Company Law — Lecture 10

1. Company Law — Lecture 10 • Restrictions on shareholders’ voting rights • overview • equitable limitation on majority voting power • Gambotto • other restrictions on voting power

2. Overview of restrictions • Why are restrictions needed? • to stop unfair exploitation of minority shareholders by majority • not always possible for minority to sell • Summary of restrictions • must comply with all pro cedural requirements • Companies Act1993 sections protecting minorities • shareholders’ personal rights • limits on power of majority to ratify breaches of directors’ duties • the equitable limitation on majority voting power • Companies Act 1993 and NZX Listing Rules re: interested shareholders voting

3. The equitable limitation • Not a positive duty • Rather • if majority passes a resolution which no group of reasonable people would think is within the majority’s power, a court can declare the resolution void (invalid) • Sometimes overlaps with oppression remedy (Lecture 16)

4. Cases other than amendment of constitution • Taking the company’s property • Majority unwilling to sue where they are the alleged wrongdoers

5. Amendments to constitution • Even where s 32(2) of the Companies Act 1993 is complied with, amendment may be invalid due to equitable limitation • Gambotto — application in New Zealand uncertain

6. IEL Mr Gambotto Other non-IEL shareholders 0.09% 99.7% 0.21% WCP Ltd Gambotto

7. Gambotto (cont) • Different legal test depending on type of amendment • category 1 amendments: amendments to allow expropriation of • minority’s shares, or • valuable proprietary rights attached to their shares (eg voting or dividend rights) • category 2 amendments: other amendments involving a conflict of interest

8. Gambotto (cont) • Category 1 amendments — valid only if • proper purpose, and • no oppression of minority shareholders • Proper purpose • to prevent harm being done to company • eg minority shareholder is competing with company • eg expropriation of minority’s shares is necessary to allow company to continue in present business • advancing company’s commercial interests is not a proper purpose • No oppression • amendment must be “fair” • procedural fairness • substantive fairness

9. Gambotto (cont) • Category 2 amendments — valid only if • done for a company purpose • no oppression of minority shareholders • More “purposes” are valid here compared to Category 1 • Policy aspects • is it appropriate to disregard commercial advantages to the company? • should price be the only concern? • does Gambotto facilitate “greenmail”?

10. Gambotto (cont) • That Gambotto is not cited or discussed in New Zealand law suggests caution • There are two views (see text book) • Morison • Grantham and Rickett

11. Examples of the application of Gambotto • Gray Eisdell Pty Ltd v Combined Auctions Pty Ltd • clause in constitution allowing expropriation of shares held invalid • Bundaberg Sugar Ltd v Isis Central Sugar Mill Co Ltd • clause in constitution allowing expropriation of shares held valid

12. Other restrictions on voting power • Must comply with procedural requirements(eg requirements for holding meetings — Lecture 9) • Voting restrictions • Statutory protections for minority shareholders (Lecture 16) • Limits on power of majority to ratify breaches of directors’ duties (Lecture 16)