In a recent case the High Court has acknowledged that innocent
mistakes can happen in relation to corporate governance and has
unanimously confirmed the breadth of the Court's power to
correct such mistakes.
Weinstock v Beck ( HCA 14) concerned a family
business, L W Furniture Consolidated (Aust) Pty Ltd (LWC),
and a shareholder application challenging the purported appointment
of a director.
The articles of association of LWC (Articles) provided that any
director appointed to the board of directors would only hold office
until the next following annual general meeting (AGM), and at that
AGM each director would retire from office and be eligible for
re-election. The Articles also gave the directors the power to, at
any time, appoint a person to be a director of the Company, and any
director so appointed would also be obliged to retire at the next
Amiram Weinstock, who was purporting to act as sole director of
LWC, appointed his wife Helen, as director of LWC on 30 July 2003.
Technically, however, Amiram did not have the power to do this, his
appointment as director having expired at the AGM on 31 December
1973. Furthermore, no party at the AGM held any voting shares, so
no shareholder was empowered to vote at an AGM.
On 10 December 2010 Amiram and Helen filed an application
seeking an order that the Court exercise its power under s 1322(4)
of the Corporations Act 2001 to declare that Amiram's
appointment of Helen as a director was not invalid. Amiram's
sister, Tamar sought orders to wind up LWC on the just and
equitable ground, on the basis that it had no directors, and no
means available to appoint any directors.
Section 1322(4)(a) provides that the Court may, make an order
declaring that any act, matter or thing purporting to have been
done, in relation to a corporation is not invalid by reason of a
contravention of a provision of the Act or a provision of the
At first instance the Court held that Amiram was a member of the
company and a former director and had acted as a de facto director
for 30 years, and since there was no substantial injustice to any
person, it was just and equitable that an order be made under s
1322(4) that the purported appointment of Helen as a director was
not invalid. Tamar's application to wind up the company
Tamar appealed to the Court of Appeal; where it was held that
the purported appointment of Helen as a director was a
contravention of the Articles.
Amiram and Helen appealed to the High Court, who unanimously
agreed that the term "contravention" as used in s 1322
should be interpreted widely. The High Court found that the fact
that Amiram did not have power to appoint Helen as a director and
could not validly have been given such power, did not mean that the
appointment was invalid by reason of a contravention of the
company's constitution. In his judgment, French CJ emphasised
that such innocent errors should not undermine the validity of
decisions made by corporations in cases where there is no
substantial injustice to a third party.
The High Court allowed Amiram and Helen's appeal and
remitted the matter back to the Supreme Court to determine (1)
whether an order should be made under s 1322(4) validating
Helen's appointment as a director; and (2) whether LWC should
be would up.
In Weinstock the High Court has recognised that
corporate governance is quite intricate and can pose significant
difficulties, and that those who own and operate corporations, both
large and small, are not always knowledgeable and well-advised with
regard to its intricacies.
Where errors have occurred as a result of an innocent failure to
comply with procedure as provided for in the Corporations Act
(including the Replaceable Rules) or a company's constitution,
the Court has power to declare that an act, matter, thing or
proceeding done or instituted is not invalid merely because of a
failure to comply with procedure.
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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