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Final Assessment Part 2 of Problem Question - HD...

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Part II Notice Directors can call a meeting under s 249C by giving proper notice of at least 21 days under s 249H(3).1 Notice must be given individually to the members under s 249J and may be sent to the electronic address if nominated by the member.2 However members did not nominate to be notified by email, and s 249J(4) further states a notice of meeting sent by electronic means is taken to be given on the business day after it is sent. 3 This means that proper notice was not given as there are only 20 intervening days. The notice must contain the time, place, general nature, intentions and proxy rights.4 As the general nature of the meeting and the intention and text of the proposed resolution is not included, Dulcinea may successfully argue that improper notice was given. However, a defect in the notice may not invalidate the meeting.5

Sancho A company secretary as a member must also be given notice of a general meeting, and so must auditors under s 249K of the CA, but Sancho did not receive notice. 6 Further, all companies must keep minutes and record the proceedings and resolutions for general meetings under s 251A which is usually done by the company secretary.7 As no minutes were kept and Sancho received no notice, Dulcinea may use this to challenge all the resolutions.

Meeting The meeting must be held at a reasonable time and place and at a place convenient for the greatest possible number of shareholders to attend.8 Due to social distancing rules, it is 1 Corporations Act 2001 (Cth) s 249C, s 249H(3) (‘The Act’). 2 Ibid s 249J. 3 Ibid s 249J(4). 4 Ibid s 249L(1)(a) & (1)(b). 5 Ibid s 1322. 6 Ibid s 249K. 7 Ibid s 251A. 8 Ibid s 249R.

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unreasonable that there is no provision for remote participation, particularly as 2 out of 3 shareholders live in Queensland. However, as both Cardenio and Dulcinea attended the meeting, by proxy or in person, this argument is unlikely to succeed.

Resolution 1 It is unlikely Dulcinea is able to challenge this resolution as both Cardenio and Don voted in favour to ratify the contract. Similarly, as Cardenio gave Don proxy notice under s 249X, who holds the same rights to act in the absent shareholders place, the vote is valid. 9 However, she may argue that the meeting was called for an improper purpose and that Don was motivated by ill-will or self-interest. Whilst the meeting may have both proper and improper purposes, this does not corrupt the exercise of power. 10 Therefore s 249Q that the meeting was called for a proper purpose is satisfied.11

Resolution 2 Dulcinea may argue that the proxy must vote the way it was directed pursuant to s 250A(2)(c) and Don voted in favour, instead of abstaining.12 However, s 250A(5) states a person who contravenes subsection 4 is only guilty of an offence if their appointment resulted from sending a list of willing proxies or by holding himself out as a proxy which did not occur.13

S 199A(1) states that a company must not exempt a person from a liability to the company incurred as an officer.14 Don incurred the liability through his dealings as the director of La Mancha with Duke, and s 199A(2)(b) restricts the company from indemnifying a person who

9 Ibid s 249X. 10 Smith v Sadler (1997) 25 ACSR 672. 11 s 249Q The Act. 12 Ibid s 250A(2)(c). 13 Ibid s 250A(5). 14 Ibid s 199A(1).

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owes a liability to someone other than the company that did not arise out of conduct in good faith.15 As Don did not act in good faith through the forgery of Dulcinea’s signature as a director on the contract, the resolution falls under the provision. S 199C makes the resolution void to the extent of contravening s 199A and therefore the resolution will be set aside.16

Resolution 3

Altering the constitution can be done via special resolution under CA s136(2).17 CA s136(1) requires 75% of votes cast by members entitled to vote on resolution under CA s9. 18 Both Cardenio and Don voted in favour of altering the constitution to remove the statement of purpose, and together they hold 82% of the votes which exceeds the requirement. There is a need to change the constitution for a proper purpose, and there must be procedural fairness such that members are informed and have full disclosure of the material information required to make a decisions.19 The purpose was not disclosed under s 249L(1)(b) and shareholders were not given a full, fair and accurate account of the proposed new provisions prior to the meeting under Bancorp Investments as each telephone conversation may have contained different information.20 Therefore, the resolution may be set aside as the notice misstates the effect of the proposed resolution.

Resolution 4 Sancho may be appointed as a director to the Board by the company in a general meeting under s 201G and only requires an ordinary resolution.21 Sancho currently acts as the 15 Ibid s 199A(2)(b). 16 Ibid s 199C, s 199A. 17 Ibid s 136(2). 18 Ibid s 136(1), s9. 19 Gambotto v WCP Ltd (1995) 182 CLR 432; Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590. 20 s 249L(1)(b) The Act; Bancorp Investments Ltd v Primac Holdings Ltd (1984) 9 ACLR 263. 21 s 201G The Act.

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company secretary, however a person can be both a director and a secretary. Assuming that Sancho is over 18 pursuant to s 201B(1), it may be difficult to challenge as only 50% of the votes is needed for him to be appointed.22 As both Don and Cardenio voted positively, this is satisfied. Dulcinea may claim 21 days of notice was not given as required to appoint a director and she did not elect electronic notification and therefore proper notice was not given.23 Further, Sancho acts as both the Company Secretary and auditor of La Mancha ‘for the term of his natural life’ as per the constitution, and there would be conflict if the auditor was also a director of the company.

Conclusion Dulcinea is likely to be successful on the grounds that notice was improperly given to set aside all 4 resolutions. However, in the event that the defects in the notice do not invalidate the meeting she is likely to be successful in challenging Provisions 2, 3 and 4. As the meeting was held for a proper purpose, and it is likely that the contract is enforced regardless due to the indoor management rule, Provision 1 is unlikely to be set aside.

22 Ibid s 201B(1). 23 Ibid s 249H.

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