The Federal Court of Australia (FCA) delivered a judgment concerning the legality of a corporate decision to move a general meeting from an in-person format to an online one amidst the COVID-19 pandemic.
This appeal challenged the initial finding that WAM Active Limited’s (WAM) directors did not act with an improper purpose in their decision-making process.
Background
The dispute began when Keybridge Capital Limited (Keybridge), a shareholder of WAM, an ASX-listed public company, announced its intention to make a conditional off-market takeover bid for WAM. WAM questioned the genuineness of Keybridge’s bid.
Subsequently, Keybridge called for a general meeting to propose certain resolutions. Due to ongoing COVID-19 restrictions, WAM’s board decided to move the meeting online, aiming to minimise health risks and comply with public health orders. Keybridge contested this decision, leading to legal proceedings.
Relevant facts
Keybridge initially sought to enforce its proposed resolutions in a meeting scheduled for 17 March 2022, in Melbourne. However, WAM, citing COVID-19 related concerns and aiming to ensure wider shareholder participation, altered the meeting format to a virtual one. Despite Keybridge’s objections and insistence on a physical meeting, the virtual meeting went ahead, and Keybridge’s resolutions were ultimately not passed. This prompted Keybridge to challenge the decision, alleging that changing the meeting’s format constituted an exercise of power for an improper purpose by WAM’s directors.
Issue
The appellate issue centred on whether WAM’s directors had an improper motive behind their decision to hold the general meeting online, specifically, whether this decision was aimed at ensuring their control over the company’s board and preventing a fair vote on the Keybridge Resolutions.
Outcome
The Court, Justices O’Callaghan, Halley, and O’Sullivan, dismissed the appeal. It found the primary judge’s decision – that the directors of WAM did not act with an improper purpose – was justifiable based on the evidence presented. The appellate court emphasised there was no compelling reason to believe the meeting’s outcome would have been different had it been held in-person or as a hybrid event.
Consideration
The Justices extensively reviewed the motivations behind the board’s decision to move the meeting online, focusing on the legitimacy of their concerns regarding public health and the inclusivity of shareholder participation. The Court also considered the context of ongoing COVID-19 restrictions and the temporary legal provisions allowing for virtual meetings. The appeal required Keybridge to demonstrate the primary judge’s acceptance of the evidence favouring WAM’s directors was “glaringly improbable or contrary to compelling inferences”. The Court found no basis to overturn the primary judgement.
Decision
The Court’s decision was primarily based on the principle that corporate directors’ decisions, when made in compliance with public health guidelines and aimed at ensuring maximum participation during unprecedented times, do not constitute an improper purpose under corporate law.
In their judgment, the Justices noted the importance of flexibility in corporate governance practices during emergencies like the COVID-19 pandemic. They highlighted that the law must adapt to unprecedented circumstances to ensure corporate democracy and shareholder participation.
Relevance
This judgment is significant for its interpretation of directors’ duties and decision-making in the context of unforeseen challenges. It reaffirms that decisions made in the best interest of shareholder participation and health safety, even if resulting in unconventional meeting formats, are valid under corporate law.
This case sets a precedent for how corporations might navigate similar challenges in the future, balancing legal obligations with the practicalities of ensuring business continuity and stakeholder engagement during crises.
The dismissal of Keybridge’s appeal solidifies the proposition that directors’ decisions, when made with the welfare of shareholders and employees in mind and in response to public health considerations, are unlikely to be deemed improper. This outcome underlines the court’s support for adaptive governance measures in the face of global health emergencies.
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