The signing of a circular resolution by a body corporate representative in circumstances where the representative appointment was expressed to only extend to attendance and powers at meetings (and not resolutions to be passed without meetings) was held to be more than a mere procedural irregularity which the Court could cure under section 1322 of the Corporations Act 2001 (Cth). When drafting a body corporate representative appointment, ensure that it accurately captures all of the powers that are intended to be given to the representative, so action by the body corporate representative is not subsequently found to be invalid.
M E Shelf No 16 Pty Ltd (ME Shelf) held 71% of the shares in Richardson & Wrench Holdings Pty Ltd (Richardson & Wrench). Mr Kie Chie Wong, one of three directors of Richardson & Wrench, held the remaining 29% of shares. The directors of ME Shelf appointed Mr Wong as body corporate representative pursuant to section 250D of the Corporations Act 2001 (Cth) (Act) to “attend all meetings at which [ME Shelf] is a shareholder of and to exercise all powers on behalf of [ME Shelf] as [ME Shelf] could have exercised at such meetings.”
Mr Wong, on his own behalf, and purportedly as body corporate representative of ME Shelf, subsequently signed a circular resolution of members of Richardson & Wrench to amend the Richardson & Wrench constitution. The purported amendment inserted a new Article 44A to provide that members’ resolutions “shall only be passed, carried and effected with the affirmative votes of at least 75% majority of votes of the members present and voting”.
Brereton J in the Supreme Court of New South Wales stated that it was instructive that sub-section 250D(4) (which provides that unless otherwise specified in the appointment, the representative may exercise all of the powers that the company could exercise at a meeting or in voting on a resolution) reflects the distinction between:
- sub-section 250D(1)(a) (which refers to meetings of a company’s members); and
- sub-section 250D(1)(c) (which refers to resolutions to be passed without meetings).
On this basis, Brereton J held that while an appointment may cover all of the powers set out in sub-section 250D(1), it may be an appointment for only some of those powers. As the wording of the appointment in this case referred only to meetings at which ME Shelf is a shareholder, his Honour held that it did not extend to passing circular resolutions (as contemplated by sub-section 250D(1)(c)) and as such, Mr Wong was not authorised to sign the circular resolution as body corporate representative of ME Shelf.
In rejecting an argument that the defect was a procedural irregularity within the scope of the Court’s powers to be validated under section 1322 of the Act, Brereton J held that:
- it is difficult to see how the absence of authority to cast a vote of a member, whose affirmative vote was essential to the passage of the resolution, can be seen as a procedural irregularity; and
- the fact that the same result may have been achievable in general meeting does not mean that the circular resolution was not affected by an irregularity that was more than merely procedural.
Brereton J also observed that:
even if section 1322 had been enlivened, the irregularity would have caused substantial injustice that could not be remedied by any court order. Mr Wong would have, through a new 75% majority requirement, entrenched his minority position and precluded the majority from control of the general meeting; and
the effect of a new 75% majority requirement would have been oppressive to, unfairly prejudicial to, or unfairly discriminatory against the majority pursuant to sub-sections 232(c) and (e) of the Act.
See the case.