In a series of recent cases, the Federal
Court1 and Full Federal Court2 have
re-affirmed the basis for the distribution of corporate power
between the members in general meeting and the board of directors.
In order to make valid resolutions, members must have a specific
power to do so conferred on them by the company constitution or by
A company's powers are distinct from those of its two
primary organs, the members in general meeting and the board of
directors. The Full Federal Court in Australasian
Centre for Corporate Responsibility v Commonwealth Bank of
Australia  FCAFC 80 (ACCR) and Aveo
Group Limited v State Street Australia Ltd in its capacity as
Custodian for Retail Employees Superannuation Pty Ltd
(Trustee)  FCAFC 81 (Aveo
Group) emphasised that each organ is sovereign in its
sphere, and one organ cannot use its powers to interfere with those
Typically, the powers of management of the company are vested
exclusively in the board of directors, with specific powers
conferred on the members in general meeting. The distribution of
power between those organs is subject to the precise terms of the
company's constitution and any relevant statute. When the
functions of two organs intersect, the validity of exercise of
those functions will be determined by the corporate balance of
powers, the determination of which will often have significant
The series of cases identified deal with a common circumstance
where the functions of different organs intersect: when members in
general meeting attempt to make resolutions which relate to the
In ACCR, members proposed to move resolutions that, in
effect, stated it was their intention that the directors provide
certain environmental reports in the company's Annual Report.
The Full Federal Court found that the directors were entitled to
decline to include the proposed resolutions in the notice for the
company's Annual General Meeting. In doing so, the Court
highlighted that members cannot make resolutions regarding the
management of the company simply on the basis of a legitimate
interest in how the managerial powers are exercised. It was not the
function of the members to express an opinion as to how a power of
the board of directors should be exercised. Indeed, the Court
considered it a "fundamental proposition" that members in
general meeting cannot speak or act on behalf of a company except
as specifically authorised by constitution or statute to do so.
The cases of State Street Australia Ltd in its
capacity as Custodian for Retail Employees Superannuation Pty Ltd
(Trustee) v Retirement Villages Group Management Pty
Ltd  FCA 675 (State Street
Australia) and Aveo Group provide examples
of where the members were conferred powers in the company
constitutions to make resolutions regarding specific matters of
In State Street Australia, resolutions for the removal
of two directors were proposed by a securityholder. Amongst other
things, Beach J held in that case that the securityholders'
constitutional power to remove a director by ordinary resolution
was not abrogated by the statutory removal power in section 203D of
the Corporations Act 2001 (Cth), declining to follow a
previous Federal Court case which decided the contrary.
Aveo Group concerned the appeal of a decision by Beach
J on litigation related to State Street Australia. It
regarded the validity of resolutions made by securityholders
concerning removing an entity as manager and advisor in the context
of a stapled investment. The Full Federal Court found, amongst
other things, that the resolutions did not usurp the directors'
powers and were validly made pursuant to specific powers conferred
on the securityholders by the constitution.
Members in general meeting who wish to make a resolution must
identify specific powers for those resolutions in the company
constitution or statute. They must also consider potential
interactions of relevant constitutional and statutory provisions.
Correct interpretation of those provisions is critical in order to
determine whether directors are required to put proposed
resolutions to the members, or whether they can decline to do
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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