This case illustrates that the Court will hold the objects of a company limited by guarantee as paramount even where the furtherance of those objects may mean that the company is no longer to pursue them.
The Royal Queensland Yachting Squadron (an unincorporated association which was later incorporated as a company limited by guarantee, the Royal Queensland Yacht Squadron Ltd (theSquadron)), obtained approval to construct a marina. In order to protect the assets of the Squadron, the project was to be developed by RQYS Marina Ltd (the Marina Company) which was also a company limited by guarantee.
Under the Marina Company’s Memorandum of Association:
- its first express object was to “establish and support or to aid in the establishment and support of associations, institutions, trust funds or conveniences calculated to benefit the members of [the Squadron]” (clause III);
- the “income and property of [the Marina Company]” was to “be applied solely towards the promotion of the objects of [the Marina Company]” (clause IV); and
- to ensure that the marina project was managed so as not to be adverse to the Squadron in the future, the Flag Officers of the Squadron were to comprise the majority of the directors of the Marina Company.
The relevant facts included:
- following a decision by the directors of the Squadron and the Marina Company to develop a second marina and for tax reasons relevant to the Marina Company, a separate entity (RQYS Nominees Pty Limited (Nominees)) was established to hold the relevant lease for the second marina on trust for the Squadron;
- the Marina Company transferred a business which it conducted at some nearby repair and maintenance facilities to Nominees; and
- the future lease of the first marina and the land on which the repair and maintenance facilities was granted to Nominees from 2029.
Certain members of the Marina Company alleged that the directors (and some other officers) of Marina Company had benefited the Squadron in making certain decisions and by allowing the Squadron and Nominees to take advantage of opportunities which were open to the Marina Company. The Marina Company argued that it and its directors were doing precisely what the Marina Company was established to do, namely benefit the Squadron.
In interpreting the Marina Company’s Memorandum of Association, Gotterson JA (with Boddice and Flanagan JJ in agreement) in the Supreme Court of Queensland – Court of Appeal held that:
- the word “calculated” in clause III was apt to qualify the words “establishment and support” which precede it, and the establishment or support of associations, institutions, trusts funds or conveniences must be calculated to benefit the members of the Squadron in order for it to be within the scope of this object;
- those who were to benefit were the members of the Squadron collectively, and not individually as argued by the appellants; and
- the provision of support, eg by way of transfer of property to the Squadron, was capable of benefitting the members of the Squadron notwithstanding that the Squadron is the transferee. The members are benefitted by way of an increase in the assets of Squadron and some may also benefit by actually using the property as members. The same analysis applies for a transfer of property to an entity associated with the Squadron such as Nominee which exists to benefit the members of the Squadron.
The Court also rejected the appellants’ proposition that, in principle, it can never be in the best interests of a company to put itself in a position where it cannot continue to pursue its objects. Rather, the Court held that such principle was incompatible with the basic principle that the interest of a company reflect those of its members in light of its corporate objects, and those interests may foreseeably require the company to restructure or transfer its business or operations in order to advance such interests.