Has the law really changed that much

Thursday, 01 February 2001


    A new case on the rights of shareholders and directors in relation to meetings.

    A series of relatively new provisions in the Corporations Law have attempted to clarify the position of shareholders of companies to control their destiny by being given greater flexibility in the way in which meetings of companies are to be conducted. Section 249D of the Law has been "remodelled" to give shareholders the right to remove directors and to appoint new directors. In the past, directors have had the ability to frustrate the attempts by shareholders to move with greater flexibility in the running of meetings and we were all awaiting some interesting cases on the new provisions. One of these recent cases is the decision of Beach J in Pinnacle VRB Ltd v Ronay Investments Pty Ltd ((2000) 18 ACLC 733), a case in the Victorian Supreme Court. The facts are taken from the CCH headnote. On 15 June 2000, a number of corporate shareholder of Pinnacle VRB Ltd requisitioned a general meeting under section 249D of the Corporations Law for the purpose of removing most of the incumbent board of the company and replacing them with their own directors. Subsequently, another minority shareholder of Pinnacle, Ronay Investments Pty Ltd which held at least 5 percent of the votes, gave notice under section 249F (which gives a holder of 5 percent of the shares the power to requisition a meeting) of a general meeting of members of Pinnacle for the purpose of removing the same directors that were sought to be removed in relation to the requisitioned general meeting. This was really aimed at preempting the meeting requisitioned by the shareholders. This meeting was proposed to be held on 31 July 2000.

    Purportedly acting in accordance with Pinnacle's constitution, the board of directors postponed the general meeting convened by Ronay to 15 August 2000. At the same time, the board also resolved to transfer the other requisitioned meeting to the same venue as the postponed Ronay meeting. Ronay, however, proceeded to hold its meeting on the original date of 31 July 2000. At that meeting, the purported resolutions to replace the majority of the board were passed. Pinnacle's directors in order to avoid this duplication and to enable the two resolutions to be considered in a proper manner sought declarations from the Supreme Court that the meeting convened by Ronay pursuant to section 249F had in effect been postponed to 15 August 2000, and that the purported members' meeting held on 31 July 2000 was not a general meeting of Pinnacle's members and that the resolutions passed at the meeting were invalid. Inter alia, the issues which the court (Beach J) had to consider were: first, do the provisions of section 249F permit a postponement of a section 249F meeting by the board of directors of a company acting under its articles of association; and, secondly, if the answer to the first question is yes, did the provision of Pinnacle's articles of association under which the meeting was postponed by the directors of Pinnacle permit them to postpone a general meeting of the shareholders called pursuant to section 249F.

    Ronay argued that "the right of a member of a company under section 249F to call a general meeting of the company is an independent statutory right to be exercised free of interference from the board of the company, and that the articles of association of [a] company cannot displace or modify that right." Pinnacle contended that the right which is given to a member by section 249F is the right to call a meeting of the company and that is all. Once the meeting is called, the articles and other provisions of the Corporations Law apply in all respects regardless of who called the meeting. Beach J decided that in light of the facts of this case he should postpone any decision on this matter by adopting what is clearly a pragmatic view of the powers of the directors as well as the rights of shareholders. As he put it to the parties: "Such matters can only be resolved following a full hearing of the proceedings which will, of course, involve the calling of [considerable] evidence." In this case the practical problem which faced the court was that the two general meetings were scheduled to be held the day after the court hearing, and the fact that the court did not have the time to deal with the issues.

    In these circumstances Beach J put to counsel (and counsel agreed), that the relevant meeting should be adjourned to a suitable date to enable a trial of the issues to be heard. But, he also made some interesting observations on the powers of the directors and the rights of shareholders. There was nothing in the Corporations Law concerning the postponement of a meeting called by shareholders under section 249F. Further he held that there was nothing in the articles of association of Pinnacle which limited the ability of the board of directors to convene meetings. The conclusion that the judge reached in this case was that the power given to the directors of the company to postpone a meeting for a period of not more than 21 days, although it was a meeting called under section 249F of the Law, "does not in any way affect the right of members to call such a meeting, nor does it modify that right." In his view the articles of association in this case were merely procedural and all they did was give the directors "the power to ensure that a general meeting of the company called by minority shareholders ... is held at a time and place convenient to the majority of the members of the company."

    He also ruled that in his view the directors were not acting in bad faith on the information before him. The directors faced a situation where the members of the company were being required to give consideration to matters at two general meetings which were 14 days apart. In his view the commonsense approach was to have the meetings occur on the same day. In the circumstances he postponed the hearing to enable the meetings to be held on the same day when he hoped that the relevant different views would be decided by a majority of shareholders. The director here, the judge felt, was trying to intervene between two competing sets of shareholders to try to bring some commonsense into the scenario. In the editor's view the judge adopted not only a common sense but a legally sound approach to the issues. It will be interesting to see what happens in future litigation (if any) that may arise.


    The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.

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