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LECTURE 8 MEETINGS AND MEMBERS RIGHTS

Members can make decisions in the company through voting at meeting

Meetings
There are three types of company meetings: Annual General Meeting (AGM): These are COMPULSORY for public companies and need to be held every year, 5 months after end of financial year. This is to give shareholders a chance to find out about the companys past performance and future plans. The AGM is presented with FINANCIAL REPORT, DIRECTORS REPORT, and AUDITORS REPORT FOR LAST FINANCIAL YEAR. Extraordinary General Meetings S249C: Can be called at any time by shareholders (or anyone else) to discuss urgent matters that need to be raised and dealt with. Class Meetings: When different classes of shareholders are called in to discuss their class rights by resolution (by voting to decide on something) Quorum S249T: replaceable rulesingle member company is 1 Propriety and public company is 2 Who can call a meeting? Section 249 C: A director Section 249G: The court Section 249 D: The directors at the request of members who hold more than 5% of votes cast at a general meeting, or at the request of at least 100 members who are eligible to vote at the general meeting. Section 249 E: If the company does not call a meeting when shareholders request it, shareholders may call their own meeting and the company pays for it.

Company resolutions
There are 2 types of resolution:

Ordinary resolution: Members are given notice of 21 days (not given if a director is to be removed) and a majority vote of 50% is required. Notes: 50% of members attention to meeting, not voting right

Special resolution: Members are given 21 days notice and a majority vote of 75% is required. (this is normally when dealing with verification of class rights, changing the company name and amending the company constitution)

Members (shareholders)
Shareholders rights arise from : the Corporations Act the general law the companys internal rules; and any special agreement between the company and its members or between the members themselves. Members can take legal action in relation to a action or decision of the company under either the general law, the Corporations Act or both. There are 2 main sources of shareholder rights : Shareholders personal rights: where an action is brought to protect and preserve a right that belongs to and is enforceable by the shareholder. Companys (derivative) rights: where a cause of action does not belong to the shareholder but belongs to the company. However the shareholder is entitled to exercise this right. -

The statutory derivative action


It is the majority (and directors) should act good faith for the benefit of the company as whole. Advantage: company need to pay the legal cost but shareholder not.

Disadvantage: if courts decide the benefit belong to company; the company get compensation but individual shareholder get nothing

Section 236: A person is allowed to bring proceedings on behalf of a company (i.e. take responsibility on behalf of the company during such proceedings) if that person is a member/officer of the company and only that that person has been granted leave under s 237. Notes: S236 (3): Derivative rights at general law abolished Section 237: A person who wishes to bring legal action against a company (force it to look at itself and make changes) will need to have the approval of the court. The court will grant this if S237 (2) below SATISY --the person is acting in good faith and --It is in the best interests of the company and --there is a serious issue that needs to be dealt with, and --person must have notified the company. But, the leave will not grant if the fact indicates the application be made for indirect purpose, such as members want to pay more dividends Notes: S236 and S237 must use together ** Important case!

Foss v Harbottle (1843) When the minority shareholders of a company brought


legal action against the company claiming the company was not acting in the best interests of the shareholders. The court DID NOT support this and ruled: that the court would not interfere with INTERNAL MANAGEMENT of companies That is the company suffers loss, it is therefore the proper plaintiff and accordingly the appropriate party to bring the action. There are some exceptions to Foss v Harbottle:

If there was fraud, if directors have taken actions that are not for the benefit of the company, expropriation of property, breach of duty by directors and improper ratification of breaches by the majority shareholders. This is when the court will intervene.

Examples: Cook v Deeks [1916] where the directors diverted the benefit of the company to themselves.

Rights under oppression


It is the right to protect shareholders deem unfair about directors decision Section 232 (when a shareholder is allowed to bring an action) Court will allow shareholder to bring action if the conduct of company affairs, the actual act of the company or a resolution by the company IS contrary to the interests of the members or oppressive/ prejudiced towards a member. (If any of these are fund to be true, OPPRESSION is said to have occurred) ** Important Case!

Wayde v NSW Rugby League Ltd (1985) Rugby League tries to remove
Western Suburbs club from the league. As Western Suburbs holds shares in the league, they seek to bring action against the league through their nominee in order to stop this decision. The court ruled in favour of the Rugby League. Section 233 (when oppression has happened) If criteria in section 232 have been met, meaning that oppression has happened, the court will do what it deems appropriate to deal with the company. It can order: that the company be wound up that the companys existing constitution be modified or repealed Regulate companys affairs in future

That share is sold with reduction, for company to defend itself, that a receiver be appointed to deal with companys assets, forcing or prohibiting a person from doing certain things.

Note: S232 and S233 must use together

Members personal rights


Fraud on the minority

Examples of a fraud on the minority are: Companys property is expropriatedMenier v Hooper's Telegraph Works. Majority ratifies a breach of directors' duties, unless the ratification is in good faithNgurli Ltd v McCann. Improper modification of the constitution (companys internal rules) leading to expropriation of shares Gambotto v WCP Ltd (1995) S 247A: rights to inspect the companys books S 175: rights to receive notice of meetings and to seek correction of a register kept by the company S246D: rights to challenge variation of shares

Remedies--S1324: injunction and damages --S1322: declaration that procedural irregularities --S461: winding up order

Members statutory remedies


Statutory injunctions 1324 A member can apply for any injunction under s 1324 when there has been a contravention of the Corporations Act Procedural irregularitiess 1322 Where there has been an irregularity (eg, lack of a quorum) which has resulted in substantial injustice, the court can declare the proceeding to be invalid. OppressionPart 2F.1 Affairs of the company or acts or omissions are oppressive or unfairly prejudicial or discriminatory to members

If conduct for benefit of company as a whole, unlikely to be oppressive

Morgan v 45 Flers Avenue Pty Ltd (1987) and Sanford v Sanford (1987)
note the width of the courts power under s 233(1) to make any order it considers appropriate, not just those listed in the section Winding up S461(e): where directors act in their own interest S461(f)(g): where conduct is oppressive S461(k): where it is just and equitable to wind up

Statutory contract S140 (1): Rights under terms of contract Remedies: injunction and damages Contractual right belonging to member

Special agreement Rights under terms of contract Remedies based on the contract law principal