Where a company’s constitution and the Corporations Act 2001 (Cth) stipulate different requirements for the removal of a director, exercising of one set of requirements will not necessarily satisfy the exercise of the other set of requirements. In formulating resolutions to remove directors, companies should consider carefully any differences in those requirements, and where possible, ensure all procedural requirements are followed and that this is clear on the face of the documents.
Mr Walker was managing director of Regis Resources Ltd (Regis) under a contract for services between Regis and Mr Walker’s family company, Dalkeith Resources Pty Ltd (Dalkeith).
On 4 May 2009, Mr Walker was removed as a director of Regis by a shareholder resolution. Dalkeith brought proceedings alleging that as a consequence of Mr Walker’s removal as director, and thus as managing director, Regis breached and wrongly terminated the services contract.
The services contract entitled Regis to terminate the contract at any time by 9 months’ notice, or payment in lieu of such notice. Alternatively, Regis was entitled to terminate immediately if, among other things, Mr Walker vacated office as a director under a provision of Regis’s constitution.
Regis’s constitution provided that the office of a director is vacated if the director was removed under Article 16.7 of the constitution ie if Regis convened a general meeting on “prescribed notice” and passed an ordinary resolution removing the director. However, the relevant resolution in this case was expressed to be made pursuant to section 203D of the Corporations Act 2001 (the Act).
The Court found that section 203D and Article 16.7 were concurrent alternative sources of authority for Regis to remove a director, such that the exercise of one was not the exercise of the other. The Court therefore concluded that, while he had been removed under section 203D, Mr Walker had not validly vacated office under Article 16.7.
However, the Court ultimately found that Mr Walker was removed under another Article of the Regis constitution which provided that the office of a director is also vacated if the director otherwise ceases to be a director by virtue of the Act, and that accordingly, Regis validly terminated the services contract and was not obliged to give notice of termination.
See the case.