Shareholder's rights to inspect Australian company books
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Shareholder rights to inspect Australian company books

Shareholder's rights to inspect Australian company books

Updated: 27 January 2021

A court may make an order to grant a shareholder or another person the right to  inspect the books of an Australian company on their behalf.

Here’s what you need to know.

The court may only make the order if it's satisfied the applicant is acting in good faith and the inspection is for a proper purpose. 

Copies

The person authorised to inspect the books is able to make copies (unless the court orders otherwise). 

The court can also make other orders. 

Other orders 

The court can also make orders limiting the use that a person who inspects may make of information obtained during the inspection or the right to make copies: s. 247B Corporations Act 2001 (Cth).

Also, there are rules when it comes to disclosure.

No disclosure

A person that inspects a company’s books on behalf of a shareholder must not disclose the information obtained during inspection. This is a strict liability offence.

The person that inspects is only able to make disclosures to ASIC or the applicant (shareholder authorising the person inspecting the books). 

Resolution

Also, the directors of a company or the company by a resolution passed at a general meeting, may authorise a shareholder to inspect the books of a company: s. 247D Corporations Act 2001 (Cth).

Do you have questions or comments about shareholder rights to inspect books? Be sure to leave them below. 





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The legal rules for shareholder dividend distributions
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The legal rules for shareholder dividend distributions

The legal rules for shareholder dividend distributions

16 December 2019 

Directors need to know they can make dividend distributions to shareholders, but those distributions cannot jeapordise the company’s ability to pay debts.

The guidance in this article is based on the Corporations Act 2001 (Cth) (Corporations Act).

In a hurry? Jump ahead below.

Payments to comply with constitution & laws

Shareholders can take money out of the company in a number of ways, but only if the company complies with its constitution (if any), the Corporations Act and all other applicable laws.

If a company pays out money in a way that results in the company being unable to pay its debts as they fall due, its directors may be liable:

  • to pay compensation; and
  • for criminal and civil penalties.

Consequences of non compliance

There are consequences of making payments e.g. to shareholder’s in a ways that results in a company being unable to pay its debts. 

Sections 588G, 1317E, 1317G, 1317H, 1317P of the Corporations Act deal with those consequences. 

Briefly here’s a breakdown of those sections and what they allow: 

  • 588G - directors have a duty to prevent insolvent; trading by a company, there are civil and criminal penalties; 
  • 1317E - court may order a civil penalty for contravention; 
  • 1317G & 1317H - the court may order compensation for damage e.g. for profits, diminished value of property; and
  • 1317P - criminal proceedings may be commenced after civil proceedings.

What are dividends?

Dividends are payments to shareholders. They can only be paid if:

  • the company's assets are sufficiently in excess of its liabilities immediately before the dividend is declared; and
  • the payment of the dividend is fair and reasonable to the company's shareholders as a whole and does not materially prejudice the company's ability to pay its creditors.

Replaceable rule (non mandatory) and mandatory rules

Non mandatory

It is a replaceable rule that the directors decide whether the company should pay a dividend. This means that paying a dividend is not mandatory under the Corporations Act.

Section 254U has the replaceable (non mandatory) rule that can be adopted in a company’s constitution: 

  • 254U - directors may determine a dividend is payable and fix the amount, time for payment and method of payment.

Mandatory

However, if the company is paying a dividend, these are the rules and they are mandatory: 

  • 254T - the company’s assets must exceed liabilities before the dividend is declared and the excess must be sufficient to pay the dividend, the payment is fair to shareholders as a whole, and finally - the payment does not materially prejudice the ability to pay creditors. 

Buy-back of shares

A company can buy back shares from shareholders, the Corporations Act has some rules around this from section 257A through to 257J inclusive.

Similar to the above sections, the company’s act of buying back shares cannot prejudice creditors and must comply with any constitution

Sections 257B through 257J inclusive describe the buy back process, which we won’t go through in this article.

Distribution of surplus assets on winding up

If a company is wound up and there are any assets left over after all the company's debts have been paid, the surplus is distributed to shareholders in accordance with the rights attaching to their shares.

Key takeaways

Any distribution to shareholders or share buy back must comply with any company constitution, applicable laws and not prejudice creditors. 

As always, if you are in doubt, get advice. 

I wish you success in your ventures! 

Got questions or comments about dividend distributions? Be sure to leave them below. 


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Your guide to appointing a proxy at a private Australian company
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Your guide to appointing a proxy at a private Australian company

Photo by Parker Johnson on Unsplash

Your guide to appointing a proxy at a private Australian company

Updated: 6 December 2019

In this article, I will cover the Corporations Act 2001 (Cth) rules for appointing a proxy at a private Australian company.

In a hurry? Jump ahead. 

Who is a proxy?

First, in the context of this article, a proxy is someone that’s eligible to attend and cast a vote at a shareholder meeting on another shareholder's behalf.

The rules for who can appoint a proxy are in section 249X of the Corporations Act 2001. 

The proxy can either be an individual or a body corporate.

And, as a refresher, a body corporate is a company registered by ASIC in Australia.

Votes 

If the shareholder is able to cast 2 or more votes, then they may appoint 2 proxies.

And, if a shareholder does this but does not set out how many votes each proxy has, then each proxy may exercise half the votes. 

Below we’ll look at the rights of proxies. 

Rights of proxies 

Now, proxy rights are found in section 249Y of the Corporations Act 2001.

Basically, a proxy has the same rights as that shareholder, namely to: 

  • speak at the meeting; 
  • vote (as the appointment permits); and 
  • join in a demand for a poll. 

Also, if you have a constitution, be sure to check what it says about proxies because in some instances, proxies are not able to vote on a show of hands. 

Appointment forms and lists

Any proxy appointment form sent to a list of people willing to act as proxies, must also be sent to shareholders that ask for the list. 

And the company must send the form or list to all its members eligible to appoint a proxy to attend and vote at the meeting: section 249Z Corporations Act 2001. 

Appointing a proxy 

For a proxy to be valid, a signature or other authentication is essential. 

And, for your easy reference, you can find the regulation section below.

Below is the information you'll need to appoint a proxy:

  • ​shareholder name and address;
  • company name;
  • proxy’s name or name of the office held by the proxy; and
  • meetings where proxy is eligible to act.

Below we'll see what the Corporations Regulations say about authenticating a proxy appointment.  

Corporations Regulations 2001 2G.2.01

Authentication of appointment of proxy is covered under section 250A of the Corporations Act 2001. This section says an electronic authentication of an appointment of a proxy must include:

  • a method of identifying the shareholder; and
  • an indication of the shareholder's approval of the information.
  • If a shareholder appoints a proxy by e-mail or Internet voting:
    • the shareholder's personal details (for example, the member's name, address and date of birth); and
    • the shareholder's approval of the information must be by a form of security protection (for example, the entering a shareholder registration number or holder identification number).

An appointment does not have to be signed.

And if the appointment is unsigned, it is taken to have been dated on the day it is given to the company.

Below, we'll cover the proxy document rules.

Proxy documents

For the appointment of a proxy to be effective, the company must receive proxy documents at least 48 hours before the meeting (unless the constitution states a shorter period): 

  • the proxy’s appointment; 
  • the authority under which the appointment as signed or authenticated and a certified copy of that authority. 

And, the proxy documents can be sent to: 

  • company registered office; or
  • fax number at the company’s registered office; or
  • a place, fax number or electronic address for the purpose of the meeting notice. 

Direction about vote 

An appointer may advise the proxy the way the proxy should vote on a resolution. 

Below are the rules for proxy votes per section 250BB of the Corporations Act 2001.

  • the proxy does not need to vote on a show of hands but if they do, they must vote per any direction;
  • if the proxy has 2 or more appointments that specify different ways to vote on the resolution - the proxy must not vote on a show of hands; and
  • if the proxy is not the chair, they don’t need to vote on a poll.

Chair to act as proxy 

And, in some situations, there may be a transfer of a non-chair proxy to a chair, for example, if a proxy (that is not the chair) is not in attendance or does not vote on a resolution: section 250BC Corporations Act 2001.

Conflict of interest - voting by key management personnel

A proxy won't be able to vote on a resolution for the pay of a member of key management personnel if they are themselves key management personnel or a closely related party.

The exception to this rule is if:

  • the proxy is the chair of the meeting at which the resolution is voted on; and 
  • the appointment authorises the chair to exercise the proxy even if it’s connected directly or indirectly with the remuneration of key management personnel. 

ASIC powers 

ASIC may declare that the conflict of interest rule does not apply and that a casting of a vote is not prevented on a resolution.

Validity of proxy vote 

Finally, a proxy who is not eligible to vote on a resolution as a shareholder may vote as a proxy for another shareholder that is eligible to vote, however, their appointment must state the way they are to vote on a resolution.

Also, the proxy vote can be valid even if the shareholder dies or revokes their appointment. 


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The rights of shareholders with over 50% voting rights
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The rights of a shareholder with over 50% voting rights in an Australian company

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The rights of a shareholder with over 50% voting rights in an Australian company

Updated: 6 December 2019

Below I’ll explain the rights of a shareholder with over 50% shares based on the Corporations Act. 

And I am going to use the term shareholder because it's more widely known than ‘member’ which is used in the Corporations Act 2001.

So, here’s what a shareholder over 50% of shares can do.

Meetings

If company directors fail to call a general meeting 21 days after a request from shareholders with 5% of voting rights, shareholders with more than 50% of the votes of all shareholders may call and arrange to hold a general meeting. 

Passing a resolution 

A resolution is a way that a company can note shareholder decisions. 

An ordinary resolution is passed if there are a majority of the votes cast by shareholders of the company entitled to vote on the resolution at the meeting either in person or by proxy (if proxies are allowed)

And, a majority means there are more than 50% in favour to pass the resolution. 

Here are some examples of decisions that may only need an ordinary resolution: 

  • election/re-election of directors
  • appointment of an auditor
  • acceptance of reports at the general meeting
  • strategic or commercial decisions
  • increasing or reducing number of directors
  • passing a board limit resolution (for public companies).

Contrast ordinary resolutions to special resolutions below, one clear difference is that 75% or more votes are needed to pass a special resolution compared to the 51% for ordinary resolutions.

Special resolution 

Certain changes will need special resolution like changing a company’s name, winding up the company or changing the company’s type. Pretty major decisions right?

We won’t go through the processes that need to occur before voting on these or passing special resolutions here. 

A special resolution requires at least 75% of the votes cast by shareholders of the company eligible to vote on the resolution and who vote at the meeting in person or by proxy (if proxies are allowed). 

Other rights 

Now, you can of course set other rights out in a shareholder agreement for majority shareholders, that is, shareholders with over 50% voting rights. 

The catch is, you cannot override what the legislation says about the % votes needed for resolutions or special resolutions. 

Why?

Because those sections are not replaceable rules - which can be changed. We covered replaceable rules here.

Now, if you have 2 shareholder's each with 50% of the company shares, you can easily see how there could be a deadlock position. 

In these cases, it's useful to have a dispute resolution clause that covers informal ways of resolving a dispute, without formal legal proceedings. 

Got questions or comments? leave them below.

I wish you every success in your ventures! 


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Shareholder rights to put resolutions at meetings
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Shareholder rights to put resolutions at meetings

Shareholder rights to put resolutions at meetings

Updated: 7 December 2019

I’ve been writing a lot about shareholder rights lately, with good reason - shareholder rights aren't that obvious. 

Now, if a shareholder only has visibility of their rights in a shareholder agreement, it's easy for that shareholder to believe they only have those rights only.

Not so.

Shareholders have rights under the Corporations Act 2001. And, one of those rights is to put resolutions at meetings of shareholders: section 252L Corporations Act 2001. 

For simplicity and because it’s what most people are familiar with - I am going to use the term ‘shareholder’, instead of ‘member’ which is in the Corporations Act.

So which shareholders have rights?

Shareholders with rights to put resolutions

Shareholders with 5% or more of the votes that may be used to cast the resolution may put a resolution at a meeting.

And what should the notice look like? we'll look at that next.

Notice 

The resolution notice must be in writing and set out the wording of the proposed resolution.

The company won’t need to give notice of the resolution if:

  • the notice is more than 1,000 words long or defamatory, or 
  • if the members making the request are to bear the expense of sending the notice out (unless the shareholders have paid the company for the expense).

Expenses 

The company pays for the notice to be sent out.

However, the shareholders requesting the meeting are jointly and individually liable for the expenses of the entity in giving the shareholders notice if it's not sent to the company on time to be sent out with the notice of meeting.

Now, the cost of mail outs is likely to matter more with a larger organisation with more members, but it’s good to know.

The same rules above apply for the distribution of a shareholder statement. 

Finally, it's important to learn about your rights and reach out for advice if you are unsure. 

I wish you success in your ventures!


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Varying and cancelling share class rights
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Varying and cancelling share class rights

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Varying and cancelling share class rights

Updated: 7 December 2019

Here’s what you need to know if you want to vary or cancel rights for a certain share class.

In a rush? jump ahead.

What are share classes?

Shares can be ordinary or there can be different share classes that have different rights. 

For example, you may have a silent investor that is not making decisions. In this case, you might allocate “A” class shares and attach dividend rights but no voting rights.

Check the example share classes in the shareholder agreement guide. We won't explore them again here.

If your constitution sets out a procedure 

If you have a constitution that deals with varying or cancelling rights, you’ll have to follow those rules.

No constitution rules

If you have a constitution that does not cover varying or cancelling rights or you do not have a constitution at all, then you’ll need a special resolution at a meeting:

  • for a company with a share capital of the class of shareholders holding shares in the class; or
  • for a company without a share capital of the class of shareholders whose rights are being varied or cancelled.

Notice of variation or cancellation

The company must give written notice of the variation or cancellation to shareholders of the share class within 7 days after the variation or cancellation is made.

Issuing new class of shares varies rights

If a company with 1 class of shares issues new shares, the issue will vary the rights for shares already issued if:

  • the rights for the new shares are not the same as the rights to shares already issued; and
  • those rights are not provided for in the constitution, a notice, document or resolution lodged with ASIC.

If there’s no unanimous support to vary, cancel or modify a share class 

If shareholders in a class do not all agree by resolution or written consent to:

  • variation or cancellation of their rights; or
  • modification of the constitution (if any) to allow their rights to be varied or cancelled,

then shareholders with at least 10% of the votes in the class may apply to the court to have the variation, cancellation or modification set aside.

Now, there is a limitation period of 1 month for this action, after the variation, cancellation or modification.

When the variation takes effect 

The variation, cancellation or modification takes effect 1 month after (if not application is made to the court within the month); or

If an application is made to the court to have it set aside, when the application is withdrawn or finally determined.

When the courts set aside a variation

A court may set aside the variation, cancellation or modification if it’s satisfied that it would unfairly prejudice the applicants.

Lodgement with ASIC

After the court order is made, it needs to be lodged with ASIC within 14 days. 

If there is unanimous support for a variation, cancellation or modification

Now, this scenario is better. It’s much easier if you do have unanimous support either by resolution or written consent. 

In this case, the revision will take effect on the date of the resolution or consent or on a later date stated in the resolution or consent.

Lodging documents and resolutions with ASIC

A company must lodge with ASIC a notice setting out details of:

  • a division of shares in the company into classes if the shares were not previously divided; and
  • a conversion of shares into a class of shares in the company into shares in another class.

The company will have to give ASIC notice within 14 days after the division or conversion.

Shareholder right to copies of documents and resolutions

Shareholders may ask for copies of documents lodged with ASIC for the variation, cancellation or modification.

If the company requires the shareholder to pay for the copy, the company must send the documents within 7 days after the request, or within any longer period approved by ASIC.


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How to call shareholder meetings for a private Australian company
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How to call shareholder meetings for a private Australian company

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How to call shareholder meetings for a private Australian company

21 April 2020

You’ll need to know how to call a shareholder meeting if you are running an Australian company.

Below is a guide for how to call meetings and some other things you'll need to know.

This guide covers the rules in the Corporation Act 2001 - legislation that governs Australian companies and to avoid any confusion, we are covering private companies.

In a hurry, jump ahead.

So, let’s start with notice. 

Shareholder Meeting Notice 

Section 249H of the Corporations Act states that you need to give shareholders at least 21 days notice of a meeting.

Despite this, if you have a constitution that has a longer minimum notice period, you will need to give the notice in the constitution.

Shorter shareholder meeting notice 

A company may call give a shorter notice period for these meetings:  

  • Annual General Meeting (AGM)  - if all members able to attend and vote agree; and
  • Other general meetings - if shareholders with at least 95% of votes that may be cast agree.

Removing an auditor 

A company board will need to give 21 days notice for a company meeting where there's a resolution to remove an auditor: section 249H(4) of the Corporations Act 2001.

How to give meeting notice 

The rules for meeting notice are in section 249J of the Corporations Act 2001 and our outlined below.

Individual notice

Notice of a meeting of company shareholders needs to be given individually to each shareholder that’s entitled to vote at the meeting and to each director. 

For joint shareholders  - notice only needs to be given to 1 shareholder, usually the name that appears first in the shareholder register. Now  because this is a replaceable rule, you can have a different rule in your constitution e.g. one that allows for both joint shareholders to get notice. 

So how exactly do you need to give meeting notice? we'll cover that below.

How to give meeting notice 

A company may give the notice of a meeting to a shareholder either: 

  • Personally - e.g. handing it to the person;
  • By sending it by post to the address for the shareholder in the register of shareholders;
  • Sending it by fax - yes, fax!;  
  • Sending it by other electronic means e.g. in an email etc or even sending a link to the notice in an email; and 
  • Any other way the company constitution allows (if there is a constitution).

When notice is given 

Now, the timing for when notice is given matters in certain situations.

For example, if a shareholder was to complain they did not get 21 days notice for the removal of an auditor.

So here’s the rule for the time when notice is given:

  • Notice is taken to be given to a shareholder on the business day after the day the shareholder is told the notice of meeting is available: section 249J(5) Corporations Act 2001.

And, what happens if there's a dispute about the notice content? Let's see what the court's say below.

Disputes and the court’s view 

Disputes sometimes occur.

For example, a shareholder may complain about insufficient detail in the meeting notice. 

Here’s the court’s perspective about notice and disclosure:

  • Fraser v NRMA Holdings Ltd (1995): full and fair disclosure needs to be balanced with presenting a document that’s intelligible to shareholders. The disclosure needs to assist and not confuse. 
  • Jenasuare Pty Ltd v Lembrib Pty Ltd (1993): clear language is important along with a full summary of the meeting agenda. From the agenda the recipients must be able to decide whether to attend the meeting or not; and  
  • ENT Pty Ltd v Sunraysia Television Ltd (2007): full and fair disclosure does not mean giving every piece of information that might affect their voting.

So, what goes into the notice of meeting of shareholders?

Contents of notice of meeting of shareholders 

Here’s what’s included in a notice of a meeting of company shareholders: 

  • Place, date and time of the meeting;
  • General nature of meeting business;  
  • For special resolutions - set out an intention to propose the special resolution and state the nature of the resolution;
  • For proxies - if a shareholder is entitled to appoint a proxy, a statement with this information:
    • Statement that shareholder has a right to appoint a proxy;
    • If the proxy needs to be a shareholder; and
    • That a shareholder entitled to cast 2 or more votes may appoint 2 proxies and may state the proportion or number of votes each proxy is entitled to exercise.
  • The notice must be clear, concise and effective. 

Finally, what about meeting delays?

Adjournments

If the meeting is adjourned, a new notice of the resumed meeting must be given if the meeting is adjourned for 1 month or more: section 249M Corporations Act 2001. 

And, this is a replaceable rule, so you can agree to another rule in your constitution or adopt this one.

I wish you success in all your ventures! 


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Shareholder meetings at Australian private companies
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Shareholder meetings at Australian private companies

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Shareholder meetings at Australian private companies

Updated: 7 December 2019

So here’s what you need to know about how shareholders (aka members) are able to participate in meetings and their meeting rights. 

Our focus in this article is unlisted companies.

Let's begin.

Directors may call meetings

There’s a replaceable rule that says directors may call shareholder meetings - it’s in section 249C of the Corporations Act. 

And because we are talking about a replaceable rule, it's not mandatory. You may use, vary or even create your own rules in your constitution about shareholder meetings.

Now, keep in mind, that while section 249C is a replaceable rule, the other sections below are not, so you can't opt out of them. 

First, let's see what the Corporations Act 2001 says about general meetings below.

General meetings

Directors must call and arrange a general meeting if a shareholder with at least 5% of the votes requests a meeting: s. 249D Corporations Act 2001.

And, below is what goes into the shareholder meeting request. 

Written shareholder meeting requests

A shareholder meeting request needs to: 

  • be in writing; and
  • state any resolution to be proposed at the meeting; and 
  • have signatures from the shareholders making the request; and
  • be given to the company.

Circulating & signing the meeting request 

Shareholders may make separate copies of the meeting request document for member signatures, but the wording must be identical. 

So, when's the meeting held?

Timing for meeting 

The directors must call the meeting within 21 days after the meeting request is given to them.

And, the meeting needs to be held within 2 months after the request is given to the company. 

Now, all these rules protect shareholders but where's the balance when it comes to company rights? we'll discuss this below.

Balancing shareholder & director rights 

So, larger company’s are not usually big fans of the above rights. 

Why?

Because let’s face it, arranging meetings for a large company can be expensive. 

So, can a shareholder simply call a meeting without good reason?

No, they can't and I'll explain why next.

Please, legitimate resolutions and no harassment!

Now, while shareholders may call meetings, directors don’t need to call a meeting that’s for invalid resolutions.

The case of DVT Holdings Ltd v Bigshop.com.au (2002) ​confirmed this.

Also, legislation does not stop a shareholder from furthering their interests by calling a meeting. 

But... the meeting purpose must be genuine. 

To clarify, there must be a genuine purpose to pass resolution(s). Shareholders simply cannot call a meeting harass the company or its director: Humes Ltd v Unity APA Ltd [1987].

Now, what if, there is a genuine reason for the meeting to pass valid resolutions but the directors are delaying the meeting? We'll look at this next.

Meeting delays 

Also, if a company seeks to extend the time for  holding a meeting by an adjournment without the courts permission, they are in breach of the Corporations Act 2001 and the court may make an order: Australian Securities & Investment Commission v NRMA Ltd (2002).

So, if a meeting needs to go ahead, 3 groups can call them:

  • Shareholders with more than 50% of the votes
  • Shareholders with 5% of the votes
  • The court - on application by a director or shareholder.

Below we'll go through each.

Meetings by shareholders with more than 50% votes 

So, if the director’s don’t call a general meeting, shareholders with more than 50% of the votes of all the shareholders who made a request for a meeting, may call and arrange to hold a general meeting if the director’s don’t do so within 21 days after the request is made to the company. 

Below is the process for setting up the meeting. 

Process

  • Timing: The meeting must be held within 3 months after the request is given to the company; and
  • Shareholder register: To call the meeting, the shareholders may ask the company for the shareholder register (aka register of members) and the company must give the register without charge; and 
  • Expenses: The company must pay the reasonable expenses of shareholders because the directors did not call and arrange to hold the meeting. 

Meetings by shareholders with 5% general meeting votes

Now, shareholders with 5% votes at a general meeting may order a meeting to be call and arrange to hold a general meeting. 

However, these shareholders must pay the expenses of calling and holding the meeting.

Finally, a meeting a court order may prompt a meeting, as we'll see below.

Meetings by court order 

A court may order a meeting of shareholders if it's impractical to call the meeting any other way. 

And, the court may call the meeting on application of a director or shareholder that would be able to vote at the meeting. 





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What goes into the shareholder registry of your Australian company?
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What goes into the shareholder register of your Australian company?

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What goes into the shareholder register of your Australian company?

Updated: 7 December 2019

A register is a record of certain company information that must be kept to meet Corporations Act 2001 requirements.

In this article we are looking at the requirements for companies with under 50 shareholders and companies that are not on the stock exchange.

Shareholder registry contents

Now, section 169 of the Corporations Act 2001 states the register information to keep for each shareholder, namely: 

  • Name and address of shareholders; and 
  • Date that the entry for the shareholder was made on the register; and
  • Transfers of shares (per section 1071D Corporations Act 2001); and 
  • Shares not held beneficially; and
  • Joint shareholders - meaning 2 or more people that hold shares in the company, those 2 people are taken to be one shareholder.

Other information kept in the registry

Former shareholders 

These are the details of former shareholders that you'll need to keep and you can keep these separate to the rest of your register.

  • Name and details of each person no longer a shareholder of the company within the last 7 years; and
  • Date the person stopped being a shareholder.
Crowd sourced funding offers (CSF)

If your private company has made crowd sourced funding offers, your shareholder register must include: 

  • The date every issue of shares were made for each CSF offer; 
  • Number of shares for each CSF offer; 
  • Shares for each CSF offer; and 
  • The date an entity stops being a CSF shareholder of the company for a particular share in the company.






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When courts in Australia help oppressed shareholders
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When courts in Australia help oppressed shareholders

Photo credit:  Alexandra Marcu, Unsplash 

When courts in Australia help oppressed shareholders

Updated: 7 December 2019

Oppressed shareholders need to know they have options.

They can communicate with the company’s board, meditate or go to court.

Also, in this article, I’ll take you through real-life cases to give you an idea of when courts in Australia help oppressed shareholders. 

And, shareholders are able to bring an action against an oppressive board because of section 232 of the Corporations Act 2001 (Cth). 

When courts won’t help oppressed shareholders

Delay

Even if a court finds that a shareholder is oppressed, they may not always grant relief.

This was the case in Re Peninsula Kingswood Country Golf Club [2014].  Oppression was proven but because the shareholder took too long to bring forward their claim the court did not help.

Moral of the story - if you have a good claim based on legal advice, don’t delay, take action!

Contrary to the interests of the shareholders as a whole 

The court decides if in balancing the interest of the whole company against minority interests, that the directors have acted to unfairly prejudice the minority: Jenkins v Enterprise Gold Mines NL (1992). 

More actions that are not oppressive

According to John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) (Starr), these actions are not oppressive:

  • not granting the wishes of the minority because they did not have voting power is not itself oppressive; and
  • A shareholder losing confidence in company management.
Disagreements are not oppressive 

If a shareholder simply disagrees with a decision of majority shareholders and directors, they aren’t being oppressed.

Being a minority

Also, simply being a minority shareholder does not constitute oppression: Shelton v NRMA Ltd (2001). 

Director pay 

High pay for directors: Shamsallah Holdings Pty Ltd v CBD Refrigeration & Air-conditioning Services Pty Ltd (2001) and salary bonus paid to directors: French v Smith [2004] was not oppressive.

Legal action 

Also, using company funds for litigation: Mavromatis v Haspaz Pty Ltd (1993) and an action taken by the company based on legal advice: Sanford v Sanford Courier Service Pty Ltd (1986) were not oppressive. 

What do the courts say is oppressive?

Now, if something is commercially unfair, it’ll get the courts attention: Morgan v 45 Flers Avenue Pty Ltd (1986). And, in considering commercial unfairness, these are the important elements:

  • oppressive conduct;
  • unfairly prejudicial; and 
  • unfairly discriminatory.

Also, management conduct, prejudice, where there is no reasonable commercial justification for action taken or decision making can be oppressive: Re Spargos Mining NL (1990).

And in Marks v Roe (1996) the unfairness did not necessarily have to be commercial unfairness.

This is important because for not for profits, commercial unfairness is not relevant, but we’re not dealing with not for profits here.

Which case still matters?

The case of Wayde v NSW Rugby League (1985) remains a leading decision about oppressive conduct. 

Now, while Wayde is a leading decision, other cases tell us more about the scope of section 232 as we’ll see below.

When courts help shareholders 

Good intentions, good faith and acting on legal advice are not defences for the oppressors: Re George Raymond Pty Ltd & Salter v Gilbertson (1999). 

Below are examples of what the court may consider is oppressive conduct and therefore a breach of section 232 Corporations Act. The list is not exhaustive but gives  you a good idea.

Conduct
  • Persistent illegal conduct towards a shareholder: Re Tivoli Freeholds Ltd [1972];
  • Director conduct: director conduct will be unfair if there is insufficient commercial value to outweigh any possible conflict of interest: Jenkins v Enterprise Gold Mines NL (1992);
  • Personal interests: If directors put their own interests first to the detriment of the company or shareholders: Re Bright Pine Mills Pty Ltd [1969]. The director’s must have been acting in their capacity as directors;
  • Failure to litigate: Re Overton Holdings Pty Ltd [1985];
  • Appointing a voluntary administrator to close the business and harm minority interests: Saykan v Elhan [2004];
  • Attempting to dilute shareholdings to remove 50% shareholder and director from a position of control: Harrington v Sensible Funerals Pty Ltd (2007);
  • Cancellation of membership to prevent a shareholder from being elected to the board: Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993);
  • Constitution: if a constitution allows discretionary powers, there may be oppression in the way the power is managed: Donaldson v Natural Springs Australia Ltd [2015];
  • Using company money to pay for the costs of majority shareholders: Re D G Brims and Son Pty Ltd (1995).
Meetings 
  • Failure to call meetings: Martin v Australian Squash Club Pty Ltd (1996);
  • Preventing minority shareholders from participating in meetings: John J Starr (Real Estate) Pty Ltd v Robert R Andrews (Australasia) Py Ltd (2007);
  • Misappropriation of business opportunity: Re Bright Pine Mills Pty Ltd [1969] and Sanford v Sanford Courier Service Pty Ltd (1986);
  • Misappropriation of company funds: Cowling v Mekken [2015];
  • Diversion of business opportunities from the company to a company associated with some of the company’s members: Catalano v Managing Australia Destinations Pty Ltd [2014]; and
  • Conduct by the majority shareholders requiring the plaintiffs to sell their shares at an undervalue, in contravention of the terms of a shareholder agreement: McCausland v Surfing Hardware International Holdings Pty Ltd [2013].
Votes matter as well 

It’s not just minority shareholders that can be oppressed. Majority shareholders who don’t hold the majority of votes can be oppressed. And, courts will step in to help: Patterson v Humfrey [2014].

Final tip

If you believe you are being oppressed, get legal advice. It's better if you can resolve disputes out of court to save time and money.





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