Removal of company directors: disputed notice of meeting

Disputes over the convening of company meetings and removal of directors are frequently litigated.

In Scottish & Colonial Ltd v Australian Power & Gas Co Ltd & Ors [2007]  NSWSC 1266 the New South Wales Supreme Court decided that a general meeting of shareholders of Australian Power and Gas Company Limited (APG) called by a director could not, by resolution, remove any director from office because section 203D of The Corporations Act had not been complied with.

APG is a public company listed on the Australian Stock Exchange. On 15 October 2007 Mr Bellman, a director, requisitioned a general meeting of APG to be held on 15 November 2007.  Mr Bellman was authorised to call the meeting by s 249CA of the Corporations Act 2001. He gave notice complying with s 249HA. He acted under that power without seeking a decision of the board to call a meeting. His notice of meeting set out five resolutions, the effect of which was that, if passed, all four other directors would be removed from office immediately, and that another person, who was not a current director, would be appointed a director

Scottish & Colonial Limited, a shareholder of APG, claimed an injunction restraining the challenged directors and APG from continuing to issue communications relating to the meeting of 15 November 2007 which in any way sought to influence the outcome of that meeting; an injunction restraining the challenged directors and APG from operating the information hotline referred to in a letter which they circulated on 18 October 2007 at APG's expense; an injunction restraining the challenged directors from using funds or resources of APG to influence shareholders to vote against the resolutions at the meeting proposed, and orders that the challenged directors indemnify or compensate APG for funds and resources already utilised to seek to influence shareholders to vote against the resolutions.

The principal ground alleged against the directors was contravention of their duty to exercise their powers in good faith in the best interests of APG and for a proper purpose, as set out in s 181(1) of the Act.

The section 203D issue was heard as a separate preliminary point.

Mr Bellman did not follow the procedure for removal of the directors indicated by s 203D of the Act, which includes a requirement in subs (2) that "Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held". He did not give two months' notice.

Justice Bryson rejected argument that a general meeting could resolve to remove directors notwithstanding non-compliance with section 203D:

"In my opinion s 203D means that if a director is to be removed the procedures required by the section must be taken. The step in s 203D(2) of giving notice must be taken, subject to the means of overcoming the time provided for by subs (2) but otherwise as prescribed. So too for the steps required by subs (3) and for according the director the entitlement conferred by subs (4). If there are conditions in a company's articles for exercise of the power, whether procedural provisions or other conditions, it is nonetheless necessary that s 203D be complied with. The power in subs 203D (1) exists despite anything in any other of the documents indicated; that is, it always exists, in any removal of a director the members always exercise it. When it is exercised the other provisions of s 203D apply and must be complied with. Whether any conditions imposed by a company’s constitution must also be complied with need not now be determined: in this case the requirements of cl 12.5 would be complied with."