The recent decision of the NSW Supreme Court of Appeal in Gooley v Motasea Pty Ltd [2015] NSWCA 31 highlights the importance of adhering to the procedures specified in a company's constituent documents and under the Corporations Act 2001 (Cth) (Act).

In particular, the decision is a reminder for shareholders of family owned and other closely held companies of the need to ensure that any legal preconditions for effecting any changes to the composition of the board of directors, or any shareholders of a company are complied with.

Facts

The primary issue in the proceedings was whether Janine Gooley was one of two shareholders in Motasea Pty Ltd (Company), a company with substantial property holdings.

The Company was closely held, having been established by Janine's parents, Bill and Joyce Gooley in 1998. At the time of incorporation of the Company, Mr and Mrs Gooley each held one share, as recorded in the Company's 1996 annual return. Following the death of Joyce Gooley, where probate was never obtained on her estate, her one share in the Company was transferred to Bill Gooley.

In contending that she was a member of the Company, Ms Gooley placed particular reliance on the Company's annual return from the year 2000, which had been lodged personally by her father and stated that Ms Gooley had become a shareholder of the Company. This was consistent with Ms Gooley's recollection that her father, following her mother's death in 1999, told her that he intended to transfer a share to her.

Mr Gooley, however, denied this at trial and said he had been mistaken when he completed the 2000 annual return.

Neither Ms Gooley nor the Company were able to tender the Company's share register, any share certificates, any signed instrument of transfer or any evidence of a director's resolution in respect of a share transfer in Ms Gooley's favour.

Decision

Lemming JA found that Ms Gooley had failed to discharge the onus of proving that there was a legally effective transfer of one share of the Company from her father to herself.

In support of his finding, he noted Ms Gooley's failure to tender any documents which reflected a transfer of a share to her, her failure to give evidence of signing a transfer or receiving a share certificate and her father's uncontradicted evidence that he had erroneously filled out the annual return.

Implications for Companies and Shareholders

Family owned and other closely held companies may often neglect the importance of complying with the reporting and procedural requirements of their constituent documents including the company's constitution, the Act and any shareholder agreements. This is often due to the friendly and familial relationships between shareholders and directors of these types of companies. However the case of Gooley demonstrates how sentiments can change with time and how a failure to comply with the formalities can have a significant impact.

Consequently, this decision provides a warning to directors and shareholders of the importance of treating changes to the company, such as appointment of directors and sale and transfer of shares, as significant legal acts, rather than simply administrative tasks.

Gooley v Motasea should also serve as a reminder to minority shareholders, and shareholders in closely held companies, that it is not sufficient to rely on the company or its secretary to effect changes and that they should be persistent and diligent in verifying that the formalities have been satisfied and, in particular, obtaining a share certificate when they have engaged in a share purchase agreement.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.