages and wagons.'

In 2009, the Board of directors was discussing the possibility of entering into a contract for the financing and the construction of a new type of car that may revolutionize the car industry. One of the directors, Wayne, was concerned that this plan may breach the company's constitution. The directors' brushed Wayne's concerns aside noting that a company's constitution is now viewed as an archaic and largely irrelevant document. Subsequently a unanimous resolution was passed authorising this new business plan for the company and contracts were signed with a number of dealers to provide parts for the new cars. When the members of the company discovered what happened, they were not happy. The company's solicitor reassured the members that everything would be fine, by stating that the contracts were not binding because they do not comply with the object clause of the constitution.

Advise on the following:

a) Outline the effect of a company's constitution. [you must refer to the Corporations Act} Are the directors, apart from Wayne, correct in saying that a company's constitution is now irrelevant?

b) Is the solicitor correct in advising the members that the contract is invalid because it breaches the object clause?

c) What action, if any can be taken and by whom for a breach of the company's constitution?