Legal development

When no one shows up Relief available to shareholders when quorum cannot be constituted

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    In shareholder or joint venture disputes, a common method of resistance is to refuse to attend a general meeting of members so that quorum is not present and the necessary resolutions cannot be passed. If there is a deadlock that cannot be resolved, court intervention may be available.

    Ashurst recently assisted a secured creditor, who had taken control over the majority shares in a company, with obtaining court orders to call a meeting of members and quorum to be constituted.

    Section 249G, Corporations Act 

    A director or member of the company can make an application under section 249G of the Corporations Act 2001 (Cth) (Act) to seek orders that the Court call a meeting of members.
    Section 249G provides that: 

    "249G – Calling of Meetings of Members by the Court 

    1. The Court may order a meeting of the company's members to be called if it is impracticable to call the meeting in any other way.
    2. The Court may make the order on application by: 
      (a) any director; or 
      (b) any member who would be entitled to vote at the meeting.

    Note: For the directions the Court may give for calling, holding or conducting a meeting it has ordered be called, see section 1319."

    If it can be established that "it is impracticable to call the meeting in any other way", the Court has the discretionary power to make or refuse an order to call a members' meeting. There is a long line of authority in Australia and the United Kingdom in relation to this type of relief. 

    Laine Commodities Pte Ltd (receiver appointed) & Ors v CS Agriculture Pty Ltd [2021] FCA 635

    This matter concerned a dispute between the two shareholders of Lempriere (Australia) Pty Ltd (Company). The majority shareholder, Laine Commodities Pte Ltd, holds 51% of the shares in the Company, while the minority shareholder, CS Agriculture Pty Ltd, holds the remaining 49% of the shares. The secured creditor of Laine Commodities, Emerald Jade Limited, appointed a receiver to the shares held by Laine Commodities in the Company. The majority shareholder attempted to convene a general meeting on five separate occasions and on each occasion, the minority shareholder declined to attend the meeting. As the constitution of the Company prescribed a quorum of two members for a general meeting, the meetings were rendered inquorate. 

    In light of the unsuccessful attempts, the majority shareholder, the receiver and Emerald Jade Limited commenced proceedings in the Federal Court of Australia for orders under section 249G that a general meeting of the Company be called and that quorum be constituted at that meeting if a member with more than 50% of the shares in the Company is present at that meeting. The order sought by the majority shareholder was ultimately granted by the Court. 

    Construction of section 249G 

    The minority shareholder objected to the relief sought by the plaintiffs on the basis that section 249G should be construed narrowly. It made a distinction between (1) calling a meeting; (2) arranging to hold a meeting; and (3) holding or conducting a meeting. The minority shareholder suggested while the Company may not have "held" or "conducted" a meeting by reason of the lack of quorum, it has successfully "called" meetings and therefore the threshold requirement in section 249G could not be satisfied.  

    The Court rejected the narrow construction of section 249G as it would leave "a lacuna as big as Texas" in the Act (transcript p. 8, line 45). The Court applied Austin J's interpretation of section 249G in Beck v Tuckey Pty Ltd (2004) ACSR 555 at [46], which stated that to "call" a meeting within the meaning of section 249G encompasses the whole process of convening the meeting and bringing together the members.  In the circumstances, the Court made the orders sought and a meeting of the members of the Company was held shortly thereafter. 

    On the basis that the plaintiffs had a very strong case and that "there never was a valid basis for resisting the claim for an order calling a meeting of the Company" (Laine Commodities Pte Ltd (receiver appointed) v CS Agriculture Pty Ltd [2021] FCA 635 at [62]), the plaintiffs were also awarded costs on an indemnity basis.

    Use of section 249G in the event of a deadlock

    As demonstrated above, where there is a deadlock between shareholders or joint venture partners which prevents the formation of a quorum at a general meeting, section 249G of the Act can be used to seek the Court's assistance to call a meeting. The Court's approach in this case is consistent with drafting sometimes utilised in shareholders or joint venture agreements to manage the risk of a member frustrating the consideration of resolutions by the company. Such drafting provides a lower quorum for a subsequent general meeting in circumstances where a general meeting is inquorate as a result of a member not attending. 

    Authors: Michael Sloan, Partner; Kylie Lane, Partner; Eliza Blandford, Counsel; Jacqueline Chan, Senior Associate; and Melissa Ho, Graduate.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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