In the recent decision of Weinstock v Beck  HCA 14, the High Court acknowledged that honest mistakes and mirror irregularities do occur in corporate governance. This case clarified the court’s broad power to remedy these mistakes pursuant to section 1322(4)(a) of the Corporations Act 2001 (Cth) (Act).
In this case Tamar Beck (Beck) challenged the appointment of Mrs Weinstock as a director of LW Furniture Consolidated (Aust) Pty Ltd (LWC). In 1973, the company held an extraordinary general meeting of shareholders where a special resolution was passed stating that Beck and Weinstock would hold office as directors until the next Annual General Meeting. The next Annual General Meeting was held in December 1973 and the shareholders passed a resolution stating that “any director retiring in accordance with the provisions of the Company’s Articles of Association will be re-appointed”. However, none of the shareholders held a right to vote and the resolution was ineffective. As such, from the date of the meeting Beck and Weinstock were no longer directors of the company. In 2003, Helen Weinstock was appointed by Weinstock as a director of the company.
In 2010, Beck sought the winding-up of the company on the basis that it had no validly appointed directors and none of the issued shares carried voting rights. In response, Weinstock filed an application seeking an order declaring that the resolution to appoint Ms Weinstock was valid and did not contravene the Act of the company’s constitution. The Judge at the first instance found in Weinstock’s favour and held that Ms Weinstock was validly appointed as a director of the company. The matter was then appealed to the Court of Appeal where the majority held that the appointment was not a contravention of the Act. The matter was then appealed to the High Court.
The ground of appeal argued in the High Court was whether “the Court had erred in holding that the power under section 1322(4) of the Act was not exercisable in relation to the appointment”. Section 1322(4)(a) of the Act provides that the Court may make an order declaring that “any act, matter or thing purporting to have been done or any proceeding purporting to have been instituted or taken is not invalid by reason of contravention of this Act or a provision of the constitution of a corporation”. The majority held that the section requires a broad construction and it would be “inappropriate to read provisions granting powers to a court by imposing limitations which are not found in the express words”. The appeal was allowed with costs.
This decision highlights the intricate and often complex nature of corporate governance that can pose significant difficulties to both small and large corporations. One honest mistake or minor procedural error will not cause the courts to undermine subsequent actions made by the company.
However, while the court has acknowledged its broad reaching power pursuant to s 1322 of the Act, this case emphasises that to avoid simple procedural errors or honest mistakes it is imperative that each company’s corporate governance structure includes senior executives who exhibit a balance of skills, familiarity with relevant legislation and a thorough understanding of the company’s documentation. While every company risks oversight, minor errors can be prevented through the implementation of structured internal processes and strict managerial control or application to the court pursuant to s 1322 of the Act.