In this case, the Supreme Court of Western Australia recognised that no case has considered the interaction between the requirement under section 201A(2) of the Corporations Act 2001 (Cth) for a public company to have 3 directors, and the typical power under company constitutions for the remaining directors to act where there is a director vacancy.  The Court found that there had been a breach of section 201A(2) where ZYL Ltd had only 2 directors and, while not making a final determination, opined that it was arguable that a resolution by those directors to appoint an administrator was invalid.

Mr James was appointed as administrator of ZYL Ltd (ZYL) following a resolution of the ZYL directors pursuant to section 436A of the Corporations Act 2001 (Cth) (Act) in circumstances where:

  • ZYL had only 2 directors (ie less than the statutory minimum of 3 mandated by section 201A(2) of the Act);
  • clause 15.3 of the ZYL constitution provided that 2 directors comprised a quorum; and
  • clause 15.8 of the ZYL constitution further provided that “in the event of a vacancy or vacancies in the office of a Director, the remaining Directors may act” with the typical limitation that if the remaining directors were not sufficient to constitute a quorum, they may only act to appoint a director or to convene a general meeting.

In making the orders validating the appointment of Mr James, Master Sanderson in the Supreme Court of Western Australia held that: 

  • uncertainty exists in relation to the consequences of a failure to comply with section 201A(2) of the Act and there is no single reported decision which deals with the interaction between section 201A(2) and a provision of the sort contained in clause 15.8 of the ZYL constitution;
  • there were limits in relying on RE DH International Pty Limited (Administrators Appointed) (2013) 95 ACSR 578 because the relevant breach in that case was of section 201A(1) (which requires that a proprietary company have at least one director who must ordinarily reside in Australia) not section 201A(2), and the relevant clause in the constitution recognised that continuing directors may continue to act for certain limited purposes, including “emergencies” (which was held to include the appointment of an administrator);
  • there had been a breach of section 201A(2) in the present case and, without making a final determination, Master Sanderson held that it was arguable that the resolution to appoint Mr James was invalid despite the fact that a quorum existed such that the 2 directors were empowered to act under clause 15.8 of the constitution; and
  • as such, the Court had power pursuant to section 447A of the Act to make an order validating the appointment of Mr James.  The ZYL directors had appeared to act bona fide (they believed that the appointment was in the best interests of ZYL and that they had power under clause 15.8 of the ZYL constitution) and no one is prejudiced by the decision.