“There was insufficient notice of the board meeting, so the new board of directors was elected validly.” Which case won?
General manager’s faction vs chairman’s faction
Trouble had been brewing for some time at a not-for-profit company.
The company operated a number of social enterprises, including the provision of training and support services to government programs.
Within the company there were two factions.
One was associated with the company’s general manager, and the other with the chairman of the board, which consisted of eight directors.
Three of the directors were aligned with the general manager’s faction, four were aligned with the chairman’s faction and one unaligned director voted on an issue-by-issue basis.
Conflict erupts between factions over company finances and control of board
About ten years previously, the company had purchased a for-profit company that provided training opportunities and subsequently labour hire.
The intention was to use the profits made by the for-profit company to cross-subsidise the not-for-profit activities of other company entities.
Although originally profitable, the for-profit company began encountering financial difficulties, and divisions began to emerge between the company factions about how to deal with these financial challenges.
The chairman of the board had also become apprehensive that the general manager and his relatives, who held positions in the company, had ambitions to “take over” the company.
The general manager, on the other hand, claimed that the chairman boasted about having the board in the palm of his hand.
The company was in the process of collecting nominations for the election of directors to the board, with the election to take place at the next annual general meeting (AGM) on 10 February 2021.
Board meeting called to adjourn AGM where board elections to occur
Events came to a head in late in January 2021, when the chairman realised that at the upcoming AGM there would be more applicants than vacancies for positions of director. So, the board elections would be contested.
On 3 February 2021, the chairman prepared a list of motions for a board meeting to be held on the following day.
These included a motion declaring a couple of nominations for election to the board to be invalid. If adopted, this would have reduced the number of eligible candidates and hence obviated the need for an election.
The list also included a motion proposing adoption of a statement that the general manager and some of his allies had acted deceitfully.
Most importantly, there was a motion that the AGM set for 10 February be adjourned.
At 3:39 pm on 3 February the chairman sent an email to the board members, calling a board meeting by telephone for 5:00 pm on 4 February 2021.
The email did not include the motions.
In the late morning of the following day, the chairman met with the general manager and gave him the list of the motions.
There was a heated exchange, and the general manager tore the list up saying that he would resign.
The general manager did not in fact resign, however additional motions were added to the list of motions, including noting the supposed resignation of the GM, and appointing the chairman as an interim administrator.
Directors from general manager’s faction do not attend board meeting
Less than an hour before the scheduled 5:00 pm start of the 4 February board meeting, the three directors aligned with the general manager’s faction emailed the chairman saying that they could not attend due to lack of sufficient notice.
The meeting went ahead at 5:00 pm with five directors, only one of whom was not aligned with the chairman’s faction and was in fact not closely aligned with either faction.
The number of attendees was one short of a quorum, but in the litigation that followed, the general manager’s faction declined to rely on the lack of a quorum as a ground of challenge.
Board passes resolution to adjourn AGM and notifies company members
At the board meeting, all resolutions were passed unanimously, including the motion for the adjournment of the AGM.
This outcome was communicated by email to the 45 people who were members of the company and entitled to vote at the AGM for the election of the new board.
General manager’s faction proceeds with AGM and new board purportedly elected
The battle lines were drawn.
In the ensuing days, the chairman authorised the changing of locks on the premises and started, through security staff, to exclude those associated with the general manager from the premises.
On 9 February, a director aligned with the general manager’s faction emailed the company’s members, notifying them that the 10 February AGM would be proceeding as originally scheduled.
At 5:50 pm on 10 February 2021, thirty of the forty-five people entitled to vote tried to enter the company’s premises, but were turned away by security staff.
When they tried to meet in the car park, they were likewise ordered out by security.
They then convened on the footpath outside the company’s premises.
At this meeting, nine people were purportedly elected to the board.
No votes were cast in favour of the chairman, or of the chairman’s factional allies.
The unaligned director who had attended the board meeting on 4 February was elected to the board, but the chairman and the other three were not.
Parties litigate over whether new board duly elected
Both factions commenced litigation.
The general manager’s faction brought its claim in the name of the company, on the basis that it controlled the board.
This faction asked the court to confirm that the nine directors elected at the 10 February AGM were the lawful board of the company.
The individuals comprising the chairman’s faction asked the court to declare the purported election of the board on 10 February invalid.