Which case won?

casea
The case for the company (the general manager’s faction)
  • The company’s constitution requires that “reasonable notice” must be given of board meetings.
  • It is the usual practice of the company to give notice of board meetings well in advance, indeed by an annual calendar of proposed meetings sent out to directors at the start of the year.
  • The notice given of the 4 February board meeting was less than 25 hours, which was far too short given the usual practice, as well as the serious nature of the proposed resolutions to be considered.
  • Since reasonable notice was not given, the purported board meeting was not validly constituted, and any decisions made were void and of no effect.
  • In particular, the decision to adjourn the AGM had no effect, and so the meeting held on 10 February was a properly constituted AGM.
  • Since the AGM was valid, the court must declare that the directors elected at that AGM are the lawful board of the company.
caseb
The case for the chairman’s faction
  • The notice given of the board meeting was reasonable in the circumstances.
  • During at least the preceding twelve months it has been commonplace for board meetings to be held remotely by Zoom due to the Covid-19 pandemic. If a director is unable to attend online, they can telephone into the meeting. Short notice of board meetings held by telephone is not unusual and has never previously been identified as inconvenient or causative of any difficulty.
  • Further, the short period of notice given in this instance was unavoidable. We had only just recently learnt that the board election would be contested and were justifiably concerned about underhanded behaviour by the general manager and his family in relation to the election.
  • Since the notice given was reasonable, the decisions made by the board in the meeting of 4 February, including adjournment of the AGM, were valid decisions.
  • Therefore, the assembly on the footpath on 10 February was not an AGM, and the court must declare the purported election of the board at that assembly invalid.

So, which case won?

Cast your judgment below to find out
Case A Case B

Case A won. You were right!

How people voted
a63%
b37%

Expert commentary on the court's decision

Geoff BaldwinConsultant Lawyer
“The court accepted a number of precedents in which shortness of notice or other procedural failings had not invalidated the decisions of company boards. However, the court saw the events in this case as pointing to a contrivance by one faction to defeat another. It may be inferred that there was no great hesitancy in rejecting the case of the chairman’s faction and declaring those nominated by the general manager’s faction and elected on 10 February to be the new, validly elected board.”
Court finds in favour of the company

In Career Employment Australia Ltd v Shepley & Ors [2021] QSC 235, the Queensland Supreme Court found in favour of the general manager’s faction of the company, Career Employment Australia. 

The court declared that the resolutions carried by the board on 4 February 2021 were invalid and confirmed the election of the new board carried out at the AGM on 10 February 2021. 

Procedural irregularities under the Corporations Act

Under section 1322(2) of the Commonwealth Corporations Act 2001, a proceeding under the Act is not invalidated because of a procedural irregularity unless the court is of the opinion that the irregularity caused or may cause substantial injustice that cannot be remedied by court order and the court declares the proceeding invalid.  

The adoption of resolutions by the board was a proceeding under the Act and any failure to give reasonable notice of the board meeting as required by CEA’s constitution would be a procedural irregularity. 

Therefore, in order for the court to declare the adoption of the resolutions by the board invalid, CEA (the general manager’s faction) had to demonstrate that the chairman, Mr John Shepley, had failed to give reasonable notice of the 4 February board meeting, and that this lack of notice caused, or may cause, substantial injustice

Chairman fails to give reasonable notice of board meeting

The court found that the notice given of the board meeting was not reasonable in the circumstances.  

CEA’s constitution did not define what amount of time constituted “reasonable notice,” and so the court looked to the case law.  

The court stated that the mere fact that it might have been possible for a director to attend a board meeting did not in itself establish that the notice was reasonable.  

The court also said that an important purpose of giving reasonable notice of a board meeting is to allow directors adequate time to think about how they might vote. This is to ensure that each director can “make the necessary representation of the interests he or she has in his or her hands”. In this instance, there were over a dozen motions, and some of these, including the adjournment of the AGM, were of considerable consequence.  

The court rejected the argument of the chairman’s faction that because meetings had been held on short notice in the preceding 12 months due to Covid-19, the notice for this meeting was reasonable.  

The 4 February board meeting was not convened in the ordinary course and in the court’s view, the CEA board’s previous practice of holding meetings on short notice was of limited guidance in determining what was reasonable.  

The court said that notice required for a specially convened meeting might be more, given the importance of the decisions to be made, or less, depending on the urgency of the situation.  

While accepting that it had only been on 25 January 2021 that the chairman had found out that the election of directors to be held on 10 February would be contested, this had to be weighed against the gravity of the matters on which the directors were being asked to make decisions. 

Lack of reasonable notice caused substantial injustice

In determining if there was substantial injustice, the court weighed the prejudice that would be suffered if it declared the adoption of the board resolutions invalid, against the prejudice that would be suffered if it did not.  

The court noted that case law “supports the proposition that a substantial injustice may arise if a director is deprived of an adequate opportunity to address risks associated with proposed resolutions and the meeting proceeds in their absence.” 

Ultimately, the court concluded that the lack of reasonable notice caused an injustice to members, staff and directors of CEA that outweighed any prejudice that would be suffered if the resolutions were not given effect to. 

Motion to adjourn AGM cannot be severed from other motions

The chairman’s faction also argued that the motion for adjournment of the AGM should be “severed” from the rest of the motions, so that the question of substantial injustice could be argued in relation to that motion alone.  

However, the fact that all the motions at the 4 February board meeting were put forward and voted on as a package made that argument hard to sustain.  

The court accepted the submission by CEA’s counsel that “the resolutions were intended to operate collectively to stifle opposition to the board as it existed on 4 February 2021”. 

Contrivance by one faction to defeat other faction

The court accepted a number of precedents in which shortness of notice or other procedural failings had not invalidated the decisions of company boards.  

However, the court saw the events in this case as pointing to a contrivance by one faction to defeat another.  

It may be inferred that there was no great hesitancy in rejecting the case of the chairman’s faction and declaring those nominated by the general manager’s faction, and elected on 10 February, to be the new, validly elected board. 

*** 

The obligation placed on the directors of CEA by its constitution to give reasonable notice of board meetings is just one of many obligations placed on company directors.  

A new law which came into effect on 1 November 2021 requires that everyone who is (or intends to become) a director of a company, must apply for a Director Identification Number.  

Non-compliance can result in a penalty. 

For more detailed information see Company directors on a deadline to get their director ID number. 

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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