CellOs Software Ltd v Wong

Case [2017] FCA 95

FEDERAL COURT OF AUSTRALIA

CellOS Software Ltd v Wong, in the matter of CellOS Software Ltd
[2017] FCA 95

File number: VID 80 of 2017
Judge: MIDDLETON J
Date of judgment: 13 February 2017
Catchwords: CORPORATIONS – Meetings – General meeting called by shareholders – Notice of general meeting – Proxy votes – Procedure for appointing a proxy – Whether procedure for appointing a proxy specified in the notice of general meeting is irregular – Effect of irregularity in notice of general meeting – Substantial injustice
Legislation: Corporations Act 2001 (Cth)
Cases cited:

Bisan Ltd v Cellante (2002) 173 FLR 310

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

Northwest Capital Management v Westate Capital Ltd (2012) 264 FLR 424
Date of hearing: 10 February 2017
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 31
Counsel for the Plaintiff: Mr C Parkinson
Solicitor for the Plaintiff: Corrs Chambers Westgarth
Counsel for the Defendants: Mr B Katekar
Solicitor for the Defendants: Bartier Perry

ORDERS

VID 80 of 2017

IN THE MATTER OF CELLOS SOFTWARE LTD (ACN 114 670 094)
BETWEEN:

CELLOS SOFTWARE LTD (ACN 114 670 094)

Plaintiff
AND:

TAN CHOON WONG

First Defendant

NOREEN CHUA LEE CHOO

Second Defendant

CHIAM CHUN TSANN (and others named in the Schedule)

Third Defendant

JUDGE:

MIDDLETON J

DATE OF ORDER:

13 FEBRUARY 2017

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.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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…

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AGLC
CellOs Software Ltd v Wong [2017] FCA 95
Case
[2017] FCA 95
Decision Date

CaseChat Overview and Summary

In the case of CellOs Software Ltd v Wong, the Federal Court of Australia was asked to determine whether a notice of meeting issued by a group of shareholders of CellOS Software Ltd was valid. CellOS, an unlisted public company developing software with a significant portion of its shareholders based in Singapore, was served with a notice of intention to move resolutions for the removal of the entire CellOS board and to appoint alternative directors. The convening shareholders sought to call an extraordinary general meeting (EGM) in Melbourne on 2 March 2017, ahead of the scheduled annual general meeting (AGM) on 31 March 2017. CellOS brought an application seeking a declaration that the notice was invalid and an order restraining the convening of the proposed EGM.

The primary legal issue was whether the notice of meeting was procedurally irregular and, if so, whether the Court should declare it invalid. CellOS argued that the notice was irregular for three reasons: it incorrectly stated that proxy forms would only be valid if returned to a third-party intermediary, Link Market Solutions, instead of CellOS; it incorrectly stated that proxy forms must be received at least 72 hours prior to the EGM; and it outlined a process for the assessment of proxy forms by Link. CellOS contended that these irregularities could cause substantial injustice to shareholders, particularly those in Singapore who would likely vote by proxy.

The Court examined the statutory requirements under s 250B of the Corporations Act 2001 (Cth) and CellOS' constitution. It concluded that while the Act did not prohibit the use of an intermediary to facilitate the delivery of proxy forms, the notice in question effectively required the proxy forms to be assessed by Link, a third party not acting on behalf of CellOS. The Court found that the notice was procedurally irregular as it directed shareholders to entrust their proxy forms to a third party, which would assess and validate the proxy forms before delivering them to CellOS. The Court declared the notice invalid and restrained the convening of the proposed EGM. CellOS was ordered to send a notice to its shareholders, and the convening shareholders were ordered to pay CellOS' costs.

In summary, the Federal Court of Australia declared the notice of meeting invalid due to its procedural irregularities and restrained the convening of the proposed EGM. The convening shareholders were required to pay CellOS' costs. CellOS was also ordered to send a notice to its shareholders, informing them of the Court's decision and advising that the proposed EGM would not proceed.

Orders

Orders of the court

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.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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.

Background

Background to the litigation

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 The following salient facts are not in issue. 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. 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. 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’). CellOS’ AGM is otherwise scheduled to be held in Melbourne on 31 March 2017. 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. The real issue for determination is whether the Notice is procedurally irregular, and if so, whether the Court should declare it invalid. 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. 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 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. 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). By way of observation I note that the proxy form attached to the Notice also relevantly states at page 2:VOTING DIRECTIONSProxies 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

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

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 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 1NOTICE 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.

Ratio Decidendi

Legal Principle Established

Clause 1.4 of CellOS’ constitution provides that the Corporations Act prevails to the extent of any inconsistency.CONSIDERATION 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. 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. 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’). 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. 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. 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.