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Lecture 9
COMMONWEALTH OF AUSTRALIA
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Revision Question Answers: (e), (b), (d), (b)
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Shareholders’ Meetings
Reading: Chapter 14
CA: Sections 249A-U (except 249K, LA and P); 249X and Y; 250A–C, 250E, J,
L, N, P, R, S; 300A; 317; 1322(1), (2) and (4)
Cases: Re Totex-Adon Pty Ltd and the Companies Act; Chew Investment
Australia Pty Ltd v General Corp of Australia
Types of Meetings
Shareholders meetings can be described as four types:
• Class meeting
• Adjourned meeting
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When must the AGM be held?
The AGM must be held even if other meetings are held during the year
(s250N(3)).
Can the company extend the time for holding the AGM?
Yes. A company can apply to the ASIC for an extension of time to hold
the AGM (s250P(1)). The application has to be made before the
expiration of time during which the AGM was required to be held
(s250P(2)).
Section 250R provides that the business of an AGM may include any of
the following, even if not referred to in the notice of meeting:
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• For listed companies, the directors’ report must contain a
remuneration report that sets out the remuneration paid to
directors and the top 5 executives (s300A(1)).
Yes. The chair of an AGM must allow a reasonable opportunity for the
members as a whole at the meeting to ask questions about or make
comments on the management of the company (s250S), including the
remuneration report if a listed public company (s250SA).
Class Meetings
The Constitution and the CA may provide for class meetings. Remember
under section 246B (which we discussed in an earlier lecture):
Adjourned Meeting
The Constitution will typically give the Chairperson power to adjourn
meetings (refer clause 5.6 of Qantas Constitution). To adjourn a meeting
is to stop the meeting and restart it at a later time or date. The
Chairperson may adjourn the meeting:
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• There is no quorum;
• To evict persons from the meeting who are not entitled to be there
(e.g. non-members);
• Where time has run out to address all of the agenda items at the
meeting.
Calling Meetings
A meeting can be called by:
• A Director
• Shareholders
• Court
By a Director of Company
Any director may call a meeting of the company’s shareholders, unless
the constitution states otherwise (s249C – RR). The decision to call a
general meeting is typically made by the Board of directors, as opposed
to a single director, when it is necessary for the administration of the
company’s affairs.
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What must be contained in the request?
The directors must call the meeting within 21 days after the request is
given to the company. The meeting is to be held not later than 2 months
after the request is given to the company (s249D(5)).
Members with more than 50% of the votes of all of the members who
make a request under s249D may call and arrange to hold a general
meeting if the directors do not do so within 21 days after the request is
given to the company (s249E(1)).
The meeting must be held not later than 3 months after the request is
given to the company (s249E(2)).
When can the directors validly refuse a request to call the meeting?
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Held: As this resolution could not be effectively passed by the members and it
was the sole object of the proposed meeting, it was held that the directors were
entitled to refuse to act on the request.
By shareholders
Section 249F: Shareholders with at least 5% of the voting shares may
call, and arrange to hold, a general meeting without requesting the
directors to call the meeting. The members calling the meeting must pay
the expenses of calling and holding the meeting (s249F).
By Court
Section 249G: On application by a director or member entitled to vote at
the meeting, the Court may order a meeting of the company’s members
to be called if it is impracticable to call the meeting in any other way.
Notice of Meetings
What notice is required to call a meeting?
Notice enables shareholders to know what business will be considered at
the meeting so that they can decide how to vote.
Shorter notice
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• Any other general meeting - if members with at least 95% of the
votes that may be cast at the meeting agree beforehand
(s249H(2)).
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If the information in the notice is misleading, the Court may order an
injunction to restrain the holding of a meeting: Chequepoint Securities
Ltd v Claremont Petroleum NL.
Apart from section 250R CA, the general rule is that only those matters
set out in the notice of meeting can be considered, unless all the
members attend the meeting and agree to vary the agenda. Minor
variations to the text of resolutions are permitted, but the substance of
the resolution should remain unchanged.
http://www.nabgroup.com/vgnmedia/downld/20091116_NAB
2009NoticeOfMeetingAndProxy.pdf
Proceedings at Meetings
Does the meeting have to take place at one venue?
No. A company may hold a meeting of its members at 2 or more venues
using any technology that gives the members as a whole a reasonable
opportunity to participate (s249S). This contemplates the use of video-
conferencing and electronic communication.
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The directors at a meeting of the company’s members must elect an
individual present to chair the meeting (or part of it) if an individual has
not already been elected by the directors to chair it or, having been
elected, is not available to chair it, or declines to act, for the meeting (or
part of the meeting) (s249U(2)). If the directors do not elect the chair,
then the members can (s249U(3)).
Voting – Numbers
Company with share capital
Voting – Process
Section 250J: A resolution put to the vote at a member’s meeting must be
decided on a show of hands unless a poll is demanded (s250J(1)). On a
show of hands, a declaration by the chair is conclusive evidence of the
result, provided that the declaration reflects the show of hands and the
votes of the proxies received. Neither the chair nor the minutes need to
state the number or proportion of the votes recorded in favour or against
(s250J(2)).
What is a poll?
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When is a poll demanded?
Section 250L: A poll may be demanded at any time during the meeting of
company members by the chair, members with at least 5% of the votes
that may be cast on the resolution on a poll or at least 5 members entitled
to vote on the resolution. The Constitution can reduce the numbers and
%.
Proxies
Who can appoint a proxy?
Note: Section 249X is a RR for Pty Ltd, but a mandatory rule for
a public company
Section 249Y(3): A company’s constitution (if any) may provide for the
effect that a member’s presence at a meeting has on the authority of a
proxy appointed to attend and vote for the member. However, if the
constitution does not deal with this, a proxy’s authority to speak and vote
for a member at a meeting is suspended while the member is present at
the meeting.
Resolutions
What are the types of resolutions?
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company to pass a special resolution in circumstances of altering
the constitution (s136(2)) and selective reduction of capital
(s256C(2)).
The members may use this procedure, for example, to have a matter
included for consideration at an AGM. However, the request must be
provided to the company at least 2 months before the date of the AGM.
Procedural Irregularity
What is a procedural irregularity?
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A procedural irregularity may include giving 20 days notice of a meeting,
rather than 21 days or not providing notice of a meeting to all of the
directors.
The Court can make an order that any act or thing arising out of the
procedural irregularity is valid (s 1322(4)(a)).
Substantial injustice is a question of fact. The injustice must flow from the
irregularity, not the outcome of the irregularity. For example, a resolution
passed at a meeting (“the outcome”) without a valid quorum (“the
irregularity”) is not a substantial injustice if the resolution would have
been passed even if a quorum was present.
Members’ Remedies
Oppressive or Unfair Conduct
Reading: [17.05] – [17.110]
CA: sections 232 – 234; section 53
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Additional Cases: Re Bright Pine Mills Pty Ltd; Shamsallah Holdings Pty Ltd v
CBD Refrigeration & Air conditioning Services Pty Ltd; Fexuto v Bosnjak
Holdings Pty Ltd
The remedy is not common with public companies, which are more likely
than proprietary companies to have a market for the company’s shares
and aggrieved members will sell their shares rather than incur costs in
taking legal action. Furthermore, publicly listed companies must comply
with ASX Listing Rules which require these companies to gain
shareholder approval when they propose structural changes.
IS
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2. What is the relevant conduct?
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Given the wide definition, any matter that comes before a general
meeting or director’s meeting would be within the scope of the company’s
affairs.
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There is no definition for “oppressive” or “unfairly” in the CA, so the best
way to determine whether the conduct falls under section 232(e) is by
looking at the case law. What we do know from the case law is that:
• The result, not the motive must be unfair. This means that conduct
may amount to oppression even though directors and majority
shareholders are acting in what they think are the best interests of
the company. The issue is this: is the effect of the conduct
commercially unfair?
Facts:
The NSWRL was responsible for the running of the Sydney rugby league
football competition (now known as the NRL). Under the NSWRL’s
Memorandum of Association the company’s objects and powers included the
following: “To foster and control the game of rugby league throughout the State
of NSW and the ACT and generally to take such action as may be considered
conducive to its best interests”.
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The NSWRL sought to reject an application for admission to the NSWRL
competition by the Wests Football club. This would reduce the number of teams
to 12. Wests brought an application for a remedy under the equivalent of s232.
The NSWRL argued that there were too many games in the competition and the
competition was too long. Players complained that they were playing too much
football, and did not give sufficient time for the players to recover from games
and injuries. A reduction to 12 teams would mean 4 fewer playing days,
particularly during hot weather (which could affect the health of players).
Held:
The NSWRL had power under its Memorandum to determine the number of
teams in the competition.
The decision to reject ‘Wests’ was made in good faith and in the interests of the
competition as a whole
Although the decision may have been prejudicial to or discriminatory against the
club, this in itself did not satisfy the requirements of s232.
Shareholder disagreements
For example:
• In McWilliam v LJR McWilliam Estates Pty Ltd, the Court held that
it was not necessarily oppressive or unfair just because the Board
was pursuing company policies with which the minority
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shareholders disagreed. The company amended its dividend
policy because of tax laws and not to act unfairly towards the
minority (albeit that the amendment had the affect of
disadvantaging the minority).
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Recent Case Example: Mopeke Pty Ltd v Airport Fine Foods Pty Ltd
Airport Fine Foods Pty Ltd (AFF) was a proprietary company. The Bradfield
family and associated interests (Bradfield interests) held 40% and the Lagerlow
family and associated interests (Lagerlow interests) held 60% of the shares in
AFF.
Held: The Court ordered under section 233 for Lagerlow interests to purchase
the Bradfield interests.
The circumstances as a whole made it unfair for the Lagerlow interests to use
their majority voting powers to remove Mr Petrovski, in the absence of proof of
Mr Petrovski's incompetence, from participation in the daily management of the
business, without giving the Bradfield interests the opportunity to sell their
interest at a fair price.
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Failure to dispose of shares
• Winding up
Lecture Hypothetical
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Facts
A – 5% shareholder
B and the rest of the shareholders argued that the conduct was not unfair
and that if it was, the appropriate remedy would be for the sale of A’s
shares to B.
Questions
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A statutory derivative action enables persons, with prior leave of the
Court, to take action on behalf of the company. This differs from
oppressive or unfair conduct, where the applicant (e.g. a member) takes
action personally. However, in particular circumstances, both remedies
may apply to the same factual scenario.
a) it is probable that the company will not itself bring the proceedings,
or properly take responsibility for them, or for the steps in them;
and
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c) it is in the best interests of the company that the applicant be
granted leave; and
e) either:
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Who pays for the statutory derivative action?
The applicant who is the party involved in the action on behalf of the
company. However, section 242 states that a court can make
any order it considers appropriate concerning the applicant’s
legal costs, which includes indemnification by the company. L&H
notes that courts are reluctant to award costs even if the
applicant is successful. I assume this would limit the number of
statutory derivative claims.
Statutory Injunctions
Reading: [17.130] – [17.140]
CA: s 1324
Additional Cases: N/A
• “Interests have been affected”: Persons who apply need not show
that they suffered any special injury arising from the contravention
of the Corporations Act. However, applicants must establish that
their interests go beyond the mere interests of members of the
public (Broken Hill Pty Co Ltd v Bell Resources). A line of court
authority suggests that shareholders have standing to apply for an
s1324 injunction because they have greater interests than a mere
member of the public and their interests could be affected by
contraventions of the Act (e.g. breach of director’s duties).
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Additional Cases: Re William Brooks & Co Ltd; Kokotovich Constructions Pty
Ltd v Wallington
• the company;
• ASIC;
• APRA.
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What are the grounds for winding up a company?
The Court may order the winding up of a company under a number of
grounds in section 461(1) CA (e.g. the company has no members, the
ASIC or APRA determines that it is in the public, member or creditor
interests or the company passes a special resolution to have the Court
wind up the company).
In this course, we will focus specifically on sections 461(1)(e), (f), (g) and
(k) which provide:
(k) the Court is of opinion that it is just and equitable that the company
be wound up.
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Typical examples of situations where it is just and equitable to wind up
the company include:
Held: The Court held that it was just and equitable to wind up the shelf company
on two grounds:
* Failure of the substratum: the company ceased to carry on the business for
which it was formed (Re Tivoli Freeholds Ltd);
* A deadlock at both Board and shareholder level (re Yenidje Tobacco Company
Limited).
The Court said: It is inappropriate that this company be left in limbo. If it is the
parties will engage in further litigation; I am certain that they will reach no
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agreement on the fate of the money in the solicitor’s trust account and will
simply take that matter to court … The only way that I can put an end to this
state of affairs is to order a winding up.
Judgment:
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2009/269.html?query=^Storm
%20Financial
Held: It was just and equitable that Storm be wound up under s461(1)(k)
because:
* Storm Financial was not trading and there was no likelihood that its former
business would resume
• The public interest would be served. Placing the company in the hands of
liquidators would be for the wider good of the financial system because the
liquidator could investigate issues including: Could the CBA have saved Storm
Financial from insolvency by providing financial assistance? Were the
investments recommended by Storm to its clients appropriate? Were the actions
of Storm and its directors following the substantial drop in the stock market
appropriate?
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The DOCA provided, amongst other things:
* Cassimatis’ and all other Storm officers and employees be released from any
future liability, which would deny a liquidator the ability to sue the directors for
breach of their statutory duties, most notably s 588G
* Cassimatis’ take control of any legal proceedings against CBA. This was not
only inconsistent with an external administration, whereby the receiver,
administrator or liquidator (as the case may be) takes control, but it was likely
the Cassimatis’ would be joined as parties to any litigation brought by
disgruntled investors, thereby creating a conflict of interest
* The DOCA was proposed to serve the Cassimatis’ interests, not Storm
Financial, which justified ASIC’s decision to bring an application for winding up
during the administration.
The Court will not make a winding up order under section 461(1)(e), (f),
(g) or (k) if it is of the opinion that the applicant has some other available
remedy AND that the applicant is acting unreasonably in seeking winding
up instead of pursuing another available remedy: s467(4). Winding up is
regarded as a remedy of last resort and one which should not be granted
if a less drastic remedy is available.
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been wound up. The court ordered the purchase of the oppressed members’
shares by the remaining members.
Revision Questions
Question 1
Question 2
Which of the following is not one of the remedies which can be granted by the
court under Corporations Act 2001 (Cth) s 233 where the court finds that there
has been oppression?
Question 3
Question 4
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(c) It is probable that the company will not itself bring the proceedings.
(d) It is in the best interests of the company that the applicant be granted
leave.
Questions 1 – 4 are taken and/or adapted from Commercial Applications of Company Law 8th
edition Multiple Choice Questions & Answers CCH Publishers
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