HI5027: Corporations Law

1. HI5027: Corporations Law Holmes Institute: MBA Program SESSION 4

2. Summarising this session By the end of this Session, you will be able to understand the following topics: Members’ decision making; and Members’ meetings.

3. Member decision-making • Who controls companies? • On what issues do members have a vote? • Structural or constitutional matters • Director appointment and remuneration; appointment of auditors • Some significant or related party transactions • Winding up, residual powers

4. Member voting • Right to make certain decisions about the company is reserved to the members in general meeting by the internal management rules or the Corporations Act • Often, the internal management rules operate on a principle of majority rule – that is, members vote and the view of the majority prevails

5. Control and the exercise of voting rights • Voting rights are a means by which members control what happens to their company • Control depends not only on the presence of voting rights, but also the capacity and information to exercise them

6. Members’ specific powers • Precise scope depends on the internal management rules • Different for public and proprietary companies • Listing Rules confer additional powers on members

7. Changes to structure • Member approval is required to: • adopt, modify or repeal the Constitution (s136) • change the company’s name (s157) • change type (eg from proprietary to public) (s162) • Special resolution is required in each case

8. Variation of class rights • Section 246B – variation or cancellation permitted only: • in accordance with the Constitution, or • where the Constitution is silent, by special resolution of the company and a separate special resolution of the class

9. Variation of class rights (cont) • What is a variation of class rights? See Greenhalgh v Arderne Cinemas • General law test is narrow – effect on enjoyment is not enough • Section 246C: certain actions will amount to variation of class rights

10. Variation of class rights (cont) • Section 246D: rights of dissenting members where the variation, cancellation or modification does not have unanimous consent • Members holding at least 10% of the class can apply to the Court for change to be set aside for unfair prejudice

11. Transactions affecting capital • Certain actions affecting share capital – such as share buy-backs, financial assistance and reductions of capital – may require member approval • See Lecture 20 on changes to share capital

12. Composition of the board • Appointment – member election or approval may be required under the internal management rules, eg: • Members elect the directors by ordinary resolution (RR s201G) • Members must approve appointments made under casual vacancy power (RR s201H)

13. Composition of the board (cont) • Listed companies always have director election • Members’ right to remove a director • Public company: s203D (ordinary resolution) • Proprietary company: only if provided for in the internal management rules, eg RR s203C

14. Directors’ remuneration and benefits • The CLERP 9 remuneration report and non-binding shareholder vote • “Two strikes then spill” process • Retirement benefits • Note Chapter 2E of Corporations Act requirements may apply if it is not “reasonable remuneration”

15. Veto • Members have the right to veto certain transactions – that means the transaction cannot go ahead without their consent • Related party transactions (discussed in Lecture 14) • Listed company – significant transactions • Takeovers and reconstructions

16. Other decisions • Members’ voluntary winding up • Residual decision-making power where the board is unable to act, it relates to a decision to sue controllers, or involves ratification

17. Members’ meetings • Meetings • Types of meetings • Convening meetings • Conducting meetings • Member voting • Decision-making without a meeting • Fixing procedural irregularities

18. Types of meetings • All public companies must hold an annual general meeting (s250N) • Other meetings are called “extraordinary general meetings” • Rules governing meetings are set out in Pt 2G.2 of the Corporations Act and the internal management rules

19. Convening a meeting • Usually, meetings are called by the board. Can also be called: • RR s249C by single director • Listed company by single director (s249CA) • Court, on application by a director or member if it is otherwise impracticable (s249G)

20. Convening a meeting (cont) • Requisition by 5%+ or 100+ members (s249D) • Directors need not convene if the purpose is improper – NRMA v Parker • Direct convening by 5%+ members (s249F)

21. Agenda • Who decides what the meeting can consider? • Only matters that have been included in the notice of meeting can be considered at the meeting – other than matters stated in s250R in case of AGMs

22. Agenda (cont) • Usually, where the directors are calling a meeting, they will determine the agenda • Members can request the inclusion of resolutions for consideration by the meeting (s249N)

23. Notice of meeting • General rule – 21 days. Consent to short notice is possible (s249H) • Listed companies – 28 days (s249HA) • Notice must be given to members, directors and auditor • Contents of notice (s249L)

24. Notice of meeting (cont) • Notice must contain sufficient information to enable the member to decide whether or not to attend the meeting and how to vote • Must not be misleading or deceptive (even if this is unintentional)

25. Notice (cont) • Must “fully and fairly inform and instruct the shareholder about the matter on which he or she will have to vote” – Devereaux Holdings • Need to balance the information presented, to make it accessible – Fraser v NRMA

26. Conduct of meetings • Quorum • Use of technology • Proxies and corporate representatives • Conduct (role of the chair)

27. Voting • Members’ entitlement to vote • Replaceable rule in s250E • Preference shareholders • Voting by proxies • Voting (show of hands and poll) • Ordinary and special resolutions

28. Disqualification from voting • Corporations Act and Listing Rules prevent interested parties from voting their shares in certain circumstances, including: • related party transactions • selective buy-backs • selective reductions of capital • ASX Listing Rules – sale of main undertaking, share issues to related parties etc • Adoption of remuneration report

29. Decision-making without a meeting • In single member companies, resolution is passed by the member recording and signing it (s249B) • Proprietary companies may use “flying minutes”, in which all members entitled to vote must sign a document agreeing to the resolution (s249A)

30. Irregularities • Section 1322: outcome of meeting may be valid despite some irregularity (ie failure to follow required procedure) • Applies to “proceeding under the Act” – includes directors’ and members’ meetings • Automatic validation (valid unless a court says no) or curing declaration

31. Procedural irregularity • Section 1322(2): includes absence of quorum, defect of notice or time • Not invalid unless court is of the opinion that a substantial injustice has resulted or may result, and declares it invalid • Onus on the person arguing invalidity

32. Other automatic validation provisions • Examples are non receipt of notice, technology failure, voting in contravention of s259D • Person seeking to overturn proceeding must establish “substantial injustice”

33. Requirements for court order • Section 1322(6): court can declare that an act, matter, or thing, or a proceeding, is not invalid so long as: • it is procedural in nature • the person acted honestly • it is just and equitable to make the order • no substantial injustice • Onus on the person asserting validity