CellOS Software Ltd v Wong, in the matter of CellOS Software Ltd

INTRODUCTION 1 An urgent application by the Plaintiff company ('CellOS') has been made pursuant to s 1322(2) and s 1324 of the Corporations Act 2001 (Cth) (the 'Corporations Act') to declare a Notice of General Meeting dated 20 January 2017 ('Notice'), organised by a group of convening shareholders pursuant to s 249F of the Corporations Act, to be invalid, and to restrain the conduct of the general meeting as contemplated by the Notice. The hearing of the application has proceeded as a final hearing and the orders the Court make will finally determine the proceeding. 2 The relevant background to the dispute is relatively confined, although there has been ongoing disputation between certain shareholders of CellOS for some time. For the purposes of this application, I do not need to rehearse that history of disputation, it being irrelevant. All I need to observe is that there has been concern over the financial viability of CellOS by the convening shareholders, and they contend that an early meeting in March 2017 to determine the constitution of the Board is required. Be this as it may, if the Notice is irregular and if the Notice should otherwise be declared invalid, I do not consider it to be relevant that the convening shareholders hold this belief, or that it be substantiated. 3 No doubt the convening shareholders have the right to call for a general meeting, and effectively to put before a general meeting their concerns. Whilst then it may be accepted that the convening shareholders want to have a new Board installed and take immediate action, compliance with the Corporations Act must be adhered to by the convening shareholders in the calling of and conduct of a general meeting.

BACKGROUND 4 The following salient facts are not in issue. 5 The CellOS is an unlisted public company that develops software and conducts much of its business in Singapore. It has 2,050 shareholders, of which around 1,600 are resident in Singapore. Its registry manager is Computershare Ltd. 6 On 20 December 2016, CellOS received a document purporting to be a notice of intention to move resolutions for the removal of the entire CellOS board, and to appoint alternative directors. The Notice was signed by 10 shareholders holding almost 7% of the issued shares in CellOS, who are the convening shareholders. 7 On 1 February 2017, CellOS received the Notice effectively convening a general meeting under s 249F of the Corporations Act to be held in Melbourne on 2 March 2017 to move their resolutions (the 'proposed EGM'). 8 CellOS' AGM is otherwise scheduled to be held in Melbourne on 31 March 2017. 9 CellOS brought this application seeking: (1) a declaration that the Notice is invalid, on the basis that the process for proxy voting is contrary to s 250B of the Corporations Act and CellOS' constitution and may cause injustice to shareholders; and (2) a consequential order restraining the holding of the proposed EGM. 10 The real issue for determination is whether the Notice is procedurally irregular, and if so, whether the Court should declare it invalid. 11 In summary, CellOS contended that the Notice is procedurally irregular for three reasons: (1) first, the Notice incorrectly states that proxy forms will only be valid if returned to Link Market Solutions ('Link'), a third party intermediary engaged by the convening shareholders (not CellOS); (2) secondly, the Notice incorrectly states that proxy forms will only be valid if returned at least 72 hours prior to the proposed EGM; (3) thirdly, the Notice identifies a process for the assessment of proxy forms by Link. 12 It was contended by CellOS that these procedural irregularities expose the shareholders of CellOS to a real prospect of prejudice, particularly those resident in Singapore who would likely vote at the proposed EGM by proxy.

THE NOTICE 13 The Notice states that in order to be effective the proxy form must be received by Link and must be received by Link at least 72 hours prior to the proposed EGM. 14 The Notice relevantly states at page 9: In order to be effective, the Proxy Form and any authority under which it is signed must be received at Link Market Services by 1.00pm (Melbourne time) on Monday, 27 February 2017. (Emphasis added). 15 By way of observation I note that the proxy form attached to the Notice also relevantly states at page 2: VOTING DIRECTIONS Proxies will only be valid and accepted by Link Market Services if they are signed and received no later than 72 hours before the Meeting, ie by 1.00 pm (Melbourne time) on Monday, 27 February 2017. Link Market Services will forward your proxy form to the Company so that it is received on or before 1.00pm (Melbourne time) on Tuesday 28 February 2017. (Emphasis added).

SECTION 250B OF THE CORPORATIONS ACT AND CELLOS' CONSTITUTION 16 Section 250B of the Corporations Act relevantly states: Proxy documents Documents to be received by company before meeting (1) For an appointment of a proxy for a meeting of a company's members to be effective, the following documents must be received by the company at least 48 hours before the meeting: (a) the proxy's appointment; (b) if the appointment is signed, or otherwise authenticated in a manner prescribed by regulations made for the purposes of subsection 250A(1), by the appointor's attorney - the authority under which the appointment was signed or authenticated or a certified copy of the authority. … Receipt of documents (3) A company receives a document referred to in subsection (1): (a) when the document is received at any of the following: (i) the company's registered office; (ii) a fax number at the company's registered office; (iii) a place, fax number or electronic address specified for the purpose in the notice of meeting; and (b) if the notice of meeting specifies other electronic means by which a member may give the document - when the document given by those means is received by the company as prescribed by the regulations. … Constitution or notice of meeting may provide for different notification period (5) The company's constitution (if any) or the notice of meeting may reduce the period of 48 hours referred to in subsection (1) or (2). 17 Clause 14.18 of CellOS' constitution relevantly provides: Lodgement of proxies (a) An instrument appointing a proxy is not treated as valid unless: (i) the instrument; and (ii) the power of attorney or other authority (if any) under which the instrument is signed; or (iii) a copy of that power or authority certified in a manner acceptable to the Directors, are lodged not less than 48 hours (or any shorter period as the Directors may permit) before the time for holding the meeting at the place specified for that purpose in the notice of the meeting or, if none, at the registered office of the Company. … (c) For the purposes of this clause 14: … (ii) Members can appoint a proxy and attorney or a corporate representative using electronic means to deliver the document (or a copy of the document) effecting the appointment and, in the absence of any manifest irregularity, the Company may act on that appointment. 18 Clause 1.4 of CellOS' constitution provides that the Corporations Act prevails to the extent of any inconsistency.

CONSIDERATION 19 Without going to any principles enunciated in the authorities, the wording of s 250B(1) is straightforward. Certain documents must be "received by the company at least 48 hours before the meeting". Section 250B(3) specifies what constitutes receipt by the company. Section 250B(1) sets out no further requirement than receipt by the company and a prescribed period between receipt by the company and the proposed meeting. 20 There is nothing in the legislation to indicate that an intermediary cannot be employed to facilitate the mandated delivery to the company, and if receipt by the company occurs within the permitted period, s 250B(1) is relevantly complied with. 21 There has been some discussion in the authorities regarding the requirements set out in s 250B(1) - see Bisan Ltd v Cellante (2002) 173 FLR 310 ('Bisan'); Re Golden West Resources Ltd (2008) 170 FCR 409; Lachlan Reit Ltd v Garnaut [2010] VSC 399; Carpathian Resources Ltd v Highmoor Business Corporation [2010] FCA 1294; City Pacific Ltd v Bacon (2009) 72 ACSR 418; Carson v Dynasty Metals Australia Ltd [2011] FCA 621; and Northwest Capital Management v Westate Capital Ltd (2012) 264 FLR 424 ('Northwest Capital Management'). 22 In my view, based upon the wording of s 250B(1) and the weight of authorities, s 250B(1) does not in itself prevent proxy forms being handled by any third party prior to receipt by the company. 23 To the extent that Bisan may contain comments to the contrary, I adopt the approach of Edelman J in Northwest Capital Management at [117] where his Honour said: The decision in Bisan Ltd is confined to the factual circumstance where a proxy is directed to a third party by both notice of meeting and by the proxy form itself. That circumstance is not relevant to this case where the proxy votes concerned were sent to Mr Thompson and Mr Keene, after the issuer of the proxy had been told in the notice of meeting that, to be effective, proxy forms must either be delivered or posted to NWPL at its registered office or be faxed to NWPL. There is nothing in s 250B which prohibits the sender of a proxy to entrust it to either of these people to ensure that it is received by NWPL as they had been informed in the notice was required. 24 However, be this as it may, the difficulty with the Notice before the Court is that the Notice (and the enclosed proxy form) indicate that the proxy forms effectively needed to be assessed by Link and would only be valid and accepted by Link if signed and received at least 72 hours before the proposed EGM. Link was and is not an agent of CellOS, but was engaged by the convening shareholders. The Notice effectively gave a direction to entrust to a third party (not an agent of the company) a proxy form which was then in certain circumstances to be provided to CellOS - but this was only to occur after the assessment of the proxy form by that third party, which proxy form had to be received no later than 72 hours before the proposed EGM. 25 Therefore, the requirements of the Notice were inconsistent with s 250B(1). According to the Notice, to be valid and effective the proxy form had to be received by a third party (not an agent of CellOS), and the period prescribed was not that set out in the legislation, even if it was anticipated that the proxy form would eventually be received by CellOS at least 48 hours before the proposed EGM. It is to be observed that a company itself could reduce the period of 48 hours between receipt by the company and the meeting (see s 250B(5)). Presumably the company would only do this where it considered that it did not require 48 hours to process the proxy forms for the proper conduct of the meeting. However, in this case the convening shareholders have effectively extended the period referred to in s 250B(1) by another 24 hours, and thus have given less time for the shareholders to exercise their rights to vote by proxy. 26 For the sake of completeness, I mention that s 249F(2) requires a convening shareholder to call a meeting in the same way as a general meeting of the company is called, but only "so far as is possible". I do not consider that this permits any alteration to the operation of s 250B. 27 The requirements set out in the Notice which are contrary to s 250B have the potential to cause substantial injustice to shareholders, particularly the 1,600 shareholders resident in Singapore, the majority of whom are likely to vote by proxy. 28 Whilst there is an important statutory right given to the convening shareholders to call and arrange for a general meeting, this can have the potential to disrupt and distract from the management of a company. Strict adherence to the provisions of the Corporations Act is normally required in the calling of a meeting under s 249F, subject to the operation of s 249F(2) as alluded to above. 29 Further, the defects in the Notice would cause substantial injustice that could not be remedied by any order of the Court other than declaring the Notice invalid, the Notice having already been sent. CellOS is calling a general meeting on 31 March 2017 in any event, which will encompass a consideration of the matters that the convening shareholders wish to canvass at proposed EGM. I am also not satisfied that the validation of the Notice by court order would not cause, or be likely to cause, substantial injustice to any person. 30 Therefore, the oral application moved by the Defendants on the day of the hearing under s 1322(4) to have the Notices declared not invalid despite their directing non-compliance with s 250B, is refused even if s 1322(4) was otherwise applicable to the circumstances of this proceeding.

CONCLUSION 31 I will therefore order as follows: THE COURT DECLARES THAT: (1) The Notice of General Meeting dated 20 January 2017 ('the Notice') is invalid. THE COURT ORDERS THAT: (2) The Defendants whether by themselves, their servants or agents or howsoever otherwise, be restrained from holding a meeting of members of the Plaintiff on 2 March 2017 as convened by the Notice. (3) The Plaintiff cause the notice in the form annexed to these orders to be sent to its shareholders. (4) The Defendants jointly and severally pay the Plaintiff's costs of and incidental to this proceeding. Annexure 1 NOTICE TO SHAREHOLDERS OF CELLOS SOFTWARE LTD (1) The Federal Court of Australia has declared that the notice of meeting dated 20 January 2017 ('the Notice') is invalid under the Corporations Act 2001 (Cth). A copy of the declaration and associated orders is attached. (2) The consequence of this declaration is that: (a) the extraordinary general meeting referred to in the Notice will NOT be proceeding; and (b) any proxy forms that may have been submitted by shareholders in respect of that meeting will NOT be acted on. (3) The board of CellOS Software Ltd has resolved to hold an annual general meeting on 31 March 2017 and is considering arrangements so as to allow shareholders to attend that meeting at venues in both Melbourne and Singapore. (4) The resolutions to be considered at that annual general meeting will include the resolutions set out in the Notice (ie the removal of all current directors and the election of alternative directors). (5) Additional information on those resolutions will be provided to shareholders with formal notice of the annual general meeting over the coming weeks. (6) Shareholders wishing to vote by proxy at that annual general meeting will need to submit proxy forms in the manner provided for in that formal notice. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

SCHEDULE OF PARTIES VID 80 of 2017 Defendants Fourth Defendant: WEE HONG GHEE Fifth Defendant: LEONG KHIN MENG Sixth Defendant: NG SAI YING Seventh Defendant: KELLY ONG POH CHING Eighth Defendant: TAN CHOON KWEE Ninth Defendant: CRAIG PETER SHUTTLEWORTH Tenth Defendant: BERNARD CHAN CHEE YOONG