The almost instantaneous pace of today’s corporate life places ever increasing demands on management that can lead to circumstances where corporate entities delegate powers and responsibilities to particular individuals. This briefing note comments on a recent decision of the Supreme Court of New South Wales that looked into the powers of a corporate representative under section 250D of the Corporations Act.
What is clear from the Court’s decision is that careful attention is required when preparing documentation that sets out the powers of a corporate representative.
When appointing a corporate representative to do certain acts on behalf of a company under section 250D of the Corporations Act the company must ensure that the words of the appointment invoke the relevant elements of the section and that the document accurately reflects what powers the company intends to give to the representative. The Court’s finding that a corporate representative did not have the authority to do an act, due to the wording of the appointment, may not be considered a procedural irregularity which can be cured by section 1322 of the Corporations Act. Clarity is required in the appointment document to ensure the activities of the corporate representative in exercising the powers of the company are not later declared void.
The recent decision of Justice Brereton in In the matter of Richardson & Wrench Holdings Pty Limited  NSWSC 1990 upheld the importance of the wording of the appointment of a corporate representative, and declared a resolution of the members of a company invalid and of no effect as the corporate representative did not have the power to execute a later members’ circular resolution for the company.
Under section 250D (1) a company may appoint an individual as a representative to exercise all or any of the powers the body corporate may exercise:
- at meetings of a company's members; or
- at meetings of creditors or debenture holders; or
- relating to resolutions to be passed without meetings; or
- in the capacity of a member's proxy appointed under subsection 249X(1).
The company can appoint a person to do one or all of those things. That is, it may choose to empower the representative only in specified circumstances or in all of the identified circumstances.
The appointment document in question stated that the person be appointed as the corporate representative of M E Shelf No 16 Pty Limited (M E Shelf):
“to attend all meetings at which the company is a shareholder of and to exercise all powers on behalf of the company as the company could have exercises at such meetings.”
The Court held that the wording of the appointment document confined the authority of the representative to be exercised at meetings, but did not extend to the representative exercising the powers of the company relating to resolutions to be passed without meetings. In this case the corporate representative purported to sign a members’ circular resolution of Richardson & Wrench Holdings Pty Limited (R&W) on behalf of M E Shelf (a majority shareholder of R&W), to insert a new provision into the constitution of R&W. The provision to be inserted was as follows:
“That notwithstanding anything to the contrary, all resolutions of the company shall only be passed, carried and effected with the affirmative votes of at least 75% majority of votes of the members present and voting.”
The Court found that prima facie the corporate representative did not have power to sign the members’ circular resolution. The Court then considered whether this could be considered a procedural irregularity that could be cured by section 1322. The Court held that the absence of authority to cast a vote, whose affirmative vote was required, cannot be seen to be a procedural irregularity, and that simply because the same result would have been achieved if a general meeting had been called does not mean that the resolution was not affected by an irregularity that was more than procedural. This led to the Court finding that the lack of authority could not be cured by section 1322 and the resolution was found to be invalid.
In addition the Court observed that the new provision to the constitution had the effect that persons who were beneficially entitled only to a minority of votes in R&W would entrench their minority position and preclude the majority from controlling the general meeting. As a result the Court remarked that even if there was some procedural irregularity this would be a case where it would result in substantial injustice and the Court would not be able to validate the act under section 1322.
Although not needing to decide the question, the Court also commented that the conduct of the directors representing a minority in attempting to insert a new provision into the constitution so worded was clearly within the language of the Corporations Act, as being oppressive to, unfairly prejudicial to or unfairly discriminatory against the majority. If required the Court would have found that the resolution to insert the new provision in the constitution was oppressive within section 232(c) and (e).
This case reinforces the need to ensure that a document appointing a corporate representative to do all things on behalf of the company, or conversely to do only certain things, needs to specify in accordance with the wording of section 250D the circumstances in which the powers may be exercised. Care must be taken as the Court may not be able to validate acts of the corporate representative, such as the passing of resolutions, under section 1322 if those acts were beyond the power that was given to the representative under the appointment document.