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[2014] FCA 1140
Federal Court of Australia
2014-10-23
Yates J
Original judgment source is linked above.
REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The plaintiff, MDA National Limited, applies under s 1322(4)(d) of the Corporations Act 2001 (Cth) (the Act) for an extension of time within which to hold its annual general meeting (AGM). 2 By s 250N(2) of the Act, a public company, such as the plaintiff, must hold an AGM at least once every calendar year and within five months after the end of its financial year. At the present time, the plaintiff must hold an AGM on or before 30 November 2014. It seeks an extension to 31 March 2015, a period of four calendar months. The application is supported by an affidavit made by the plaintiff's company secretary, Ms Browning.
Reasons advanced for the extension 3 On 27 March 2014, the plaintiff and Medical Defence Association of South Australia Limited (MDASA) entered into a Merger Implementation Agreement to merge their respective undertakings, property and liabilities to form one medical defence organisation, Medical Defence Australia Limited. The merger was to be effected, in part, by a scheme of arrangement between the plaintiff and its members (the MDAN scheme). 4 On 20 August 2014, I made orders providing for, amongst other things, the convening of a meeting of the plaintiff's members to consider and, if thought fit, agree to the MDAN scheme: MDA National Limited v Medical Defence Australia Limited [2014] FCA 954. 5 On 11 October 2014, the meeting of the plaintiff's members was held. The plaintiff's members did not agree to the MDAN scheme. 6 Ms Browning has given evidence that the plaintiff's board of directors and management expected the MDAN scheme to be agreed to and the merger with MDASA to be completed before 30 November 2014. Had that happened, it would not have been necessary for the plaintiff to hold an AGM, in light of the exception provided by s 250N(4) of the Act. 7 Following the meeting on 11 October 2014, the plaintiff's chairman and another director resigned. In addition, three of the plaintiff's remaining directors are required, by rotation, to step down and to seek re-election as directors at the plaintiff's next AGM, if that is their wish. 8 The plaintiff's constitution requires it to publish a notice calling for nominations for election as a director at least seven weeks before the AGM is held. Its constitution also requires any person nominating for election or re-election as a director to give written notice of that fact not less than six weeks prior to the AGM. However, the plaintiff's usual practice is for nominations to be open for up to three weeks, rather than one week. 9 Further, it is the plaintiff's practice to facilitate elections for its board of directors through the Western Australian Electoral Commission (the WAEC). It takes at least one week, and usually longer, for the plaintiff to manage the appointment of the WAEC and the drafting and publication of appropriate notices. 10 Ms Browning has expressed the view that, in light of these matters, the very earliest that an election of directors could be finalised would be 19 December 2014. However, she has also given evidence that the current directors of MDAN have not yet considered the number of vacancies that should be declared and the skills and competencies that would be required to fill those vacancies. In this connection, the directors wish to have time to reflect on the plaintiff's future direction, following the failure of the proposed merger. 11 An additional factor is that, before 11 October 2014, the plaintiff's chief executive officer (CEO) announced his retirement. A process to replace him was not undertaken because, under the proposed merger, the current CEO of MDASA was to have been the CEO of the merged entity. The recruitment process for a replacement for the plaintiff's CEO will commence in the next few weeks. No candidates have been identified as yet. 12 Ms Browning has also received advice from the WAEC that it does not recommend having either a nomination or voting process for directors open over the Christmas or New Year period, given that a number of the plaintiff's members may well be absent on leave at that time. The WAEC has suggested calling for nominations in January 2015 with a view to the AGM being held in March 2015. 13 The plaintiff has considered the cost consequences of holding an AGM prior to 30 November 2014, in accordance with the current statutory requirement, and then holding, at a later time, a separate extraordinary general meeting (EGM) for the election of directors. Not unnaturally, holding two meetings within a relatively short period of time will result in additional - and, the plaintiff would no doubt argue, wasted - costs, which it would wish to avoid. Ms Browning has estimated that these additional costs would include direct costs of up to, approximately, $31,000. She said that there would also be additional indirect costs associated with drafting and settling notices, and arranging for their printing. The plaintiff also seeks to hold its members' meetings on weekends or after hours, to enhance participation, given that most of its members are practising doctors. Meetings held at these times incur an additional cost impost because of the involvement of support staff, IT infrastructure staff and key management personnel who must be available to facilitate such meetings, particularly when the meetings involve the use of video-conference facilities at various locations to cater for the participation of members present in other States. Obviously, the holding of an additional meeting will result in the plaintiff incurring additional costs of this nature. 14 Ms Browning has stated that the plaintiff's members will not be prejudiced if the AGM is deferred to a date in March 2015. The additional period will provide a proper opportunity for the plaintiff to engage its members for nominations and to advise them properly on the election process. It will also afford members a reasonable period of time after the merger to reflect on the plaintiff's position and on who, in those circumstances, should be elected as directors to fill the vacancies that will then exist. 15 Further, the plaintiff's financial accounts have been finalised, audited and approved by the present board. A financial report will be available to members by no later than 31 October 2014, regardless of when the AGM is held.
Consideration 16 Section 1322(4)(d) provides: Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: … (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit. 17 Section 1322(6)(c) provides: The Court must not make an order under this section unless it is satisfied: … (c) in every case - that no substantial injustice has been or is likely to be caused to any person. 18 In Woolworths Limited v GetUp Limited (2012) 90 ACSR 670 I observed (at [18]) that, in circumstances such as the present, the power reposed in the Court by s 1322(4)(d) is a wide one, conditioned only by the requirement that no substantial injustice is likely to be caused to any person. The Court's power to make an order extending time, for good cause, exists independently of the power of the Australian Securities and Investments Commission under s 250P of the Act to extend the period within which a public company must hold an AGM. 19 In submissions, the plaintiff relied substantially on the matters advanced in Ms Browning's affidavit as to why an extension of time should be granted. 20 In my view, the discretion to extend time should be exercised in the present case. 21 I do not think it was unreasonable for the view to be taken that, if the merger were to proceed as expected, it would not be necessary for the plaintiff to hold an AGM and that, accordingly, steps towards convening the AGM would not be instituted. The plaintiff's directors were unanimously in favour of the proposed merger and recommended that the plaintiff's members vote in favour of the MDAN scheme. There was also expert financial evidence that the proposed merger would be in the best interests of the plaintiff's members, in the absence of a superior proposal. There was no superior proposal. 22 Of course, the result of the voting on the MDAN scheme could not have been predicted with certainty and, accordingly, the plaintiff could not reasonably hold the view that, after the proposed merger had been announced, there was no prospect that it would be required to hold an AGM for 2014. Nevertheless, I accept the submission that communications to the plaintiff's members on the question of an AGM, including calling for nominations for board positions that would fall vacant, at a time when the proposed merger had been announced and was under active consideration by the members, may have presented a confusing and contradictory picture for them as to what the future direction of the company was proposed to be. It would also have involved the plaintiff incurring potentially unnecessary, indeed wasteful, costs. 23 As events have transpired, the expectations of the plaintiff's board and management have not been realised and, as a practical matter, the plaintiff now finds itself with real timing difficulties. 24 Allied to this is the fact that, as a result of the voting at the meeting on 11 October 2014, the plaintiff has suffered a degree of organisational instability. Its chairman and one other director have resigned. Its CEO has also retired, although not because of the defeat of the merger proposal. Other board vacancies will occur. I accept that, following the defeat of the merger proposal, the plaintiff's board and its members may well wish to reflect on the skills and competencies of board members required for the plaintiff's future direction. 25 It may, of course, be possible for the plaintiff to hold an AGM and, thereafter, a further EGM for the purpose of filling board vacancies. However, it seems to me that this would only lead to the plaintiff incurring unnecessary expenditure when one meeting can be held, as an AGM, at which all current matters, including the election or re-election of directors, can be considered by the members at the one time, without any real prejudice suffered by them by reason of the delay that will arise. Indeed, I do not think that, in the present case, it is in the interest of members that the additional costs involved in holding two meetings be incurred. I should add that I accept the recommendation made by the WAEC that it would be undesirable to call for nominations for directors, or to hold an AGM, in the Christmas or New Year period. 26 The circumstances which confront the plaintiff are unusual. As a practical matter, the better course is to permit the plaintiff to proceed as it asks.
Disposition 27 Orders as sought by the plaintiff will be made. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.
MDA National Limited
Medical Defence Australia Limited