Australia: Shareholders meetings - Who can call meetings and what resolutions can be considered?

Last Updated: 1 June 2015
Article by Sarah Johnson

Directors' powers to convene meetings

A director of a company may call a meeting of members, either pursuant to the company's constitution, or under section 249C of the Corporations Act 2001 (Cth) (Corporations Act), which is a replaceable rule.

Members of proprietary companies may by resolution remove a director from office either in accordance with the company's constitution or under the replaceable rule in section 203C of the Corporations Act. Members of public companies may remove a director from office pursuant to section 203D of the Corporations Act, provided that notice of the resolution to remove the director is given to the company at least two months before the meeting is to be held, the company has given the director notice of the resolution and the director is afforded the opportunity to put his or her case to members by giving the company a written statement for circulation to members and speaking to the motion at the meeting.

In Adams v Yindjibarndi Aboriginal Corporation RNTBC [2014] WASC 467, the court considered whether a general meeting of members of the Yindjibarndi Aboriginal Corporation (YAC) called by two directors to pass resolutions for the removal of 10 directors and the appointment of 10 new directors was valid. The directors to be removed were appointed at an Annual General Meeting held two months prior to the convened meeting.

Two of the Plaintiffs in the proceedings were the directors who called the meeting. The remaining Plaintiffs were nominees standing for election as new directors of the YAC at the general meeting.

Whilst the case concerned an Aboriginal and Torres Straight Islander Corporation, governed by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act), Kenneth Martin J noted that the CATSI Act and the Corporations Act 2001 (Cth) have materially similar particularly those provisions relating to the convening of meetings and the obligations and duties of directors.

YAC contended that whilst a director might be able to exercise a power to "call" a general meeting to be convened, all the procedural steps in terms of actually issuing notifications of the meeting to members needed to be done by the corporation itself and could not be done by an individual director without reference to the corporation. His Honour cited Lindgren J in NSX Ltd v Pritchard [2009] FCA 584 as authority for the proposition that the sending of a notice is an essential element of the calling of a meeting.

YAC's main argument at trial was that the Plaintiffs in exercising their power as directors to convene a general meeting did not exercise that power in good faith or for a proper purpose. The notice convening the general meeting was accompanied by a letter in which Plaintiffs stated that they had been contacted by a large number of members requesting that a meeting be called to consider the removal and replacement of the current directors on the basis that they did not have the support of members.

In determining whether or not the Plaintiffs had exercised their power to convene a meeting for a proper purpose, his Honour cited Palmer J in National Roads and Motorists' Association Ltd v Scandrett [2002] NSWSC 1123 as authority for the proposition that if the purpose for which the requisition is made is truly to have members consider and if thought fit to pass a relevant resolution, it did not matter that the person making the requisition was motivated to pursue that purpose by "ill-will or self-interest". His Honour also referred to Dhami v Martin (2010) 241 FLR 165 in which Barrett J determined that the fact that one of the purposes of a meeting was not a "proper purpose" will not affect the holding of a meeting if the other was for a "proper "purpose".

His Honour was not persuaded by arguments by the Defendant that the Plaintiffs should have advised other directors of the receipt of the requests for a meeting and participated in discussions with other current directors over whether or not it is in the best interests of the corporation for a general meeting to be convened.

Noting that a director's power to call a meeting is one with which a court ought not lightly interfere and that it was significant that two present directors of the Defendant called the meeting, his Honour found that Plaintiffs had acted for a proper purpose and in good faith and that the general meeting of the Defendant had been validly convened.

Finally his Honour considered whether the Defendant is required to confine the business of the meeting to the resolutions the subject of the notice convening the meeting. On this matter, his Honour concluded that members who receive notice of the meeting should enjoy a full and proper opportunity by notice to consider the business of the meeting before they attend and then vote on that business, and accordingly, any new business that is not the subject of the notice ought not be just introduced without notice to be voted upon. However, his Honour declined to make an order to that effect on the basis that there may arise general ancillary matters or extraordinary issues arising by law, with urgency in the context of a properly convened general meeting.

Shareholders' Powers to Convene Meetings

Directors of a company must convene a general meeting at the request of members with at least 5% of the votes that may be cast at the general meeting (section 249D of the Corporations Act).

In the matter of Molopo Energy Limited; Molopo Energy Limited v Keybridge Capital Limited involved two requisitions to hold shareholders' meetings of the Plaintiff by the Defendant.

The first requisition involved a resolution to amend the Plaintiff's constitution so that the power of the Plaintiff to reduce its share capital could be exercised by the company in general meeting and a further resolution to effect substantial reduction in the capital of the Plaintiff. The Plaintiff's board did not support the proposed reduction in capital. By the second requisition, the Defendant proposed the removal of a number of the directors of the Plaintiff and their replacement by the Defendant's nominees.

The Plaintiff challenged the first requisition on the grounds that the resolutions could not lawfully be effected by shareholders because a company's power to undertake a capital reduction is vested in the board. The Plaintiff also argued that the second resolution was invalid because the capital reduction would or might materially prejudice the Plaintiff's ability to pay its creditors. The Plaintiff also opposed the second requisition on the basis that the sole purpose for appointing the new directors would be to effect the capital reduction and that it was not a proper purpose to appoint directors to seek to effect a capital reduction that may be unlawful.

In connection with the first requisition, his Honour, White J found for the Plaintiff stating that the shareholders in general meeting can only have the function of approving and not effecting a reduction in capital. His Honour noted that if the decision to effect a reduction in capital was placed solely in the hands of members, it would lessen the protection provided to creditors under section 256A(a) of the Corporations Act as the interests of shareholders are likely to be antithetical to the interests of creditors. His Honour also found that where the decision to effect a reduction lies with the directors, creditors are protected by the sanctions that could be available against the directors under section 256D(3) and section 588G of the Corporations Act in the event that the reduction was found to have materially prejudiced the Plaintiff's ability to pay its creditors. White J also found that the Plaintiff, whether acting by its directors or shareholders, could not lawfully reduce its capital as such a reduction might prejudice the Plaintiff's ability to pay its creditors in light of the litigation to which the Plaintiff was party at the time the requisition was made.

On the second requisition, his Honour found for the Defendant, noting that the Plaintiff's contention assumed that the newly appointed directors would not act in accordance with their duties as directors and that there was no substance to this challenge to the second notice nor was there any material that would justify the Court's interference on that basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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Sarah Johnson
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