A recent decision of the Federal Court of Australia (Gudgeon v Gudgeon  FCA 680 (20 May 2020 (“Gudgeon”)) has provided a timely reminder that Courts will strike down resolutions made in breach of the relevant company’s constitution, shareholders agreement and/or the Corporations Act’s replaceable rules.
As suggested by the case name, Gudgeon involved a family company- P & M Gudgeon Pty Ltd (the “Company”). The Company operated an orchard. Peter and Maurice (brothers) were the directors of the Company and held equal shareholdings. Peter lived at the orchard and operated it with his wife. Maurice had very little involvement with the orchard. For reasons not discussed in the decision, Peter and Maurice’s relationship deteriorated at a certain point in time. As a result, Peter wished to remove Maurice as a director of the Company.
Peter lived in Townsville and Maurice lived in Sydney. Peter issued a notice purporting to call a meeting of the Company in Brisbane. The location was set out to be: “conveniently located between [their] respective residences”. The Agenda of the proposed meeting was:
The sole item on the Agenda is the future of the company and in particular section 24-28 of the Company’s Articles regarding a matter of fraud and a breach of Director’s Duties under the Corporations Act 2001 (Cth) s181.
Maurice did not want to go to Brisbane. As a result, Maurice proposed a telephone meeting. Peter refused, as he did “not believe that such a course of action would facilitate the Agenda”. As Maurice believed that the notice of meeting did not disclose any actual resolutions or meaningful business, he thought that the meeting was of no utility – and did not attend.
In his absence, Peter purported to conduct the meeting and declared as “unanimously” passed, a purported resolution that Maurice be removed as a director of the Company.
The Federal Court Decision
Markovic J ruled that Maurice had not been validly removed as a director, for two (2) reasons:
The Company’s articles of association (“Articles”) were silent on what constituted a quorum at a meeting, however the Corporations Act 2001, as it applied at the time the Articles were made, defined a quorum as comprising two (2) members. This alone would have been enough to invalidate the meeting (as only one member had been in attendance). However, in addition to this requirement, the particular resolution proposed required a general meeting at which “the holders of at least two-thirds of the capital for the time being issued [be] present in person”. As Peter only held half the capital, the meeting was invalid under the Articles.
Notice of a General Meeting
The notice of the meeting given in Gudgeon was defective because it was “so broad in its terms that Maurice could not fairly understand that the intended business of the meeting was to move a resolution for his removal as a director, which, on the evidence, was the only business in fact transacted at the meeting.”
Markovic J referred to the ruling of Wigney J in Clarke v Australian Computer Society Incorporated  FCA 2175 where it was held that:
the information provided in a notice of general meeting must be such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal or whether to leave the matter to be determined by the majority attending and voting at the meeting.
The consequence of the meeting not being properly convened by a compliant notice was that “the meeting is null and void to all intents and purposes and no business can be validly transacted at the meeting” (Moala v Free Wesleyan Church of Tonga in Australia (Victoria) Inc  VSC 205 at ).
As Peter had not complied with the Articles or the law, a declaration was made to the effect that the meeting be taken to have never happened.
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