Disputes over the convening of company meetings and removal of directors are frequently litigated.
In Scottish & Colonial Ltd v
Australian Power & Gas Co Ltd & Ors [2007] NSWSC
1266 the New South Wales Supreme Court decided that a general
meeting of shareholders of Australian Power and Gas Company Limited (APG) called by a director could not, by resolution, remove any director from
office because section 203D of The Corporations Act had not been complied with.
APG is a public company listed on
the Australian Stock Exchange. On 15 October 2007 Mr Bellman, a director, requisitioned a general meeting of APG to be held
on 15 November 2007. Mr Bellman was authorised to call the meeting by s 249CA
of the Corporations Act 2001. He gave notice complying with s 249HA. He
acted under that power without seeking a decision of the board to call a
meeting. His notice of meeting set out five resolutions, the effect of which was that, if passed, all four other directors would be removed from office immediately, and that another person, who was not a current director, would be appointed a director
Scottish & Colonial
Limited, a shareholder of APG, claimed an injunction
restraining the challenged directors and APG from continuing to issue
communications relating to the meeting of 15 November 2007 which in any way sought
to influence the outcome of that meeting; an injunction restraining the
challenged directors and APG from operating the information hotline referred
to in a letter which they circulated on 18 October 2007 at APG’s expense; an
injunction restraining the challenged directors from using funds or resources of
APG to influence shareholders to vote against the resolutions at the meeting
proposed, and orders that the challenged directors indemnify or compensate APG
for funds and resources already utilised to seek to influence shareholders to
vote against the resolutions.
The principal ground
alleged against the directors was contravention of their duty to exercise their
powers in good faith in the best interests of APG and for a proper purpose, as set out in s 181(1) of the Act.
The section 203D issue was heard as a separate preliminary point.
Mr Bellman did not follow the
procedure for removal of the directors indicated by s 203D of the Act, which
includes a requirement in subs (2) that "Notice of intention to move the
resolution must be given to the company at least 2 months before the meeting is
to be held". He did not give two months’ notice.
Justice Bryson rejected argument that a general meeting could resolve to remove directors notwithstanding non-compliance with section 203D:
"In my opinion s 203D means that if a director is to be removed the procedures required by the section must be taken. The step in s 203D(2) of giving notice must be taken,
subject to the means of overcoming the time provided for by subs (2) but
otherwise as prescribed. So too for the steps required by subs (3) and for
according the director the entitlement conferred by subs (4). If there are
conditions in a company’s articles for exercise of the power, whether procedural
provisions or other conditions, it is nonetheless necessary that s 203D be
complied with. The power in subs 203D (1) exists despite anything in any other
of the documents indicated; that is, it always exists, in any removal of a
director the members always exercise it. When it is exercised the other
provisions of s 203D apply and must be complied with. Whether any conditions
imposed by a company’s constitution must also be complied with need not
now be determined: in this case the requirements of cl 12.5 would be complied
with."
