MATTER : Sections 1322, 1324, 140 and 233 of the Corporations Act 2001

Corporations law - Company directors - Appointment of directors - Whether valid consent to appointment - Whether appointment invalid by reason of failure to provide written consent - Date of valid appointment

Corporations Act 2001 (Cth), s 201D, s 201M

Hedges v New South Wales Harness Racing Club Ltd (1991) 5 ACSR 291

Knight v Bulic (1994) 13 ACSR 553

1 LE MIERE J: In this matter the plaintiffs have applied by originating process for orders as follows:

(1) a declaration that Mark Peter Collins was appointed a director of Zernike Australia Pty Ltd on 9 May 2005, notwithstanding any failure of Zernike Australia Pty Ltd to obtain a signed consent to act as a director;

(2) a declaration that resolutions 1, 2, 3, 4 and 5 at a meeting of directors of Zernike Australia Pty Ltd on 15 December 2005 be declared passed;

(3) such further or other order as to this honourable Court seems just.

2 On the hearing of this matter, the plaintiffs have formally read and rely upon the affidavits of Mark Peter Collins, sworn 16 December 2005; Arnold Jan Stroobach sworn 16 December 2005; and Erin Joshua Forrester sworn 15 February 2006.

3 The first defendant informed the Court at the commencement of the hearing that it did not wish to take any substantial part in the hearing and its counsel sought and was granted leave to withdraw.

4 The second defendant tendered into evidence the affidavit of Peter Harman Why sworn on 21 March 2006 and the affidavit of Peter Harman Why sworn 22 March 2006.

5 I received the first affidavit subject to objections as to the admissibility of any part or part of the affidavit and its annexures. I received the affidavit of 22 March 2006 on the same basis.

6 In the course of the hearing counsel for the plaintiffs called oral evidence from Mr Collins and Mr Collins was cross-examined by the second defendant. The second defendant also tendered into evidence some documents which were taken from the company register and records of the second defendant.

7 A brief outline of the matters giving rise to this action commences with the meeting on 31 March 2005 attended by the first plaintiff, Mr Collins, together with Dr Lange, the chief executive officer of the third plaintiff, the second plaintiff Mr Huissen, the second defendant and a Mr Van der Haar. Mr Collins produced minutes of that meeting.

8 In the course of the meeting it was discussed and agreed that the first and second plaintiffs would be appointed as directors of the first defendant. In the course of his cross-examination Mr Collins stated that at that meeting he consented to act as a director of the first defendant. In April 2005 the first plaintiff prepared a number of documents to give effect to the agreement at the meeting on 31 March 2005 that the first and second plaintiffs be appointed as directors of the first defendant company.

9 At all material times Mr Collins was a principal in the incorporated accountancy practice of William Buck (WA) Pty Ltd. That company was retained by the first defendant as its accountants and to carry out services from time to time for the first defendant, and indeed it appears at times for the second defendant in his personal capacity.

10 The documents that were prepared by the first plaintiff or his company were posted to the second defendant under cover of a letter dated 5 May 2005. They were a Form 484 described as "Change To Company Details" to reflect the change of office holders, a memorandum of resolution of directors, and consents to act as directors. Those documents were received by the second defendant. The second defendant signed a memorandum of resolution of the director(s) in these terms:

"Appointment of directors: it was resolved that, having consented to act as directors of the company, the following be appointed: Collins, Mark Peter; Huissen, Antonius M.J. Preparation of documents: the secretary was requested to complete the documents required to reflect the change in the officers of the company."

11 The document was signed by Mr Why and dated 9 May 2005. At a later time it was signed by Mr Huissen, the second plaintiff, and dated 15 May 2005. The document, being the Australian Securities & Investments Commission Form 484, "Change To Company Details", was signed by Mr Why, the second defendant. It bears the typed date 22 April 2005. It seems that that date was typed onto the document before it was sent out to Mr Why and in fact was signed by Mr Why at a later date, that being on or about 5 May or possibly 9 May. The document records the appointment as a director of the company of each of the first and second plaintiffs.

12 A consent to act as director of the company was signed by the second plaintiff, Mr Huissen. Mr Collins, the first plaintiff, gave evidence that he does not recall having received the documents completed by the second defendant and by the second plaintiff, and further that he has caused a search to be made at the offices of the firm, William Buck, and an examination of their mail registers which does not disclose the documents having been received by the firm.

13 A meeting of directors was then called by notice under the signature of the second plaintiff, Mr Huissen, who did so in his capacity or purported capacity as a director of the first defendant.

14 This action concerns the events which took place at a meeting of the directors of the first defendant on 15 December 2005. During the course of that meeting the first plaintiff made notes of what occurred at the meeting and subsequently produced what are described as minutes of the meeting which form annexure MPC10 to the first plaintiff's affidavit. There has been no contest as to what occurred at that meeting.

15 The persons present were the second defendant, the second plaintiff, the first plaintiff, Mr de Lange from the third plaintiff by invitation, Mr Stroobach by invitation and Ms Hill, a solicitor, also by invitation. It was noted that the notice of meeting of directors called by the second plaintiff and dated 13 December 2005 was tabled.

16 The second defendant also had a solicitor by the name of Stephen Hicks, and he too was present at the meeting by invitation. The second defendant stated at the meeting his opinion that there was only one director of the company. Documents were tabled by Mr Huissen and Ms Hill to establish that Mr Huissen and Mr Collins had been appointed directors of the company.

17 The second defendant and his solicitor reviewed those documents. The second defendant maintained his objection that Mr Collins, the first plaintiff, had not been duly appointed as a director of the company essentially on the grounds that he had not signed a consent to act as a director. The first resolution was put to the meeting. That was a resolution or a motion that the second defendant be removed immediately from the position of chief executive officer of the company.

18 When the matter came to a vote the first and second plaintiff each voted for the motion and the second defendant voted against it. The second defendant was the chairman of the meeting. The second defendant stated that he did not recognise the first plaintiff as a director of the company. Accordingly the votes were one for and one against and the second defendant in his capacity as chairman cast his casting vote against the motion.

19 A similar process eventuated with the subsequent four resolutions that were put to the meeting; on each of them Mr Collins and Mr Huissen voted for the motion, Mr Why voted against it. Mr Why declared that Mr Collins was not a director and not entitled to vote, that the vote was one all and cast his casting vote to defeat the motion. Those are the circumstances which lead to this application.

20 The relevant provisions in the constitution of the company include these; cl 68 provides:

"The directors may at any time appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing directions but the total number of directors may not at any time exceed the number fixed in accordance with this constitution."

21 So far as voting at the meeting is concerned article 79(1) provides as follows:

"Subject to this constitution questions arising at any meeting of directors must be decided by a majority of votes of directors present and a determination by a majority of directors is for all purposes deemed a decision of the directors; (2) in the case of an equality of votes the chairperson at the meeting has a casting vote."

22 In their outline of submissions the plaintiffs submit that the dispute between the parties concerns two narrow points of law, namely:

(1) whether it was or is necessary for the first plaintiff to lodge with the first defendant a written consent to his appointment as a director of the first defendant prior to the appointment taking effect;

(2) at what date, if any, the first defendant was validly appointed as a director of the first defendant.

Validity of Appointment before Written Consent

23 I turn to consider the first point. Subsection 201D(1) of the Corporations Act 2001 (Cth) provides:

"A company contravenes this subsection if a person does not give the company a signed consent to act as a director of the company before being appointed."

24 There is authority to suggest that the requirement that a person consent to appointment prior to being appointed as a director is also imposed by general law due to the statutory and fiduciary obligations which are imposed by virtue of the position, see Hedges v New South Wales Harness Racing Club Ltd (1991) 5 ACSR 291, where McClellan J held at 293:

"The status of a director of a company which involves significant statutory and fiduciary obligations cannot be imposed on any person without his consent."

25 That statement was adopted by Hayne J in Knight v Bulic (1994) 13 ACSR 553 at 560. However, his Honour held, consent to act as a director may be implied if, for example, a person is shown as a director in corporate records held by ASIC and has represented himself or herself or other persons as being a director of a company. Knight v Bulic was decided before s 201D of the Corporations Act came into force.

26 The question is whether subs 201D(1) of the Corporations Act affects the validity of an appointment of a person made before the written consent of the person has been given. That is a question of statutory construction. Although subs 201D(1) makes the company liable to a penalty for contravening the statutory requirement, it does not provide that such contravention renders the appointment of a director invalid.

27 A consideration of other provisions of the Act leads to the conclusion that the legislature did not intend that a contravention of s 201D(1) should render the appointment of a director invalid. In particular, subs 201M(1) provides:

"An act done by a director is effective even if their appointment or the continuance of their appointment is invalid because the company or director did not comply with the company's constitution if any or any provision of this act."

28 I find that on its proper construction s 201D(1) of the Corporations Act does not render the appointment of a director invalid by reason of a contravention of that subsection.

29 As to the second issue identified by the plaintiffs; that is, the date if any on which the first defendant was validly appointed as a director, I make the following findings. I find that the appointment of the first plaintiff is valid upon him consenting to act as a director. The evidence is that he consented, at least orally, prior to his appointment as a director. He consented to act as a director at the meeting on 31 March 2005.

30 The second defendant has submitted that the first plaintiff did not act as a director and did not carry out duties as a director between March 2005 and the meeting on 15 December 2005. The second defendant tendered into evidence a number of documents that were prepared by the first plaintiff or his firm between March and December 2005 which documents record or are to the effect that the second defendant was the only director of the company.

31 Furthermore, the second defendant submits that the activities carried out by the first plaintiff for the first defendant during that period were activities in respect of which the first plaintiff's firm William Buck invoiced the first defendant and for which the firm was paid by the first defendant. All of that might lead to the inference that the first plaintiff did not carry out duties as a director between March and December 2005. However, in my view that is not determinative of this issue.

32 Under the constitution of the company the second defendant was empowered to appoint additional directors. He appointed the first plaintiff as a director. The first plaintiff's appointment cannot be effective without him consenting to act as a director. The first plaintiff did consent orally on 31 March but in any event consented in writing on 15 December prior to the commencement of the relevant meeting. That is sufficient to constitute the first plaintiff a properly appointed director of the company as at the time of the meeting on 15 December 2005.

33 So far as Mr Huissen the second plaintiff is concerned, again, the second defendant appointed the second plaintiff in writing to be a director of the company. Mr Huissen consented in writing to act as a director by a document dated 15 May and, on the evidence, executed by him on or about that day.

34 Furthermore the second plaintiff purported to act as a director of the company in calling the meeting for 15 December. Mr Huissen the second plaintiff voted at that meeting. The second defendant did not contest the calling of the meeting or the vote exercised by the second plaintiff at that meeting. There is no basis on those facts for challenging the appointment of the second plaintiff.

35 There is a further matter to which I should refer which is raised by the second defendant. The second defendant says in effect that it was not intended that the appointment of the first and second plaintiffs should take effect at the time that he signed the instruments appointing them as directors.

36 The second defendant appointed the first and second plaintiff as directors by executing a resolution appointing them as directors and by executing the Form 484. Those forms are unqualified and unconditional. Any subjective intention held by the second defendant does not detract from that position. Accordingly, the first and second plaintiffs were properly appointed and were directors as at the time of the meeting on 15 December.

37 I therefore conclude that the first plaintiff was entitled to vote at the meeting on 15 December 2005. The second defendant acted wrongly in disregarding the vote cast by the first plaintiff at the meeting. The resolutions which were put to the meeting were passed at that meeting by a majority of two to one and no occasion arose for the second defendant to cast a casting vote.

38 The second defendant acted wrongly in declaring that the motions were lost. The resolutions were, as a matter of fact and law, passed at that meeting. It is appropriate to make the declarations which are sought by the plaintiffs in their originating process.