- A chairman of a meeting must exercise a power of adjournment with care where the meeting is to determine the composition of the Board itself, and cannot adjourn the meeting to prevent shareholders exercising their right to remove directors.
- Shareholders and directors can use their rights of access to company books to access full information regarding proxies received and the live proxy count.
Boardroom battles often spill into stoushes at general meetings and these, in turn, often spill into the courts. Two recent court decisions provide guidance on issues that can be central in a contest—the power to adjourn a general meeting and to access proxies received by the company.
The power to adjourn – McKerlie v Drillsearch Energy
Tensions between two factions in the Drillsearch Board came to a head in April 2009, when two of Drillsearch’s six directors, McKerlie and Choo, requisitioned a shareholder meeting to remove three other directors, Simpson, Wicks and Langusch (the Simpson Directors). In response, the Simpson Directors proposed their own resolutions to remove McKerlie and Choo. A shareholder meeting was convened for 10 June 2009.
On 26 May 2009, Drillsearch announced that it had resolved to ‘postpone’ the meeting by opening and adjourning it to 31 July 2009, because the Board had agreed to a ‘renewal process’ which involved a re-constitution of the board composition.
It turned out that the ‘postponement’ was not supported by all the directors and a challenge came before the courts.
Justice Barrett in the New South Wales Supreme Court held that the ‘postponement’ was invalid. There was no express postponement power in the Drillsearch constitution, nor was the written resolution valid as it had not been agreed by all directors as was required.
A further claim was made for an injunction to prevent any of the Simpson Directors serving as chairman at the meeting due to concerns that the chairman of the general meeting could use the standard chairman’s power of adjournment to achieve the same effect as the invalid postponement.
Justice Barrett held that the chairman’s power to adjourn must be exercised in good faith and for a proper purpose. In the case of a meeting, the purpose of the chairman’s powers is to facilitate the will of those at the meeting. The chairman should not exercise a power to further some personal preference or to implement some policy or decision of the board, particularly where the purpose of the meeting is to determine the constitution of the board itself. The right of members to remove the directors by resolution is a statutory right and it would be an abuse of the chairman’s powers to remove that right, except for good reason.
Accordingly, Justice Barrett concluded that the person acting as chairman of the meeting could not act to give effect to the postponement contemplated in the 26 May 2009 ASX announcement. It was the duty of the chairman to consider any question of adjournment of the meeting according to:
- the circumstances existing at, and in relation to, the meeting when it occurs; and
- a genuine appraisal of those circumstances made in good faith and in light of the purposes for which the power to adjourn exists.
Following Justice Barrett’s 4 June 2009 decision, two of the Simpson Directors resigned before the meeting. At the meeting shareholders voted for McKerlie, Choo and the third Simpson Director to retain their positions.
Access to proxies – Jervois Mining Limited
Jervois Mining’s Board comprised five directors. In February 2009, 124 shareholders (including Campbell, a non-executive director) requisitioned a meeting to remove the current directors (other than Campbell) and install new directors. The meeting was convened for 2 April 2009.
For an initial period, Campbell had electronic access to Jervois Mining registry’s full registry service. This showed the share register, proxies received and the live proxy count. However, leading up to the meeting, Campbell’s password was deactivated at the request of the chairman and managing director of the company.
Campbell requested that his access be reinstated because he had concerns in relation to the operation of the company and the company’s issue of a significant number of shares following the requisitioning of the meeting. He expressed concern that the new shares had been issued to provide voting rights to defeat the motion to remove the directors.
The company agreed to provide Campbell with the share register, but not the proxies or the live proxy count. Campbell applied for a court order authorising him to inspect and make copies of the share register, documents relevant to the issuing of shares by the company since the calling of the meeting and all documents relevant to the appointment of proxies at the meeting.
Members’ access under section 247A
Section 247A of the Corporations Act provides that the court may make an order authorising a member or another person to inspect the books on the member’s behalf, if it is satisfied that the member is acting in good faith and the inspection is to be made for a proper purpose.
Justice Goldberg in the Federal Court held that the term ‘books’ includes the proxies themselves and the live proxy count.
Justice Goldberg considered that Campbell had the purpose of addressing his concerns regarding the operation of the company and the issue of shares. Lobbying proxy holders was also a ‘significant purpose’ which was personal to Campbell as he was concerned to ensure that he was not removed as a director.
Justice Goldberg ruled that it can be a proper purpose for a member (even though he is also a director) to seek access for the purpose of lobbying proxy holders to vote in a particular way. Accordingly, Campbell was granted access to the proxies and the live proxy count.
Directors’ common law right of access
Campbell also sought access to the proxies as a director under the common law right of access of a director to the records of their company for the purpose of carrying out their duties.
Justice Goldberg held that Campbell’s purpose of obtaining the information to lobby shareholders did not abuse the confidence reposed in him, nor did it materially injure the company. Accordingly, Justice Goldberg was satisfied that under the common law, as a director, Campbell should be entitled to access all records held by Jervois Mining’s registry.
Despite gaining access, Campbell’s attempt to spill the Jervois Board was ultimately unsuccessful. At the 2 April 2009 meeting he was removed as a director and the resolutions for removal of the incumbent directors were not carried.
Following the decision, it is clear that shareholders can use their statutory right to obtain access not just to the share register, but to full information regarding proxies received and the live proxy count. This information can prove extremely useful in proxy fights as it can assist the interloper to identify and target those major shareholders who have not lodged their proxies as well as those shareholders who have lodged their proxies but could be persuaded to change their vote. The live proxy count also provides up to the minute information on the likely success of their cause.
The decision also demonstrates the extent of a director’s common law right of access to the company’s records and that courts will be reluctant to limit directors’ access, even where a director is using his powers of access for the purpose of lobbying shareholders.