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Proctor : August 2015
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16 PROCTOR | August 2015 Removal of a public company director Section 203D of the Corporations Act 2001 (Cth) (the Act) enables a public company’s shareholders to remove a director from office when the director is afforded the ‘procedural safeguards’ of notice and an opportunity to put his or her case to the shareholders. Even though the issue arises frequently in corporate practice, it remains unclear whether compliance with s203D is mandatory. Legislation Section 203E of the Act makes it clear that a public company director cannot be removed by the company’s other directors. However, s203D of the Act provides a statutory right of removal to the shareholders of a public company. Section 203D first appeared in the uniform Corporations Law (Corporations Law), adopted in each of the states and territories prior to the Act, after the passage of the Corporate Law Economic Reform Program Act 1999 (Cth) (CLERP Act). Section 203D states in part: “(1) A public company may by resolution remove a director from office despite anything in: (a) the company’s constitution (if any); or (b) an agreement between the company and the director; or (c) an agreement between any or all members of the company and the director. (2) Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given. (3) The company must give the director a copy of the notice as soon as practicable after it is received. (4) The director is entitled to put their case to members by: (a) giving the company a written statement for circulation to members ...; and (b) speaking to the motion at the meeting ... (5) The written statement is to be circulated by the company to members ...” The CLERP Act repealed s203D’s immediate predecessor, s227 of the Corporations Law. The latter provision was in turn preceded by s225 of the uniform Companies Code and, prior to that, s120 of the uniform Companies Act adopted by the states and territories. The substance of all four provisions is the same, allowing for the removal of a public company director by an ordinary resolution of shareholders after the director is provided with notice and an opportunity to present his or her case to shareholders. However, the previous removal provisions contained two wording variations: • they had effect “notwithstanding anything” in the company’s constitution or an agreement between the company and a director (rather than “despite anything”, the words used in s203D); and • they were stated not to derogate “from any power to remove a director which may exist apart from” the provisions (omitted from s203D). Case law In cases which considered the previous removal provisions, it was held that the provisions were intended simply to prevent a public company from securing a director in office and did not exclude more liberal constitutional or contractual removal mechanisms. 1 In relation to s203D of the Act, Roberts-Smith J in Allied Mining & Processing Ltd v Boldbow Pty Ltd (Allied)2 rejected an argument that the difference in wording between s203D and its statutory predecessors reflects a legislative intention that shareholders seeking to remove a public company director must comply with s203D. Roberts-Smith J considered that the words “despite anything” in s203D(1) mean “notwithstanding any provision in the constitution which would prevent such removal”. 3 According to Roberts-Smith J, s203D, as with its predecessors, is intended to do nothing more than prevent directors from becoming “entrenched” in office despite the wishes of shareholders and a public company can provide for more liberal circumstances of removal if it wishes.4 Any “tension” between preventing entrenchment and providing directors with natural justice is to be resolved in favour of shareholders.5 The same conclusion was reached in Bisan Ltd v Cellante,6 Central Exchange Ltd v Rivkin Financial Services Ltd7 and Gosford Christian School Ltd v Totonjian.8 Despite the judicial trend, Bryson AJ held in Scottish & Colonial Ltd v Australian Power and Gas Co Ltd (Scottish)9 that the words “despite anything” in s203D(1) are “plainly very strong” and have the effect of overriding any alternative constitutional or contractual removal provision. 10 Bryson AJ believed that this conclusion was supported by the “firm language” and “mandatory words” used elsewhere in s203D and the fact that s203D is not a replaceable rule. 11 Further, it is not expressly stated in s203D, unlike the previous legislation, that the provision does not derogate from a constitutional or contractual removal power. 12 According to Bryson AJ, the different wording of s203D meant that authorities which examined the previous legislation were “of relatively little force”. 13 The clear meaning of s203D also made the consideration of legislative intention in Allied inappropriate because there was no “difficulty of construction” to be resolved. 14 Nevertheless, Bryson AJ went on to note that a mandatory construction of s203D is consistent with the objectives of the Act, specifically: “a principal purpose of preventing entrenchment, and another purpose of affording procedural fairness to directors who are under challenge ... The procedural protection given to directors does not serve only the interests of directors. It serves the interests of the company that fair procedure is required to be followed for removal of directors, and that time for consideration and an opportunity for response will be available.” 15 In Dalkeith Resources Pty Ltd v Regis Resources Ltd, 16 the only case to consider the issue in any substance since the decision in Scottish, Macaulay J preferred a non- mandatory construction of s203D. 17 However, his Honour only referred to Link Agricultural Pty Ltd v Shanahan; it appears that neither Allied or Scottish were brought to his attention.18 Interpretation The weight of judicial authority, even excluding cases decided under previous legislation, favours a non-mandatory construction of s203D of the Act. However, in light of the back to contents
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