Restriction On Majority Voting - Summary - lecture 9 - 10 PDF

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Restriction on Member’s decision-making Aim:  Protect exploitation of minority shareholders by majority  Not always possible for minority s/h to sell their shares. (esp for unlisted companies) Restriction on majority voting

Equitable limitation on majority voting power

Constitutional amendments Gambotto

Other resolution, eg Taking the company’s property, Ngurli

Deciding not to sue majority wrongdoer, Biala

Procedural requirements, eg

For reduction of capital, s 256B

to remove directors, s 203C RR/ s 203D ( refer to member’s DM)

Holding meeting ( refer to s/h meeting)

Voting restriction, eg

Related party transaction, s 224- related party and its associate are prohibited to vote

Selective share buy-back, s 257D(1)(a) -members whose shares are to be bought back, and its associate are prohibited to vote

Members’ personal rights, eg

Right to inspect the register without fee, s 173 (cannot be voted away)

Ratification: formal decision by the company not to pursue the director for breach of duty

Statutory protection of minority s/h Oppression remedy Pt 2F.1

Winding up remedy s 461(1)(k)

Class rights Pt 2F.2, s 246B

Limits on majority power to ratify Ratification not permitted if: Miller v Miller Oppressive Prejudicial to creditors Contravenes equitable limitation Eliminates a personal right Relates to breach of a statutory duty

Equitable Limitation  Majority of members must not take action that is beyond the powers given to them by the law. (if not they are acting for an improper purpose)  Not a positive duty held by members  Rule: if the majority passes a resolution which no group of reasonable people would think it is within majority’s power, a court can declare the resolution void (invalid)  Sometimes overlap with oppression remedy Equitable limitation on majority voting power Cases not involving amendment of the constitution Majority use their voting power to take away the company’s property, Ngurli Ltd v McCann (pg166) -Majority must not exercise their vote as to give themselves “property, advantages, or rights which belong to the company”-

Majority use their voting power to prevent being sued by the company. Biala Pty Ltd v Mallina Holdings Ltd (No2)

Cases involving amendment of the constitution, (members’ approval s 136)

Category 1: Amendments to allow expropriation of shares or valuable rights

Requirement 1: Proper purpose

Requirement 1: Procedural fairness

Category 2: Other amendments giving rise to conflict of interest

Requirement 2: No oppression

Requirement 1: Company purpose

Requirement 2: No oppression

Requirement 2: Substantive fairness

Established by Gambotto v WCP Ltd (pg 169)

Gambotto (involving amendment of constitution) Overview:  Majority passed a resolution for compulsory acquisition by IEL of other shares.  IEL did not vote, Mr Gambotto did not attend or vote. Category 1: allow expropriation of minority shares; or valuable proprietary rights attached to their shares (eg voting/ dividend rights) Only valid if:  Proper purpose- to prevent significant arm by minority s/h to the company, eg: Minority competing with the company (eg minority establishes a separate competing company) Removal of member necessary to allow continuation of business (eg: legal requirement) In Gambotto: amendment to advance the commercial interest (taxation and other benefits) did not constitute a proper purpose 

No oppression- “fair in the circumstances” Procedural fairness:  Fully disclose all relevant information relating to the amendment (eg: purpose, why not alternatives?)  Obtain and disclose an independent expert’s valuation of the shares to be expropriated. Substantive fairness:  Price of shares must be fair (not solely based on market value, take into a/c assets, dividends, corporation nature, future etc) In Gambotto: no oppression. Just based on proper purpose. Category 2: involving a conflict of interest, but no expropriation.

Only valid if:  Company purpose (much broader than category 1) Could include advancing the overall commercial interests of the company  Not oppressive to minority Key policy aspects:  To what extent to protect minority rights, which might disregard commercial advantages to the company?  Should price be the only concern when acquiring shares?  Does Gambotto facilitate “greenmail”(minority prevent corporate restructuring that has commercial benefits unless being pair price well above fair value) Limitations:



Not applicable when shares are expropriated in accordance with statutory procedures in the CA. (eg: expropriation in the context of schemes of arrangement and selective capital reduction are allowed, provided following procedures specified in CA) –statutory requirements protect minority....