In this case, the New South Wales Supreme Court refused to exercise its power under section 1322 of the Corporations Act 2001 (Cth) to validate resolutions purportedly passed at an inquorate meeting (caused by the minority shareholder’s non-attendance). In circumstances where the passing of such resolutions would have resulted in a breach of court orders against the company and the minority shareholder, the Court found that the minority shareholder was effectively disenfranchised, resulting in substantial injustice which could not be remedied by any order of the Court (within the meaning of section 1322(2)). However the Court did ultimately exercise its power under section 249G to convene a general meeting and direct that the majority shareholder was sufficient to constitute a quorum. The Court noted that otherwise, the minority shareholder’s non-attendance would effectively allow it to frustrate the exercise of the majority shareholder’s power to pass the resolutions.
The shares in Statewide Office Furniture Pty Ltd (Statewide) (a company the subject of substantial disputes between family members) were held as to 80% by Mr Stojic and as to 20% by Mr Bezina. Statewide and its directors (Mr Bezina and another director)) were subject to court orders restraining them from appointing additional directors pending Court determination in relation to another issue (Court Orders).
Mr Stojic validly gave notice of a general meeting of Statewide to pass resolutions to amend the Statewide Articles and also to appoint himself and another person as directors and remove the existing directors (Resolutions). Mr Bezina’s lawyers wrote to Mr Stojic concerned that the Resolutions would breach the Court Orders and advising that Mr Bezina would not be attending the meeting, such that the meeting would lack a quorum (which, under Statewide’s Articles, was 2 shareholders). Mr Stojic’s lawyers responded that whether the Resolutions would breach the Court Orders would depend on their wording, but did not offer the alternate form. Mr Bezina did not attend the meeting and Mr Stojic purportedly passed the Resolutions in an amended form by voting as a single member.
In refusing to validate the Resolutions under section 1322(2) of the Corporations Act 2001 (Cth) (Act), Black J in the Supreme Court of New South Wales found that:
- an absence of quorum at a general meeting is a “procedural irregularity” and there is no general rule that resolutions passed at such meeting cannot be validated by the Court under section 1322(2) where a party deliberately proceeds with an inquorate meeting;
- the question was whether, for the purpose of section 1322(2), the procedural irregularity had caused substantial injustice that could not be remedied by any order of the Court;
- the Court Orders were directed to maintaining the status quo pending determination of the separate issue (not some wider status quo) and even if there was injustice from the Resolutions, such injustice did not arise from the lack of quorum;
- however, there was substantial injustice to Mr Bezina as the calling of a meeting, in circumstances where the Resolutions proposed may have resulted in contempt of court, and the late suggestion that the Resolutions may be varied (without identifying how) effectively disenfranchised him; and
- that position could not be remedied by any order of the Court.
While satisfied that the relevant matters were of a procedural nature and that Mr Stojic acted honestly, Black J also opined that it would not be a proper exercise of the Court’s discretion under section 1322(4) of the Act to allow the Resolutions to stand.
However, Black J ultimately exercised the Court’s power under section under section 249G to convene a general meeting and direct that Mr Stojic was sufficient to constitute a quorum. In exercising such power, His Honour noted that it was likely that Mr Bezina would not attend any further meeting called by Mr Stojic (even where the Court Orders were discharged and the obstacle to Mr Bezina’s attendance therefore removed), and that Mr Bezina’s non-attendance would effectively allow a minority shareholder to frustrate the exercise of the majority shareholder’s power to pass the Resolutions.