Question 1
According to the corporations act 2001 (cth), section 249H subsection 1 a valid notice of a meeting of a meeting of shareholders should be at least 21 days. The only exception to this rule is when all the members of the company agree beforehand for a shorter notice or when members of the company who have 95% of the voting power or more agree beforehand on the issue of a notice shorter than 21 days. The company issued a notice of seven days, which is less than the legal requirement by 14 days. The annual general meeting of the Sparx Ltd was therefore not valid since a notice shorter than 21 days was issued.
A shorter notice would have required that all the members with voting rights in the annual general meeting of the company agree beforehand for the issue of a shorter meeting for the annual general meeting. This was not the case because Vladimir, who is a shareholder in the company, did not agree to such an arrangement. According to the corporations act 2001 (cth) section 249H the annual general meeting that was held was not valid.
Another requirement for a shorter notice for a meeting of the members of a company according to the corporations act 2001 (cth) section 249H subsection 2 is that members with 95% or more of the voting power of the company should have agreed beforehand to the issue of a shorter notice for the annual general meeting. Vladimir controls 30% of the voting power of the company and did not participate in the making of a beforehand agreement to that effect. This implies that the company issued a wrongful short notice, and the subsequent annual general meeting that took place was therefore not valid.
According to common law, a members meeting which is not valid cannot pass binding resolutions or any amendments to the company’s constitution. This implies that the resolutions that were passed in the meeting that was held by Sparx Ltd on 1 July are all invalid and are not binding.
The notice issued for the annual general meeting was not addressed to Vladimir, but only to Anushka to whom she is married to and with whom they share address. The companies Act 1993 schedule 1 section 3 stares that a notice of a meeting to all the members of the company should be delivered to every member. The notice should be posted to that person’s address or delivered to a box at a document exchange which that person is using at the time.
Vladimir was not send a notice of the annual general meeting but rather was assumed that a similar communication of the meeting to his wife who was using the same address would reach him. This is in contravention with the companies act 1993 schedule 1 section 3 which specifically requires that a notice be delivered to every shareholder.
There are several courses of action available to Vladimir in this situation. He may institute a court action against the company for holding an meeting which was not valid due to the period of notice issued which was less than the legally required 21 days. In his court action, he will request the court to declare the annual general meeting that was held by Sparx Ltd to be invalid on the basis of the seven day notice that was given instead of the legally accepted notice of 21 days. He should seek a decision by the court to have the annual general meeting which has taken place to be annulled and thus force the directors to call another annual general meeting. The declaration by the court that the meeting held as invalid will in effect make invalid all the resolutions and amendments that were made to the company’s constitution invalid and thus unenforceable. This will give him an opportunity to be able to vote against the company’s constitutional amendment in the next general meeting (Pendleton, 2009).
Another legal course of action available to Vladimir is to call a new annual meeting by members. This can only be done after the initial annual general meeting is annulled by a court. According to corporations act 2001 (cth) section 249F subsection 1, members with at least 5% of the votes that may be cast in a general meeting have an independent power to call and to arrange to hold a general meeting. Since Vladimir posses more than 5% of the votes that may be cast in a general meeting, he can call a new annual general meeting and draw up resolutions that he wants voted upon in this meeting. The drawback of this course of action is that the member who calls for this type of meeting must pay for the associated expenses of holding such a meeting.
Failure by a company to serve a notice of a member’s meeting to all members of the company invalidates the meeting. Since a notice of the annual general meeting was not served by Sparx Ltd to Vladimir, the annual general meeting was not duly called and thus defeated the democratic process of the annual general meeting. Since failure by the company to serve Vladimir with a notice of the meeting implies that the meeting was not duly called, the annual general meeting that took place is not valid and by extension the resolutions and amendments made to the constitution of the company are also not valid. The company will therefore have to call another annual general meeting following the due process by serving all its members with a notice and Vladimir will get an opportunity to vote on resolutions and amendment to the company’s constitution (Harris, Hargovan, and Adams, 2009).
Question 2
According to the corporations act 2001 (cth) chapter 2D section 183, directors of a company should not use information obtained by virtue of their position as directors of the company to gain advantage for themselves or for someone else or cause detriment to the corporation. This duty not to use information for personal advantage or the advantage of another person by a director of a company continues even after such a person ceases to be an officer of the company.
Corporations act 2001 (cth) section 184 subsection 2 stipulates that a director of a company commits an offence if they use their position dishonestly with the intention of directly or indirectly gaining advantage for themselves, for someone else or causing detriment to the company. Corporations act 2001 (cth) section 184 subsection 3 stipulates that a person who obtains information because they are or have been a director of a company commit an offence if they use the information dishonestly with the intention of directly or indirectly gaining advantage for themselves of for someone else or causing detriment to the company of being reckless with information received as to result in themselves or someone else directly or indirectly gaining advantage or cause detriment to the company.
According to the Corporations act 2001 (cth) section 180 which deals care and diligence of directors, subsection 1 stipulates that a director of a company must exercise their powers and discharge of duties with the degree of care and diligence that a reasonable person would exercise if they were a director in the company’s circumstances and occupied the office held and had the same responsibilities within the company as a director.
The corporations act 2001 (cth) section 184 sets out the legal issues regarding good faith, use of position and use of information and criminal offences that are related. This section provides that a director commits an offence if he is reckless or is intentionally dishonest and as a result fails to exercise their powers and discharge their duties in good faith and in the best interests of the company or for a proper purpose.
According to the facts of the case, the information that Rhett received from the section Chief of the NWS civil aviation authority about the offer of an air transport licence for the Newcastle-coffs Harbour route was as a result of his position as a director of Regional Air Transport Ltd (RAT Ltd) which had facilitated his presence at the conference in Darwin. Rhett’s decision to use this information obtained to gain personal advantage by resigning from the board of Rat limited and starting his own company which benefits by obtaining the licence to fly the Newcastle-Coffs Harbour route constitutes a dishonest use of information by a director. His action has caused a direct advantage to himself and to others who are members of the newly set up Sunair Ltd when the company makes a profit of $ 1 million.
Despite the fact that the information has brought personal gain to Rhett after he has resigned from the board of RAT Ltd, he obtained and used the information to his advantage while he was still a director in the company. He has thus committed a civil offence to RAT Ltd through his actions since he has used information obtained by virtue of his position as a director of the company to cause advantage to himself and others while at the same time causing a detriment to RAT Ltd who have lost business by failing to acquire the licence for the Newcastle-Coffs harbour route. RAT Ltd should file a civil action against Rhett for his use of information obtained as a director for personal gain and recover the financial advantage he has obtained from this venture. RAT Ltd can also sue him for damages for the financial harm caused to the company by his decision to use the information for personal gain.
Rhett is also criminally liable for being reckless in the discharge of his duties as a director. By failing to demand for a contract before he could authorise the form for $ 500 000 presented to him by Melanie, he was reckless in the discharge of his duties as a director and this recklessness caused a financial loss to the company. Rhett’s decision to approve the invoice for $500 000 without a contract was influenced by his rush to go to the golf course and hence his failure to carry out his duties as a director of enquiring about the absence of a contact (Gillies, 2004).
The course of action that RAT Ltd should take against Rhett is to institute both civil and criminal proceedings against him since he is liable to enable the company recover its losses due to his actions. The civil proceedings will be for the use of information obtained by virtue of his position as a director for RAT Ltd to cause advantage to him and others by starting a rival company to operate in the Newcastle-Coffs harbour route and in the process causing RAT Ltd a loss of business. According to the precedent set out in Regal (Hastings) Ltd v Gulliver [1942] All ER 378, the company should seek to recover all the gains made by Rhett from the use of information which was meant for the company, in this case the $ 1 million made by Sunair Ltd. The criminal proceedings should be instituted against Rhett because of his recklessness in his discharge of his duties as a director of RAT Ltd. As set out in the facts of the case precedent in Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498, he did not exercise due diligence and care in the discharge of his duties as a director which required him to approve invoices of amounts higher than $500 000 without making the due confirmation of the contract as was required of him. Since reckless action is a criminal offence according to the corporations act 2001 (cth) section 184, Rhett is criminally liable.
RAT Ltd can also sue Rhett for recovery of damages due to negligence. This is because the financial losses that the company suffered due to Melanie’s misappropriation of company funds were as a direct result of negligence on the part of Rhett as a director. The company should seek to recover from Rhett damages due to the financial harm suffered by the company as a result of his negligence (Kershaw, 2009).
References
Kershaw, D, (2009). Company Law in Context, Oxford: Oxford University Press.
Harris, J, Hargovan, A. and Adams, M, (2009). Australian Corporate Law, 2nd ed, Sydney: Lexis-Nexis
Pendleton, V, (2009). Australian Business Law, Pearson education Australia: Sydney.
Gillies, P (2004). Business Law, federation Press: Sydney.
List of statutes
Companies Act 1993 (Cth)
Corporations Act 2001 (Cth)
List of cases
Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
Regal (Hastings) Ltd v Gulliver [1942] All ER 378
