Plaintiff v Defendants

Corporations Act 2001 (Cth) ss 254A, 256B, 256C, 256D.

Winpar v Goldfields [2001] NSWCA 427; (2001) 166 FLR 144 applied; Beck v Weinstock [2013] HCA 15; (2013) 251 CLR 425; GTW Investments (Aust) Pty Ltd v Pacreef Investments Pty Ltd [2023] VSCA 291; (2023) 74 VR 290; Re Capel Finance Ltd [2005] NSWSC 286; (2005) 52 ACSR 601 considered.

RP Austin and AJ Black, Austin & Black's Annotations to the Corporations Act (LexisNexis) [2J.256D].

1 The Islamic Society of Melbourne Eastern Region Inc (the 'plaintiff' or 'ISOMER') was one of 11 original subscribers to Islamic Co-Ordinating Council of Victoria Pty Ltd (the 'first defendant' or 'ICCV'), a company limited by shares. Like the other 10 subscribers, ISOMER held one 'A class' share (the 'A class share'). On 8 August 2025, the board of ICCV resolved to 'terminate' the share held by ISOMER pursuant to a power contained in cl 4.7 of the Constitution of ICCV dated 22 June 2001 ('ICCV Constitution') which by its terms permits ICCV to redeem a member's share in ICCV if an order is made to wind up the shareholder.[1]

2 On 16 September 2025, ISOMER filed an originating process in the trial division of this court seeking declaratory and other relief from conduct which it claims is oppressive to, unfairly prejudicial to, or unfairly discriminatory against the plaintiff in its capacity as a member of ICCV.[2] The focus of the impugned conduct is the termination or redemption of the A class share held by the plaintiff.

3 Among other things, the plaintiff seeks declarations that:

(a) clause 4.7 of the ICCV Constitution is invalid on the grounds that ICCV cannot by resolution lawfully terminate a member's membership of the company or redeem a member's ordinary share in ICCV;

(b) the resolutions of ICCV passed at the meeting of its board of directors held on 8 August 2025 - providing that the membership of ISOMER in ICCV be terminated pursuant to cl 4.7(i) of the ICCV Constitution, and ISOMER's share in ICCV be redeemed for $1 - are beyond power, invalid and of no legal effect; and

(c) Fouad Ibrahim Hassan has not been validly removed as a director and secretary of ICCV.

4 It is not in dispute between the parties that the purported redemption of the A class share had the effect of reducing the capital of ICCV. Questions arise in the proceeding as to whether that reduction is authorised by the ICCV Constitution and by the Corporations Act 2001 (Cth) (the 'Act'). These questions concern the character of the A class share and the powers given to ICCV under its Constitution and the Act.

5 On 28 November 2025 Delany J made orders pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2025 to isolate a number of separate questions (the 'Separate Questions') to be tried before the trial of the other issues in the proceeding. The Separate Questions and my answers to them are as follows:

(a) Was the plaintiff's A class share in the first defendant a preference share within the meaning of the Act ('Question One')? Answer: unnecessary to answer.

(b) Was the plaintiff's A class share a redeemable preference share within the meaning of the Act ('Question Two')? Answer: no.

(c) Did cl 4.7(i) of the ICCV Constitution confer a lawful and effective power on the board of the first defendant to terminate the plaintiff's membership of the first defendant and to redeem the plaintiff's A class share ('Question Three')? Anwer: no.

(d) If so, was the power (if any) conferred by cl 4.7(i) of the ICCV Constitution enlivened on the facts of this case ('Question Four')? Answer: does not arise.

(e) Did the requirements of s 256B of the Act apply to the purported exercise of the power conferred by cl 4.7(i) of the ICCV Constitution ('Question Five')? Answer: yes.

(f) Did s 256D of the Act operate to validate the redemption of the plaintiff's share in the first defendant, notwithstanding any non-compliance with the requirements of s 256B of the Act ('Question Six')? Answer: yes.

7 The plaintiff, ISOMER, is an incorporated association that operates as a not-for-profit religious society dedicated to the promotion of the Islamic religion, and the Arabic language, culture and principles. ISOMER is a registered charity.

8 The first defendant, ICCV, is a proprietary company limited by shares. ICCV is the trustee for The Halal Board of Australia Trust and conducts a Halal certification business in that capacity. ICCV is governed by the ICCV Constitution and Australian corporations legislation.

9 Prior to 10 August 2025, ICCV had a total paid up share capital of $11.00, comprising 11 '"A" Class shares'. These shares were issued to 11 shareholders: ISOMER and the second to eleventh defendants in this proceeding.

10 The plaintiff was an initial shareholder of ICCV and it acquired its A class share upon ICCV's foundation on or around 2 July 2001. At all material times, ISOMER's A class share in ICCV was fully paid.

11 At all material times before 5 August 2025, ICCV had five directors, being:

(a) Mr Edin Dzelalagic, the Chairperson of ICCV;

(b) Mr Tarek Khodr, the Treasurer of ICCV;

(c) Mr Ali Nadir Yildiz, the Vice Chairperson of ICCV;

(d) Mr Halil Levent Sertli; and

(e) Mr Hassan, who was - and ISOMER contends, still is - the Secretary of ICCV.

12 On 13 September 2024, RR Group of Companies Pty Ltd as trustee for the RR Family Trust (trading as RR Aged Care Consultancy), a creditor of ISOMER, filed an application in this Court for the winding up of ISOMER. The application followed ISOMER's failure to comply with a statutory demand for payment of a judgment which was entered in the County Court of Victoria in default of appearance on 25 July 2025.[3] After the Supreme Court proceeding was commenced, the County Court judgment was set aside by consent on 15 November 2024. On 2 December 2024, the winding up application was heard by Steffensen AsJ. On 28 February 2025, her Honour ordered that ISOMER be wound up in insolvency under the provisions of the Associations Incorporation Reform Act 2012 and the Act.[4]

13 On 29 April 2025 Gitsham JR heard an application by Mr Hassan for an order under s 482 of the Act terminating the winding up of ISOMER. That day, Gitsham JR made an order conditionally terminating the winding up of ISOMER effective from 30 May 2025, subject to there being payments made in respect of certain specified liabilities and the liquidator's expenses by that date. On 30 May 2025 the termination of the winding up of ISOMER became effective.

14 On 6 August 2025, Mr Dzelalagic sent an email to the directors of ICCV calling a board meeting of ICCV to be held on 8 August 2025 at 7:00 pm to consider two proposed resolutions:

1. That the membership of Islamic Society of Melbourne Eastern Region Inc (registration no A0000943U, and ABN 36 974 270 612) (ISOMER) of Islamic Co- Ordinating Council of Victoria Pty Ltd (ICCV) be terminated pursuant to clause 4.7(i) of the constitution of ICCV.
2. That ISOMER's share in ICCV be redeemed for $1.

15 At around 7:07 pm on 8 August 2025 the board of ICCV held a board meeting, via Zoom, which was attended by all five directors including Mr Hassan (the '8 August 2025 meeting'). During the 8 August 2025 meeting, the board of ICCV passed the proposed resolutions.

16 On 10 August 2025 ICCV deposited $1.00 into a bank account in the name of ISOMER.

17 The purported termination of ISOMER's membership of ICCV and redemption of ISOMER's share in ICCV for $1.00 has not been approved by any resolution passed by the shareholders of ICCV at a general meeting of ICCV.

18 As will appear, the resolution of the Separate Questions involve questions of construction of both the Act and the ICCV Constitution. It is convenient, at the outset, to refer to the critical provisions of each.

The ICCV Constitution

19 Clause 4 of the ICCV Constitution provides for its members. It says that the initial shareholders were those societies that subscribed on registration.[5]

20 Clauses 4.5 through to 4.7 provide for the termination of membership in ICCV in various circumstances. Before coming to the termination clauses it is necessary to refer to the clauses which provide for the shareholding in ICCV including by describing the various classes of shares that may issue.

21 Clause 32.1 says that ICCV may, by special resolution, issue various shares in various classes. It provides:

Power to issue bonus, partly-paid, preference and redeemable preferences shares.

The company may by special resolution issue:

(a) ordinary shares in the following classes: "A" class shares, "B" class shares, "C" class shares, "D" class shares, "E" class shares, "F" class shares, "G" class shares, "H" class shares and "I" class shares, employee shares, management shares, or shares in any existing class issued by the company or in any new or special class;

(b) bonus shares;

(c) preference shares (including redeemable preference shares) in the following classes: "J" class shares and "K" class shares, or preference shares in an existing class issued by the company or in a new or special class of preference shares; and

(d) party-paid shares (whether or not on the same terms for the amount of calls to be paid or the time for paying calls).

22 Clauses 32.3 through to 32.8 describe the attributes of A class shares to D class shares. Clause 32.7 deals compositely with classes E to I. Clause 32.3, which deals with A class shares, provides:

"A" class shares. Until or unless the company by special resolution decides otherwise, the "A" class shares are shares issued by the company which confer on the holder the right:

(a) to one vote for each such share at all meetings of the company on a show of hands or on every poll;

(b) to participate in the dividends, if any, declared in respect of that class of share;

(c) in the winding up of the company, to repayment of capital paid upon each such share and to participate in the division of any surplus assets or profits of the company.

23 In order to understand the first defendant's arguments it is necessary to refer to C class shares which are described in cl 32.5 in the following terms:

"C" class shares. Until or unless the company by special resolution decides otherwise, the "C" class shares are shares issued by the company which:

(a) do not confer any right to vote at any meeting of the company;

(b) do not confer any right to dividends;

(c) confer on the holder the right, in the winding up of the company, to repayment of capital paid upon each such share and to participate in the division of any surplus assets or profits of the company.

24 To foreshadow the first defendant's argument, it notes that A class shares carry a right to vote whereas C class shares confer no right to vote. The first defendant says that this difference makes A class shares preference shares.

25 Clause 32.8 is titled 'Redeemable preference shares' and says:

(a) Redeemable preference [sic] may be redeemable only on the terms on which they are on issue.

(b) Subject to the Law, redeemable preference shares may be issued on the following terms:

(i) dividends on any redeemable preference shares are non-cumulative, unless otherwise determined with the sanction of a resolution prior to the issue of those shares, and dividends shall be ranked ahead in priority to all other classes of shares in the capital of the company;

(ii) the share certificates of the company for each redeemable preference share shall specify the terms on which they are on issue.

(iii) no redeemable preference shares shall confer upon its holder a right to vote at any general meeting except:

1. upon a proposal relating to the reduction of the share capital of the company;

2. upon a proposal to wind up the company;

3. upon a proposal that affects the rights attached to the redeemable preference shares;

4. during the winding up of a company -

and, in any of the foregoing events, each holder of a redeemable preference share shall have one vote for each redeemable share held and any holder may demand a poll at a meeting of the company where such holder is entitled to vote.

(c) Other shares may not be issued to rank ahead of or pari passu with redeemable preference shares (as regards the return of capital per premium) without the prior written consent of the holders of at least 75% of the nominal value of all redeemable preference shares.

26 Clause 32.9 is entitled '"J" class redeemable preference shares' and provides in express terms for a class of redeemable preference shares. It states:

"J" class redeemable preference shares. Until or unless the company decides otherwise, the "J" class redeemable preference shares are shares issued by the company which:

(a) do not confer any right to vote at any meeting of the company, except as provided for by clause 32.8(b)(iii);

(b) confer on the holder the right to receive from the profits of the company as a first charge a non-cumulative preferential dividend at the rate determined by the directors prior to the first issue of any shares or share of this class;

(c) confer on the holder the right on redemption and in a winding up and in a reduction of capital (other than a reduction pursuant to a redemption of redeemable preference shares) of the company to payment of the capital for the time being paid up thereon together any premium paid and unpaid dividends in respect thereof in priority to any other class of shares, other than "K" class redeemable preference shares, in the capital of the company, but with no further right to participate in any surplus assets or profits of the company in the event of winding up; and

(d) are subject to the other rights and restrictions contained in clause 32.8.

27 Clause 32.10 is in similar terms and relates to K class redeemable preference shares.

Other preference shares. The company by special resolution can issue only preference shares, other than "J" class redeemable preference shares and "K" class redeemable preference shares, if the rights attached to the preference shares with respect to the following matters have been approved by special resolution:

(a) repayment of capital;

(b) participation in surplus assets and profits;

(c) dividends;

(d) voting;

(e) priority of payment of capital and dividends in relation to other shares or classes of preference shares.

29 Clause 33 allows for the conversion of shares and permits ICCV, subject to the Act, to convert an ordinary share to a preference share or the converse. The circumstances in which ICCV can convert an ordinary share to a preference share are set out in cl 33.3. Clause 33.4 provides that a share that is not a redeemable preference share when issued cannot afterwards be converted into a redeemable preference share.

30 Returning then to the termination clauses, cls 4.5 to 4.7 deal with termination of membership and refer to ICCV redeeming a member's share. Those clauses provide:

(a) A membership of the company terminates if:

(i) the member redeems its share in the company; or

(ii) the member is de-registered, becomes insolvent or is dissolved.

(b) Termination of membership takes effect upon the company removing the member's name from the register of members.

(a) The Board may resolve to terminate the member's membership of the company if:

(i) The member has failed to discharge the member's obligations to the company;

(ii) The member has been guilty of conduct that the Board reasonably consider to be detrimental to the company; or

(iii) The member has obtained membership by misrepresentation or mistake; or

(iv) The member ceased to meet the requirements for eligibility under Rule 4.4.

(b) The board must give the member notice of the proposed resolution at least 14 days before considering the resolution to terminate a member's membership.

(c) At the time the board considers the proposed resolution, the member is entitled:

(i) to be present with or without the member's legal representative; and

(ii) to be heard, either in person or through the member's legal representative.

(d) If the board resolves to terminate the member's membership, the company must:

(i) give the member notice of its resolution as soon as practicable; and

(ii) redeem the member's share as soon as practicable.

(e) During the period between the date on which the company gives the member a notice under Rule 4.6 (b) and the date on which the company redeems the member's member share, the member does not have the benefit of any rights attaching to the member share.

4.7 Termination of Membership by the Board for Insolvency/De-registration[6]

The board may resolve to terminate the member's membership of the company if:

(i) an order is made or a resolution is passed for the member to be wound up, dissolved or deregistered;

(ii) a receiver, receiver and manager or an administrator under Corporations Law Part 5.3A is appointed to all or substantially all of the member's property and undertaking. If the board resolves to terminate the member's membership, the company must:

(i) give the member notice of its resolution as soon as practicable; and

(ii) redeem the member's member share as soon as practicable.

(c) During the period between the date on which the company gives the member a notice under Rule 4.7 (b) (i) and the date on which the company redeems the member's member share, the member does not have the benefit of any rights attaching to the member share.

31 Section 124 of the Act provides for the basic features of a company and confers powers including the power to issue and cancel shares in the company. Section 125 provides that a company may expressly limit, restrict or prohibit the exercise of the company's powers but that the exercise of a power by a company is not invalid merely because it is contrary to an express limit, restriction or prohibition in the constitution.

32 Chapter 2H.1 of the Act deals with the issue and conversion of shares in companies. Section 254A of the Act states that the power to issue shares includes the power to issue preference shares including redeemable preference shares.[7] Section 254A also provides that redeemable preference shares are preference shares that are issued on terms that they are liable to be redeemed and may provide that such shares are redeemable at a particular time, on the happening of a particular event, at the company's option or at the shareholder's option.[8]

33 Section 254G, which is reflected in cl 33 of the ICCV Constitution, provides that an ordinary share can be converted to a preference share but only if the matters enumerated in s 254G(2) are set out in the company's constitution or addressed by special resolution.[9] Section 254G(3) provides that a share that is not a redeemable preference share when issued cannot later be converted into a redeemable preference share.

34 Sections 254J and 254K set out some conditions on which a redemption of redeemable preference shares may occur. Section 254J says that a company may redeem redeemable preference shares only on the terms on which they are in issue, but that this restriction does not apply to a permitted reduction of capital or a share buy-back. Section 254K provides that a redemption can only occur if the shares are fully paid-up and the redemption is funded out of profits or proceeds from a new issue of shares for the purposes of the redemption.

35 A redemption brings about the cancelling of the share and may result in a reduction of capital. It is in addition to the other particular means by which a company can reduce its share capital. The circumstances in which a company can reduce its capital contrast with the cardinal principle of company law that obliges a company to maintain its capital.[10]

36 Part 2J.1 of the Act states the rules to be followed by a company for reductions in share capital and for share buy-backs.[11] Section 256A states that the rules are designed to protect the interests of shareholders and creditors by addressing the risk of these transactions leading to the company's insolvency, seeking to ensure fairness between shareholders, and requiring the company to disclose all material information.

Company may make reduction not otherwise authorised

(1) A company may reduce its share capital in a way that is not otherwise authorised by law if the reduction:

(a) is fair and reasonable to the company's shareholders as a whole; and

(b) does not materially prejudice the company's ability to pay its creditors; and

(c) is approved by shareholders under section 256C.

A cancellation of a share for no consideration is a reduction of share capital, but paragraph (b) does not apply to this kind of reduction.

(1A) To avoid doubt, a cancellation of a partly-paid share is taken to be for consideration.

(2) The reduction is either an equal reduction or a selective reduction. The reduction is an equal reduction if:

(a) it relates only to ordinary shares; and

(b) it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and

(c) the terms of the reduction are the same for each holder of ordinary shares.

Otherwise, the reduction is a selective reduction.

(3) In applying subsection (2), ignore differences in the terms of the reduction that are:

(a) attributable to the fact that shares have different accrued dividend entitlements; or

(b) attributable to the fact that shares have different amounts unpaid on them; or

(c) introduced solely to ensure that each shareholder is left with a whole number of shares.

38 Section 256C of the Act sets out the process for special shareholder approval:

Shareholder approval

Ordinary resolution required for equal reduction

(1) If the reduction is an equal reduction, it must be approved by a resolution passed at a general meeting of the company.

Special shareholder approval for selective reduction

(2) If the reduction is a selective reduction, it must be approved by either:

(a) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the reduction or whose liability to pay amounts unpaid on shares is to be reduced, or by their associates; or

(b) a resolution agreed to, at a general meeting, by all ordinary shareholders.

If the reduction involves the cancellation of shares, the reduction must also be approved by a special resolution passed at a meeting of the shareholders whose shares are to be cancelled.

(3) The company must lodge with ASIC a copy of any resolution under subsection (2) within 14 days after it is passed. The company must not make the reduction until 14 days after lodgment.

Note: A proprietary company may also have to notify certain particulars under Part 2C.2.

Information to accompany the notice of meeting

(4) The company must include with the notice of the meeting a statement setting out all information known to the company that is material to the decision on how to vote on the resolution. However, the company does not have to disclose information if it would be unreasonable to require the company to do so because the company had previously disclosed the information to its shareholders.

(5) Before the notice of the meeting is sent to shareholders, the company must lodge with ASIC a copy of:

(a) the notice of the meeting; and

(b) any documents relating to the reduction that will accompany the notice of the meeting sent to shareholders.

Consequences of failing to company with section 256B

(1) The company must not make the reduction unless it complies with subsection 256B(1).

(2) If the company contravenes subsection (1):

(a) the contravention does not affect the validity of the reduction or of any contract or transaction connected with it; and

(b) the company is not guilty of an offence.

(3) Any person who is involved in a company's contravention of subsection (1) contravenes this subsection.

Note 1: Subsection (3) is a civil penalty provision (see section 1317E).

Note 2: Section 79 defines involved.

(4) A person commits an offence if they are involved in a company's contravention of subsection (1) and the involvement is dishonest.

40 It is convenient to address the first defendant's overarching submissions first. The first defendant seeks to uphold the validity of the cancellation of the plaintiff's A class share on the following bases:

(a) it was a lawful redemption of a redeemable preference share (as defined by the Act) pursuant to the power contained in cl 4.7 of the ICCV Constitution;

(b) in the alternative, the first defendant can rely upon s 256B of the Act, which permits ICCV to make a reduction of share capital which is not otherwise authorised by the Act. It can do so notwithstanding a failure to comply with s 256B(1) because any non-compliance is saved by s 256D of the Act.

41 On the other hand, the plaintiff submits that each of the first defendant's claims of validity fails because, respectively:

(a) the A class shares are not redeemable preference shares within the meaning of the Act; and

(b) while it accepts that s 256B of the Act applied to the circumstances, on a proper construction of the provision s 256D of the Act only validates share capital reductions which fail to comply with s 256B(1) in a manner which is properly considered 'procedural'.

42 I also note that although the plaintiff challenges the validity of the cancellation of the share with the consequential reduction in capital, it does not dispute that the reduction has happened in fact.

Question One: was the plaintiff's A class share in the first defendant a preference share within the meaning of the Act?

43 The plaintiff submits an A class share is not a preference share. The A class shares, it was argued, do not give the holder any right of preference or priority compared to any other class of shares in respect of the matters listed in s 254A(2) of the Act, which are:

(a) repayments of capital;

(b) participation in surplus assets and profits;

(c) cumulative and non-cumulative dividends;

(d) voting;

(e) priority of payment of capital and dividends in relation to other shares or classes of preference shares.

44 The first defendant argued that the A class shares were preference shares because they held a position of comparative advantage over other classes of shares. By way of example, the first defendant pointed to C class shares, which do not confer any right to vote at company meetings or any right to dividends.[12] Citing Beck v Weinstock ('Beck'),[13] the first defendant noted that shares may have the character of preference shares even if no other shares have been issued over which they have priority.

45 In Beck the plurality observed that what constitutes a preference share is not a matter regulated by some positive law.[14] Rather, a preference share describes a relative position when compared with other shares in the company. As Barrett J observed in Re Capel Finance Ltd 'preference shares can only exist by way of juxtaposition with other shares'.[15] A preference share is a share that enjoys some preference or priority over other shares in the company. The subject of the preference may be with respect to repayment of capital, participation in surplus assets or profits, dividends, voting or priority of payment of capital or dividends.

46 Beck established that the required comparison is to be undertaken by reference to shares provided for in the relevant company's articles and memorandum and is not confined to comparing shares that have been issued.[16] In that case, the constitution of the company provided for ordinary shares and preference shares but none of the former had been issued. The High Court held this was irrelevant to the question of whether the latter were preference shares.

47 The plaintiff contends that the relevant comparator is the ordinary share which provides for equality of treatment in the relevant domains and that a preference is something that compares favourably in terms of priority with respect to that neutral stance. In Beck Gageler J said that it was 'inherent in the concept of a preference share that the rights attaching to it are differentiated from the rights attaching to an ordinary share'.[17]

48 The first defendant's submissions proceed from the basal proposition that provided there is a class of shares that confers lesser rights in respect of one of the stipulated matters, each other class of shares will, with respect to that inferior share, be a preference share. According to the first defendant once one can point to a share with lesser rights in the relevant domain, for example voting rights, then every other share is, with respect to that class of share, a preference share. That approach is said to be consistent with the plurality in Beck which held that:

If a company's memorandum and articles of association provided that shares of an identified class carried some right with respect to repayment of capital, participation in surplus assets or profits, cumulative or non-cumulative dividends, voting, or priority of payment of capital or dividend which preferred the holder of a share of that class over the holder of some other class of share for which the memorandum and articles of association provided, those shares were preference shares.[18]

49 The concept of preference shares would appear to have two main points of significance. The first is that they establish that not all shares in a company necessarily carry equal rights. The ability to issue shares that carry priority, for example in respect of dividends, provides flexibility in the raising of capital. Secondly, they are a class of shares that the constitution of the company may provide are redeemable.

50 In this case, whether or not the shares are preference shares is only relevant to the extent they are also redeemable preference shares. As will become apparent, I have concluded in answer to Question Two that the shares are not redeemable preference shares and therefore the question whether they are preference shares is of academic interest only.

Question Two: was the plaintiff's share a redeemable preference share within the meaning of the Act?

52 The plaintiff submitted that A class shares are not redeemable. They are not expressed to be in the form of a preference share in a context where the ICCV expressly provides for such shares.

53 In oral submissions, the plaintiff relied on cl 32.8 of the ICCV Constitution. That clause, titled 'Redeemable preference shares', provides that 'redeemable preference shares may be issued on the following terms ...'. Those terms included that no redeemable preference shares shall confer upon their holder a right to vote at any general meeting except in a number of limited circumstances.[19] The plaintiff argued that cl 32.3 of the ICCV Constitution confers upon A class shareholders a right to vote,[20] and that this conferral is inconsistent with the terms on which redeemable preference shares must be issued. In other words, the plaintiff submitted that even if the A class share was a preference share, it could not be a redeemable preference share. To treat an A class share as redeemable would be directly inconsistent with the limitation in the ICCV Constitution as to the rights that may, and may not, attach to such shares.

54 The first defendant, in contrast, framed its argument by reference to cl 4.7 of the ICCV Constitution. It argued that cl 4.7 conferred a general power of redemption that applied in its terms to all shares in the company and that therefore all shares were redeemable preference shares. In oral argument the first defendant tentatively acknowledged that C class shares might not be a preference share on the basis that they afforded the holder the least priority in respect of the relevant matters.

55 It said that the plaintiff's A class share was a redeemable preference share because:

(a) it was a preference share; and

(b) it was liable to be redeemed by the company in accordance with cl 4.7 (as well as, independently, cl 4.6).

56 Clause 4.7 provides that the board may resolve to terminate the member's membership of the company upon the happening of a number of events.[21] It provides that if the board resolves to terminate the member's membership, the company must '(ii) redeem the member's member share as soon as practicable'. This clause, the first defendant argued, is sufficient to convert the preference share classes into redeemable preference shares.

57 I accept that whether or not a constitution of a company refers to a particular class of share as a redeemable preference share is not necessarily dispositive of the legal character of the share. As in many other fields, labels do not always describe the true legal characterisation and it is to the substance of the rights conferred that attention must be directed. That said, the character of a class of shares is to be derived from the text of the constitution understood in the statutory context provided by the Act. The meaning of the constitution is to be determined objectively and in accordance with orthodox principles of construction.[22]

58 The first defendant says that all of the shares in ICCV were issued on terms that included the liability of redemption under cls 4.6 and 4.7 and therefore all of the shares are redeemable preference shares. It says that s 254A(3) provides that redeemable preference shares are preference shares that are issued on the terms that they are liable to be redeemed and cl 4.7 provides one of those terms. I do not accept that submission.

59 The submission that cl 4.7 provides for the redemption of all shares and constitutes one of the terms on which shares are issued as contemplated by s 254A(3) of the Act begs the question to be answered. The critical question of construction is whether cls 4.6 and 4.7, by reason of their broad language, have the effect of making all of the shares in the company (with the possible exception of C class shares) redeemable preference shares. That cannot be answered by saying that cl 4.7 is expressed to apply to all shares.

60 Clauses 4.6 and 4.7 in their terms allow the board to redeem shares held by a member in specified circumstances. The former deals with what may broadly be described as conduct issues and the latter with the insolvency or deregistration of the member. Although such factors might often be relevant to the expulsion of members in an unincorporated association or a company limited by guarantee, the redemption of shares in a company is more difficult because of the interaction with the principle of maintenance of capital. The redemption of a share has the effect of reducing the issued capital in the company and is liable to offend the principle of maintenance of capital. Whether cls 4.6 and 4.7 have the operation that the first defendant ascribes to them must be determined having regard to the ICCV Constitution as a whole.

61 Importantly, the ICCV Constitution draws a clear textual distinction between redeemable preference shares and other shares. Conformably with the Act, it sets out the matters that attach to redeemable preference shares, and prohibits the company from converting shares into redeemable preference shares. That structure must be taken to be deliberate with the evident objective intention of limiting the class of shares that are redeemable.

62 Clause 32.8 of the ICCV Constitution specifies the specific terms on which redeemable preference shares may be issued, and in cls 32.9 and 32.10, expressly provides for two classes of redeemable preference shares on incorporation. So for example, cl 32.8(b)(iii) provides an express limitation on voting rights for redeemable preference shares, confining those rights to being able to vote in only certain narrow circumstances. On the other hand, other shares such as A Class shares have full voting rights.

63 The submission of the first defendant all but obliterates this textual delineation of share classes that the ICCV Constitution adopts. It means that ICCV would have redeemable preference shares with voting rights that are broader than the expressly limited rights contemplated by cl 32.8.

64 It also renders nugatory the restrictions in cl 33, which mirrors s 254G of the Act, which provides that the company may by special resolution convert an ordinary share into a presence share but cannot concern a preference share into a redeemable preference share. That limitation would be nugatory because all shares are, on the first defendant's argument, redeemable.

65 Finally, the construction would completely undermine the cardinal principle of company law based in the maintenance of capital. Such a radical departure, which is not reflected in the structure of the ICCV Constitution, cannot be accepted.

Question Three: did cl 4.7(i) of the Constitution confer a lawful and effective power on the board of the first defendant to terminate the plaintiff's membership of the first defendant and to redeem the plaintiff's A class share?

67 ICCV purported to rely on cl 4.7 of the ICCV Constitution to pass resolutions that ISOMER's membership of ICCV be terminated and that ISOMER's share in ICCV be redeemed for $1.00.

68 The plaintiff submits that its share was not a redeemable preference share and therefore it was not able to be redeemed. It says that either cl 4.7 is invalid or that it should be construed as being limited in its application to redeemable preference shares. It says that the redemption entailed an impermissible reduction of capital.

69 The first defendant submits that A class shares are redeemable preference shares and liable to be redeemed under cl 4.7. Alternatively, it says that the redemption otherwise constituted a reduction of capital that was authorised or at least not invalidated by operation of ss 256B and 256D of the Act.

70 A redemption of a share under cl 4.7 has the effect of reducing the issued capital in ICCV regardless of the purpose for which the power is exercised. The first defendant argues that cl 4.7 was available because the share was a redeemable preference share. I have rejected that submission.

72 The other basis on which the first defendant sought to defend the resolution was by reference to ss 254B and 254D. These provisions are addressed below under Questions Five and Six.

Question Four: if so, was the power (if any) conferred by clause 4.7(i) of the Constitution enlivened on the facts of this case?

73 The plaintiff notes that at the time of the resolution the winding up of the plaintiff had been terminated, and submits that cl 4.7 of the Constitution does not permit the board of ICCV to terminate a member's membership and redeem its share in the company at a time when the factual substratum justifying the exercise of the power has wholly fallen away. The potential harm for which the clause was intended, being some conceived detriment resulting from a member being placed in active external administration, no longer exists.

74 The first defendant submits that cl 4.7 is unambiguous and susceptible to only one meaning. The making of the order that ISOMER be wound up, the first defendant submits, enlivened the power conferred by cl 4.7(i): the trigger for the clause's operation is where 'an order is made or a resolution is passed for the member to be wound up ...'.

75 The first defendant comments that there is no established principle justifying the reading down of the provision by recourse to assumptions about the purpose of the clause which have no basis in text.

76 Factually, this question arises because the resolution to terminate the plaintiff's share was not made until some months after the winding up was terminated. When the resolution was passed on 8 August 2025, there was no extant order winding up ISOMER. The question is whether the phrase 'an order is made ... for the member to be wound up' requires there to be an order which is in force or which is operative at the time a resolution under cl 4.7 is made.

77 As already observed, the first defendant relies on cl 4.7 in combination with its argument that an A Class share is a redeemable preference share, and cl 4.7 provides a mechanism for its redemption. I have rejected that submission. To the extent that s 256B provides an additional means to redeem shares it does not need cl 4.7 for it to be effective. For that reason, whether or not the condition in cl 4.7 was satisfied will not determine whether or not the cancellation of the A class share was valid. Further, in its terms, Question Four only arises if Question Three is answered in the affirmative.

78 Question Four should be answered 'does not arise'.

Question Five: did the requirements of s 256B of the Act apply to the purported exercise of the power conferred by clause 4.7(i) of the Constitution?

79 The parties agreed that if the A class share was not a redeemable preference share within the meaning of the Act, s 256B of the Act applied to the cancellation of ISOMER's share. That is to say, the plaintiff accepted that compliance with s 256B would have provided a permissible means by which the share held by ISOMER was cancelled and its subscribed capital returned to it. That remained the plaintiff's position, notwithstanding that s 256B was not relied on by ICCV when it cancelled the share and no attempts were made to comply with the requirements of s 256B. The battleground became the construction of s 256D and whether it covered all or only some of reductions in capital. This is considered in Question Six.

80 In GTW Investments v Pacreef, Ferguson CJ explained the consequences of a purported redemption of a share which is not properly considered a redeemable preference share:

... The scheme of the Corporations Act is that the only redemption of shares which is permissible is the redemption of redeemable preference shares in accordance with ss 254J and 254K. There is no authority for redemption of ordinary shares. The permissible alternatives to redemption are share capital reductions in accordance with s 256B or through an authorised buy back of shares in accordance with s 257A.

The judge considered that if the redemption of shares was not authorised by the Corporations Act, that s 254L would mean that the contravention would not adversely affect the operation of the contractual obligation Pac Bio had to redeem the shares. However, s 254L only operates if there is a contravention of either s 254J or s 254K. Those sections only concern redeemable preference shares. It is only if there has been a contravention of the requirements for the redemption of redeemable preference shares that the curative effect of s 254L operates. It does not operate in respect of the redemption of other shares.[23]

81 The 'permissible alternative' to the redemption of a redeemable preference share is a share capital reduction in accordance with pt 2J.1 of the Act. Section 256B, which provides 'a company may reduce its share capital in a way that is not otherwise authorised by law' if the reduction complies with a number of requirements, applies to the redemption.

82 Having regard to how the case was argued and the agreed position on s 256B, Question Five should be answered yes.

Question Six: did s 256D of the Act operate to validate the redemption of the plaintiff's A class share in the first defendant, notwithstanding any non-compliance with the requirements of s 256B of the Act?

83 The plaintiff and first defendant agreed in their Statement of Agreed Facts that ICCV's redemption of the A class share was not approved by the shareholders of ICCV at a general meeting. This is, on its face, a breach of the stipulation in s 256B(1)(c) of the Act, which requires that a share capital reduction be approved by shareholders in accordance with the process set out in s 256C of the Act.[24]

84 Section 256D(1) of the Act provides that a company must not make a share capital reduction unless it complies with s 256B(1). Section 256D(2), however, provides that if a company contravenes s 256D(1):

(a) the contravention does not affect the validity of the reduction or of any contract or transaction connected with it; and

(b) the company is not guilty of an offence.

85 Instead, a person who is involved in a company's contravention of subsection (1) is subject to the Act's civil penalty scheme.[25] Further, a person commits an offence if they are involved in a company's contravention of subsection (1) and that involvement is dishonest.[26]

86 The plaintiff and first defendant disagree on whether s 256D operates to validate any share capital reduction, irrespective of the manner of the breach of s 256B(1), or whether s 256D only validates share capital reductions which fail to comply with s 256B(1) in a manner which is properly considered 'procedural'.

87 The plaintiff submits that s 256D applies so as to save a reduction of share capital where the failure to comply with the conditions in s 256B(1) is in the nature of a 'procedural irregularity'.

88 To make good this proposition, the plaintiff principally relies on the views of RP Austin and Justice Black in their text Austin & Black's Annotations to the Corporations Act:

... that s 256D will apply to validate a purported reduction of capital that does not comply with s 256B(1), where there has been an attempt to comply with the statutory requirements, and in particular a general meeting of shareholders purporting to exercise the company's power to reduce its share capital. Thus, s 256D will overcome, say, failure to give the required notice to ASIC, or failure to give shareholders adequate information about the proposal. However, if there is a purported reduction of capital without any attempt to comply with s 256B(1), for example because the purported reduction of capital is attempted by way of a resolution of directors without any process of shareholder approval, then the reduction, being not authorised by law, contravenes the doctrine of maintenance of share capital and is void, and s 256D will not save it.[27]

89 The plaintiff argued that this construction of s 256D(1) is not inconsistent with the holding in Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd ('Winpar').[28]

90 The plaintiff submitted that the failure to comply in this case was not a procedural irregularity. Distinguishing the failure to comply which occurred in Winpar, the plaintiff said that here, there was no agreement of the shareholder whose share was to be affected, and nor was a shareholder meeting held. The plaintiff contends a further critical difference is that ISOMER was not afforded the 28-day period contemplated under s 256C(3) of the Act; instead, the board of ICCV resolved to redeem ISOMER's share on Friday evening (8 August 2025), and had taken steps to bring that resolution into effect by returning $1.00 to ISOMER by Sunday, 10 August 2025.

91 The first defendant submitted that the construction advanced by the plaintiff was contrary to the text of s 256D(2). The terms of s 256D(2) are clear: a failure to comply with s 256B(1) does not affect the validity of a reduction of share capital.

92 Furthermore, and despite the views of the learned authors of Austin & Black's Annotations to the Corporations Act, the first defendant submitted that the plaintiff's construction was contrary to authority, including Winpar.

93 Although it was not the purpose of the resolution, it was not in dispute that the effect of the resolution, if implemented, would be to reduce the issued capital in ICCV. It was also agreed that if the A class share was not a redeemable preference share, a redemption of a share under cl 4.7 would offend the principle of maintenance of capital and would be invalid unless it could be supported by pt 2J of the Act. In turn, that state of affairs led the parties to s 256B.

94 A reduction in capital that is not otherwise authorised by law must meet the conditions in s 256B(1). Section 256D(1) prohibits a reduction from occurring that does not comply with s 256B(1) but also specifies the consequences of non-compliance with s 256B(1). Those consequences have two aspects. First, s 256D preserves the validity of the reduction. Second, the section imposes a liability in the form of a civil penalty, on officers of the company who are involved in the company's contravention. The language of s 256D is clear. It does not admit to any exceptions based on the nature or extent of the contravention and to import such a restriction would be to rewrite the provision.

95 The fact that in other places, such as s 1322, the Act expressly addresses the consequences of procedural irregularities does not assist the plaintiff. Indeed, it does the opposite. It shows an express consideration of those circumstances in which the Act calls for an assessment of the nature or extent of the non-compliance or irregularity. What falls within or outside the scope of a procedural irregularity requires an evaluative assessment which is expressly provided for in s 1322. No such issue arises on the text of s 256D.

96 That s 256D applies to all non-compliance and not just less significant or minor infractions does not produce an absurd or capricious result; rather, it reflects an obvious legislative intention to give certainty to the register and to allow for remedies against persons who are involved in the non-compliance. The imposition of a civil penalty provides a deterrent against breaches but allows for certainty in relation to dealings. It is a pattern that is repeated in other sections of the Act.

97 That conclusion accords with the decision and outcome in Winpar, which I should follow unless I thought it was clearly wrong or there were powerful reasons not to follow it.[29] Neither of those conditions apply here.

98 Winpar involved a restructure of a company that led to the cancellation of a minority shareholder's shares for consideration. The cancellation involved a selective reduction of capital caught by s 256B of the Act. The plaintiff's ordinary shares in the first defendant were cancelled by resolutions passed at a single extraordinary general meeting of the company. The New South Wales Court of Appeal held that there had been a breach of s 256B(1) of the Act because the company was required to hold a class meeting of those shareholders whose shares were to be cancelled, as distinct from the general meeting of the company.[30]

99 Having found a breach of s 256B(1), the Court then turned to s 256D. In doing so, Giles JA noted that s 256D had not been raised at the trial of the proceeding and only belatedly in the Court of Appeal.[31] At trial, the company had sought to defend the cancellation of shares by recourse to s 1223.

100 In dealing with s 256D, Giles JA commenced by observing that the Law had for a long time closely regulated reductions of capital, often requiring court approval.[32] These requirements had been significantly changed in 1998. Giles JA noted that s 256D was one of a number of provisions in the Act which dealt with non-compliance with statutory requirements by preserving the validity of the transaction, avoiding criminality by the company but imposing a civil liability on any person involved in the contravention.[33] Based on this survey, Giles JA concluded that 'the concept of a contravention of the requirements of the Law not bringing invalidity to a transaction was well in place'.[34]

101 Giles JA referred to a small number of authorities that had addressed these cognate provisions including HCK China Investments Ltd v Solar Honest Ltd, in which Hely J had said:

There is now contained in the Corporations Law a comparatively sophisticated set of provisions as to the imposition of civil and criminal penalties upon persons involved in contraventions of the Law. The provisions of the Law to which I earlier referred are such that it would be inconsistent with the legislative scheme to treat the takeover agreement which I have found, to be illegal and void. The essential planks of the agreement are expressly preserved by ss 615 (6), 260D and 103(2).[35]

102 Giles JA concluded that the challenge to the reduction in capital failed 'by force of' s 256D.[36] In reaching that conclusion, his Honour explained:

I do not think that s 256D(2) can be cut down to only provisional or prima facie validity. Until it was made, a proposed capital reduction could be restrained if s 256B(1) of the Law was or would be contravened. Once it was made, although in contravention of s 256B(1), it was valid. The sanction for the contravention was imposed on those involved in the contravention, no doubt the directors of the company, by way of a civil penalty. No sanction was imposed on the company itself, nor was the capital reduction itself struck down by way of sanction. The legislation gave those affected an opportunity to restrain the making of a contravening capital reduction, but once it was made preferred certainty over invalidity.[37]

103 I accept the first defendant's submission that this conclusion reflects the ratio of the decision on s 256D. It is not qualified by reference to the nature of extent of the non-compliance. It is not confined to 'procedural irregularities'. Beazley JA agreed in the reasons for judgment.[38]

104 The plaintiff submits that the reasoning of Giles JA should be confined to procedural irregularities, pointing to his Honour's later observation that 'the passing of a resolution otherwise than at a duly convened meeting may be a procedural irregularity'[39] and that there was 'no suggestion of impropriety in the present case'.[40] The plaintiff argued that there is nothing in the reasoning of Giles JA to indicate that his Honour would have regarded s 256D(2) of the Act as saving the first defendant's capital reduction had it held no shareholder meeting whatsoever and obtained none of the shareholder resolutions required by s 256C(2).

105 I do not accept that submission. As the first defendant submits, the discussion in Winpar of procedural irregularities occurred in a context where relief under s 1322 of the Act had also been sought, prompting Giles JA to consider whether what had occurred amounted to a 'procedural irregularity' within the meaning of that provision.[41] The reference to procedural irregularities did not bear on the holding that s 256D applied to validate the reduction.

106 It follows that, despite the non-compliance with s 256B(1), the reduction in capital was not invalid.

Compliance with s 256C

107 Following the hearing, the Court sought further written submissions on the following question:

To the extent that s 256B of the Act may be relevant to the decision to redeem the plaintiff's A class share, what significance, if any, attaches to the fact that no resolution has been lodged with ASIC as contemplated by s 256C(3) of the Act?

108 Section 256C of the Act sets out the process by which shareholder approval for a reduction in accordance with s 256B is to be conducted. Section 256C(3) provides 'the company must lodge with ASIC a copy of any resolution under subsection (2) within 14 days after it is passed. The company must not make the reduction until 14 days after lodgment'.

109 The plaintiff submitted that the failure to lodge a resolution with ASIC as required by s 256C was a further contravention of s 256B(1) and independently invalidated the purported cancellation of the share. In making that submission, the plaintiff repeated its submission that s 256D only protected against procedural and not substantive non-compliance. I have already rejected that submission, and the reference to s 256C does not lead to a different outcome on that argument.

110 It was not argued by the plaintiff that s 256C(3) was a separate or additional requirement to s 256B(1)(c) nor that a contravention of s 256C(3) was not caught by s 256D which refers to non-compliance with s 256B(1). That being so, it is not appropriate to say anything about it.

112 I will hear the parties on the form of orders in light of the answers I have given.

ISLAMIC SOCIETY OF MELBOURNE EASTERN REGION INC (REGISTRATION NO A0000943U)

ISLAMIC CO-ORDINATING COUNCIL OF VICTORIA PTY LTD (ACN 097 332 726)

AUSTRALIAN LIGHT FOUNDATION INC (REGISTRATION NO. A0012374A) (formerly known as AUSTRALIA (NUR) THE LIGHT FOUNDATION INC)

THOMASTOWN TURKISH EDUCATION AND ISLAMIC SOCIETY INC (REGISTRATION NO A0006279Z) (also known as THOMASTOWN ISLAMIC CENTRE)

UNITED MUSLIM MIGRANTS ASSOCIATION OF VICTORIA INC (REGISTRATION NO A0003899R)

BEDIUZZAMAN SAID NURSI CULTURAL FOUNDATION INC (REGISTRATION NO A0031374S) (also known as FITZROY TURKISH ISLAMIC SOCIETY)

BOSNIA HERCEGOVINA ISLAMIC SOCIETY INC (REGISTRATION NO A0109339U)

ELSEDEAQ ISLAMIC SOCIETY INC (REGISTRATION NO A0004037F)

CYPRUS TURKISH ISLAMIC COMMUNITY OF VICTORIA INC (REGISTRATION NO A0021832P)

THE ISLAMIC SOCIETY OF VICTORIA INC (REGISTRATION NO A0011378B)

"MERHAMET" MUSLIM WELFARE ASSOCIATION VICTORIA INC (REGISTRATION NO A0025495Z)

KEYSBOROUGH TURKISH ISLAMIC AND CULTURAL CENTRE INC (REGISTRATION NO A0011931F)

[1] ICCV Constitution, cl 4.7(ii).

[2] An amended originating process was subsequently filed, dated 4 December 2025.

[3] The debt was in the sum of $257,199.61.

[4] Re Islamic Society Of Melbourne Eastern Region Inc (2025) 173 ACSR 418; [2025] VSC 66.

[5] ICCV Constitution, cl 4.3.

[6] Formatting errors appear as in the original.

[9] These matters are repayment of capital; participation in surplus assets and profits; cumulative and non-cumulative dividends; voting; and priority of payment of capital and dividends in relation to other shares or classes of preference shares.

[10] Beck v Weinstock [2013] HCA 15; (2013) 251 CLR 425, 447 [62] (Hayne, Crennan and Kiefel JJ); [2013] HCA 15 ('Beck'), citing Re Dronfield Silkstone Coal Co [No 1] [1850] EngR 712; (1880) 17 Ch D 76; Trevor v Whitworth (1887) 12 App Cas 409; In re Almada and Tirito Co (1888) LR 38 Ch D 415; Ooregum Gold Mining Co of India Ltd v Roper [1892] AC 125; Welton v Saffery [1897] AC 299.

[12] ICCV Constitution, cl 32.5.

[13] (2013) 251 CLR 425; [2013] HCA 15.

[14] Ibid 448 [64] (Hayne, Crennan and Kiefel JJ).

[15] [2005] NSWSC 286; (2005) 52 ACSR 601, 605 [10]; [2005] NSWSC 286 ('Capel').

[16] [2013] HCA 15; (2013) 251 CLR 425, 449 [67] (Hayne, Crennan and Kiefel JJ); [2013] HCA 15.

[18] Ibid 449 [67] (Hayne, Crennan and Kiefel JJ).

[22] Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; (2006) 156 FCR 1, 22 [102] (Kenny J); [2006] FCAFC 144.

[23] [2023] VSCA 291; (2023) 74 VR 290, 320-1 [127]-[128] (Niall JA agreeing at 338 [202], Macaulay JA agreeing at 341 [221]); [2023] VSCA 291 (citations omitted). See also Capel [2005] NSWSC 286; (2005) 52 ACSR 601, 606 [15] (Barrett J); [2005] NSWSC 286.

[24] Section 256C(2), concerning selective reductions, requires that the reduction must also be approved by a special resolution passed at a meeting of the shareholders whose shares are to be cancelled.

[28] (2001) 166 FLR 144; [2001] NSWCA 427.

[29] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151-2 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); [2007] HCA 22 (citations omitted).

[30] Winpar [2001] NSWCA 427; (2001) 166 FLR 144, 161 [46] (Giles JA, Beazley JA agreeing at 145 [1], Davies AJA agreeing at 177 [119]); [2001] NSWCA 427.

[33] Giving as examples s 209 (giving financial benefit to a related party); s 243H (a public company giving financial benefit to a related party); s 254L (redemption of redeemable preference shares); s 259F (acquiring or taking security over the company's shares); s 260D (giving financial assistance to acquire the company's shares): ibid [49]. Giles JA further noted other provisions that stated more simply that failure to comply with statutory requirements did not affect the validity of an act or transaction: ss 191(4), 192(7), 195(5), s 607, s 615(6), s 655B(3)), or only by reason of the failure to affect its validity (s 103(2)).

[35] [1999] FCA 1156; (1999) 165 ALR 680, 708 [147]; [1999] FCA 1156 (citations omitted).

[36] [2001] NSWCA 427; (2001) 166 FLR 144, 163 [61]; [2001] NSWCA 427.