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When quorum cannot be constituted at shareholders’ meetings

Kenneth Hong    27 Oct 2021

In a dispute between shareholder and director or joint venture partners, particularly of a small proprietary company, or when company affairs are in deadlock, a common method of opposition by a shareholder is to refuse to attend a shareholders’ meeting so the necessary quorum is not present and the resolutions cannot be passed. In such circumstances, court may intervene to convene a meeting and prescribe a quorum. 

Section 249G of the Corporations Act 2001 (Cth) (Corporations Act) provides that:

"249G – Calling of Meetings of Members by the Court

1. The Court may order a meeting of the company's members to be called if it is impracticable to call the meeting in any other way.

2. The Court may make the order on application by:

(a) any director; or

(b) any member who would be entitled to vote at the meeting.

Note: For the directions the Court may give for calling, holding or conducting a meeting it has ordered be called, see section 1319."

If a director or member of the company can establish that it is impracticable to convene a meeting in any other way for whatever reason, any director or member who would be entitled to vote at the meeting can make an application seeking order that a meeting to be convened, held and conducted in such matter as the court thinks fit, and may give such ancillary or consequential directions as it thinks fit under s 1319. 

In general, impracticability will cover a wide range of circumstances including from where only directors and shareholders have been deceased to situations where it is extremely inconvenient or impracticable for a meeting to be ‘called’ (Jenashare Pty Ltd v Lemrib Pty Ltd (1993) 11 ACSR 345). However, if the company’s constitution or the Corporations Act offers a procedure for meetings to be called in the ordinary course of events, then the court ordinarily will not order that a meeting of the company’s members to be called unless there are exceptional circumstances with strong evidence.

Once impracticability is established, the court has the ultimate discretion to make or refuse the order. In Beck v Tuckey Pty Ltd (2004) 22 ACLC 633; 49 ACSR 555; [2004] NSWSC 357, Austin J referred to the following relevant considerations:

whether the company had failed to comply with its statutory requirements;

whether the company’s management was deadlocked; and

whether the inconvenience was caused by the applicant.

It should be noted that:

the court’s discretion under section 249G of the Corporations Act can be used to enable the appointment of an effective board of directors (Re Sticky Fingers Restaurant Ltd (1991) 10 ACLC 3011);

however, section 249G does not allow the court a general power to give directions as to the conduct of a meeting;

quorum requirements are not relevant to one member company. A company with only one member may pass a resolution by the member recording and signing the record (section 249B of the Corporations Act);

for companies which elect to have replaceable rules apply as opposed to specific provisions in the constitutions, section 249T applies which provides that the quorum for a meeting of a company’s members is two members and the quorum must be present at all times during the meeting. 

As demonstrated above, where there is a deadlock between shareholders which prevents the formation of a quorum at a general meeting, an application under section 249G can be made seeking the court’s intervention to call a meeting. Further, it is highly advisable to draft shareholders or joint venture agreements to manage the risk of a member bypassing the quorum requirement or the procedure and limitations where the quorum cannot be attained at a general meeting as a result of a member not attending.   

 

Written by Victoria Cha

Written on 27 Oct 2021

Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.

 

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Freedom of Contract: Can parties contract out a statutory limitation period? The High Court says yes.

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In The Commonwealth v Mewett (1997) 191 CLR 471, Gummow and Kirby JJ said that a statutory bar in the case of a statute of limitations does not go to the jurisdiction of the court to entertain the claim but rather to the remedy available, and therefore to the defences which may be pleaded.  In Westfield Management Ltd v AMP Capital Property Nominees Ltd (2012) 247 CLR 129, it was held that a person can waive or renounce its right conferred by a statute unless it would be contrary to the statute to do so. The High Court further went on to say that a contract will be ineffective or void where it operates to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest. Accordingly, the above can be summarised as the following principles: 1. a limitation period is a right conferred on a party seeking to enforce the defence; and  2. a person is allowed to agree to abandon a statutory right conferred on them if that statute does not prohibit them from doing so or if that is not contrary to public policy.  The High Court first found that there is no express prohibition against ‘contracting out’ of a statutory defence in the Limitation Act. Then, it went on to decide that while a statutory purpose of imposing a limitation period in the Limitation Act is to promote the finality in litigation, i.e. speedy resolution of disputes, the right conferred is rather an individual benefit which can be elected to utilise as a defence, and it does not intend to remove jurisdiction of the court even if a limitation period has ended. Further, the High Court found that clause 24 of the mortgage agreements effectively gave up the benefit provided by the Limitation Act, on the grounds that the parties intended that clause 24 has wide operation including provisions in the Limitation Act by making reference to its text, context and purpose as well as to the understanding of a reasonable businessperson.  Steward J agreed with Kiefel CJ and Edelman J’s reasons but further emphasised that the inclusion of clause 24 is a legitimate adjustment of the private statutory rights by exercising their freedom of contract and noted an important attribute of contract law stated in Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656: “Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed."   Implications It is important to note that the High Court in Price v Spoor clearly rendered the decision that the parties can contract out the statutory limitation defence under the Limitation Act as such conduct is not contrary to the public policy.  While bearing in mind this precedent, due regard should also be given to applying this to cases arising in different circumstances. The High Court in reaching its conclusion in Price v Spoor indeed considered the interpretation and the purpose of the Limitation of Actions Act 1974 (Qld) as well as the interpretation of a relevant clause in the contract. Each state in Australia has its own legislation governing statutory limitation period, and the policy reasoning behind each legislation may differ from state to state. Further, whether or not the parties effectively agree to contract out the statutory limitation period is ultimately dependent upon the construction of contract clauses. Therefore, it is worthwhile to note that parties intending to contract out or vary the statutory limitation period in their contract must obtain prior legal advice so as to ensure that such intention is effectively incorporated and enforceable against a breaching party. Finally, it should be noted that a term that purports to waive rights under a statute which serves a public purpose will not be enforceable. For example, an employment contract that purports to waive or renounce employee’s rights such as minimum terms and conditions under the Fair Work Act 2009 (Cth) will be unenforceable.   Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.