It can be assumed that the Company Agave Ltd (“Agave”) adopted the Company constitution that passed by special resolution from its members pursuant to section 135(2) of The Corporations Act (“the Act”).
If any modifications or repeals to the constitution are made, then these changes will also be required to passed by special resolution by its members (s136(2)).
Section 135(5) the Act set out that companies must provide a copy of the constitution and relevant special resolutions must be lodged to ASIC within 14 days of the Company adopting or modifying the constitution. If Elektra would like to modify the constitution in any way she will need to provide a copy of the modified constitution along with all relevant special resolutions to ASIC.
2. Request a meeting
Section 9 of the Act defines a “special resolution” as a resolution passed by at least 75 per cent of the votes cast by members entitled to vote on the resolution. In order to vote on a special resolution a meeting must first be called.
Elektra with 70 per cent of voting shares can call a meeting in two ways. Firstly, she can request that the directors call and arrange a meeting under section 249C of the Act. As the act states anyone with at least 5 per cent of shares that may be cast at a general meeting can request a meeting.
Secondly, Elektra may call a meeting without first requesting the directors to call a meeting under section 249F of the Act. However, this is generally not advised as Elektra will have to personally pay for any incurred expenses for the meeting to take place. As the facts to not determine what Elektra’s financial situation is it can be assumed that the best advice is to call a meeting pursuant to section 249C.
All meeting requests must only be called for a proper purpose, as Elektra seeks to modify the company’s’ constitution this falls under the definition of proper purpose under section 249Q of the Act.
3. Notice of meeting
Listed Australian Companies must give 28 days’ notice of a shareholders meeting (249HA) and a written notice must be provided by all shareholders entitled to vote and to each director (s 249J(1). The notice of the meeting must be clear, concise and effective (s 249(3)) to ensure that it is easy for shareholders to determine the essential business of the meeting. The notice must also contain information as to place date and time, the general nature of the meeting, intention to propose a stated special resolution and if any shareholder has the right to a proxy (s 249(L).
4.1 Require the appointment of all directors by the general meeting
In Agave’s company constitution it states that Ben has the right to nominate a director provided he continues to hold a 10 per cent shareholding. This provision in the company constitution could be considered an entrenching provision. Entrenching provisions are set out in the Act under section 136(3) of the Act and recognises that a company’s constitution may contain provisions that restrict the company’s ability to repeal or modify the constitution by imposing further requirements for such alternations that go above and beyond a special resolution. It is unclear from the facts but the reason Ben could have been given this right is that he is a founder of the company and wants to ensure some level of control of the company after its formation.
Furthermore, Ben also has a separate contract between himself and the Company which states that the company’s constitution cannot be altered in any way that affects his rights without his permission. It is quite common for paid directors and executives to enter into separate contracts with the company.
4.2 Reduce by half the annual bonus paid to the operations manager
The facts do not suggest that the operations manager is a director or shareholder of the company. It can be presumed then that the operations manager is a non-member. Therefore, the company’s constitution does not have the effect as an enforceable contract even if the constitution purports to give them rights .
4.3 Convert all shares to ordinary shares
The facts state that James has a 5% shareholding and he is entitled to priority dividends. This type of share class would be defined as a preference share. Elektra is attempting to have the company constitution altered so these preference class shares are changed to ordinary class shares. There is a limitation on the power to alter a company’s constitution where its share capital is divided into shares of different classes.
It is unclear from the facts if the Company’s constitution currently has a procedure to vary and cancel class rights. However, if the Company’s constitution does contain a procedure than it must be followed (s246B(1).
If the company constitution doesn’t set out a procedure, then sections 246B-246G of the Act are designed to restrict majority shareholders from varying or cancelling shares. As a general rule, class rights can be varied or cancelled only by special resolution of both the company and the holders of the affected class or with the written consent of members with at least 75% of the votes affected class. (s246B). If either of these options are achieved, then the company’s constitution can be altered.
It is unclear from the facts if James is the only shareholder with preference shares. If there are members holdings at least 10 per cent of the votes of the class concerned then they would be able to apply to the court under section 246D(1) to have the variation, cancellation of their rights and modification to the constitution set aside if the court is satisfied that it would unfairly prejudice the applicants.
However, if James is a single member of this class he may be able to apply for a remedy under section 232 of the Act if the variation, cancellation or modification is oppressive and unfair.
4.4 Appoint Frances as the new company secretary
The director(s) of the company may resolve to remove the company secretary. The resolution of the director(s) removing the company secretary must be signed and placed in the company’s minute books within 1 month after the resolution is passed.
An ASIC Form 484 “Change to Company Details” must be lodged with ASIC within 28 days of the removal of the company secretary. However, a company secretary can only be nominated by the board of directors under section 204D of the Act. Therefore, Elektra who is not a director will not be able to appoint Frances as a secretary.