This case demonstrates the Court’s unwillingness to make an order to reinstate a director on the basis that if the removal is ultimately found to be valid, the order would have overridden the view of the majority of the shareholders in circumstances where it was not ultimately found to be justified. There is also potential for a reinstated director to veto actions by the Company, which could be detrimental. Any significant delay by a removed director in seeking orders will also likely dissuade the Court from making an order for re-appointment.
Mr Gillespie was removed as a director of Courtesy Real Estate (NSW) Pty Ltd (Company) by resolution of his co-directors even though a shareholders agreement between the Company’s shareholders stipulated that Mr Gillespie would be a director. Although Mr Gillespie sought relief under section 233 of the Corporations Act 2001 (Cth), these proceedings concerned Mr Gillespie’s claim for an interlocutory order that he be reinstated as a director.
This issue did not appear to have been litigated in Australia before this case. While Black J found that there was at least a seriously arguable case that the removal of Mr Gillespie contravened the shareholders agreement (and that a seriously arguable case for oppression may be established), his Honour did not consider that the balance of convenience favoured an interlocutory mandatory order that Mr Gillespie be re-instated. Relevant factors included the following:
- Mr Gillespie was removed months before he commenced proceedings so a mandatory interlocutory injunction would not function to preserve the status quo (which had now become that Mr Gillespie was not a director);
- Any detriment that Mr Gillespie might suffer from not being a director (eg payment of salary and notice of meetings) can be addressed by appropriate orders of the Court;
- There was a significant risk that re-instatement could affect the Company detrimentally due to the existing level of antagonism between the directors giving rise to the proceeding. Moreover, if the Court was to find at final hearing that any breach of the shareholders agreement is properly addressed by an order for damages and oppression is not established, then an order for Mr Gillespie’s reinstatement would have overridden the view of the majority of the shareholders in circumstances where neither the shareholders agreement nor the oppression claims justified that;
- If re-instated, Mr Gillespie would have a right of veto over the payment of dividends (which require an unanimous decision of the directors); and
- There was evidence that Mr Gillespie had not attended the Company’s offices for over 5 months in part due to health reasons and there is a real risk of concern given that history in re-appointing him as director.
See the case.