The assistance of Claire Latham, Solicitor, in writing this article is appreciated.
It is vital that the requirements for a valid transfer of shares in an un-listed company are complied with. Otherwise, the validity of ongoing resolutions passed by a company may be challenged, and those who believed themselves to be shareholders may find they lack the voting and dividend rights they thought they had. In the recent decisions of Ku v Song [2007] FCA 1189 and Beck v Tuckey [2007] NSWSC 1065, these requirements were considered.
Ku v Song
In Ku v Song there was a verbal agreement that the owner of shares in an un-listed company, Mr Ku, would transfer those shares to Mr Song. Mr Ku prepared a 'Change to Company Details Form' showing this transfer and lodged it with ASIC. ASIC altered its records accordingly. Mr Ku did not, however, sign any share transfer form or deliver such a form to the company in which the shares were held.
The company then passed resolutions removing Mr Ku as a director, secretary and public officer of the company, with the voting based on Mr Song's apparent position (in ASIC records at least) as the new sole shareholder of the company. Mr Ku challenged the company's ability to pass these resolutions on the basis that Mr Song did not, in fact, own the shares in the company.
Justice Graham of the Federal Court said that, for an effective transfer of shares to take place, the Corporations Act requires a transferor to sign a document transferring the shares and deliver this document to the company in which the shares are held. If the company then registers the transfer, a valid transfer of shares occurs. Therefore, the lodging of the 'Change to Company Details Form' with ASIC was ineffective to transfer the shares and the resolutions passed by the company removing Mr Ku were invalid.
Beck v Tuckey
In Beck v Tuckey, Brereton J of the Supreme Court of New South Wales stated that a company is prohibited from registering a transfer until a "proper instrument of transfer" is delivered to it. In Ku v Song Graham J concludes that, to be a "proper instrument of transfer" a share transfer form must include the name of the state in which the company is registered and be signed by the transferor.
In this case, the share transfer form did not say which State the company was registered in. The judge said this detail could be added after the share transfer form had been delivered to the company and before the document was registered. The transferee had a right to call on the company to register the transfer, subject to the missing required detail being provided. It should be noted that s1071B(5) of the Corporations Act 2001 allows the transfer if it is done under a will or by operation of law.
Conclusion
In order for a valid transfer of shares in an un-listed company to occur, the transferor of the shares must deliver to the company a signed share transfer form which names the state in which the company is registered. If the company secretary then registers the transfer, an effective transfer of shares will occur. It should be noted that, in some circumstances, the company may have a discretion not to register a transfer. This discretion is often found in company constitutions. Just because a valid transfer document has been delivered to the company, the transfer will not necessarily be registered.
It is incumbent on shareholders to ensure that the process is properly followed, otherwise their voting rights may not be secured. Company officers should also be vigilant to ensure proper procedures are followed when shares are transferred, otherwise they may find that resolutions passed are open to challenge by shareholders whose rights have not been recognised.
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.
