+ Circulated Email Resolutions

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In clarifying the distinction between directors’ meetings and the operation of meetings of a committee of inspection, the judgment by Barrett J in Onefone Australia Pty Ltd v One.Tel Limited [2010] NSWSC 401 – one of the more than 20 actions to have flowed from the telco’s collapse in 2001 – provides a timely reminder to creditors and liquidators alike – and their legal advisors – that the procedures set out in the Corporations Act and its regulations must be strictly adhered to if expensive judicial intervention is to be avoided.

The law

Under s.248A of the Corporations Act, directors of a company may pass a resolution without a directors’ meeting being held, if all the directors entitled to vote sign a document containing a statement that they are in favour of the resolution set out in the document.

The resolution considered in Onefone, however, was alleged to have taken place under s.499(3) of the Act, which provides that the remuneration to be paid to a liquidator may be fixed:

In this case, the special purpose liquidator (SPL) maintained that the s.499(3) mechanism had broken down and proved unworkable and sought an order under s.511 of the Act, which provides that a liquidator or creditor may apply to the court to have questions determined or powers exercised in the winding up of a company.

Barrett J considered the application in light of regulations 5.6.13A and 5.6.13B, which concern meetings of members of committees of inspection by telephone.

Facts

The SPL had made a request to the committee that his remuneration be approved and authorised. It was considered by the committee of inspection at a meeting held on 8 December 2009, at which three members were present – all by telephone. The matter of the remuneration was discussed, but no resolution fixing it was passed while members of the committee were in consultation together. Before the telephone connection was terminated on that day, however, the SPL indicated that he would circulate a resolution concerning his remuneration, seeking a response within 24 hours. This followed a consensus of the committee members present that a resolution should be put by email circular, so that the two absent members would have an opportunity to vote.

The minutes record that after the meeting of 8 December 2009, the meeting was “adjourned”. The SPL subsequently proposed to the committee members by emails sent to them individually that they adopt a resolution fixing his remuneration at the figure discussed at the meeting. On or about 14 December 2009, the liquidator sent an email to all five committee members “that the [SPL] be entitled to receive payment of  …  his remuneration… [in the amount claimed]…”

Apparently three out of the five members making up the committee signified assent to the propositions in the emails, but no such assent was forthcoming from the other two members.

Decision on emails

In his judgment, Barrett J found that a “committee of inspection can only act at and through a meeting, so that a meeting is, by the legislation, made the sole decision-making vehicle … and while regulations 5.6.13A and 5.6.13B allow the contact and interaction essential to a meeting to be by telephone, they do not sanction decision-making by a series of separate but parallel actions of certain of the committee members orchestrated remotely by a liquidator” (para.23).

At para.11, his Honour said

The assents of the three members were signified outside the confines of any meeting, in the sense that a plurality of persons was not in mutual contact at the times the assents were given”,

And at para.22, “[N]o legislative provision allows a committee itself to create decision making procedures capable of bringing about legally effective results…”

Had parliament intended that “a committee of inspection might decide to act by written resolution apart from and outside a meeting, it would have enacted some equivalent of s.248A”, he found (para.23).

Decision on minutes "adjourning meeting”

His Honour was also very critical of the adjournment of the last meeting of the committee of inspection.  He said that no meeting of the committee of inspection was in existence after the telephone link among participating members was terminated at 4:55pm on 8 December 2009. And he held to be meaningless the statement purporting to be minutes recording that, at that point the SPL “declared the meeting adjourned”.

The relevant power to adjourn is created by reg.5.6.18, and the chairperson may with the consent of the meeting (and must if the meeting directs) “adjourn the meeting from time to time and from place to place.”. The valid decision to adjourn involves determination and communication of the time and place to which the adjourned meeting will resume, in the sense that the members of the body will come together again to conclude such business as they had already begun.

He said that an adjournment must be to a specified time in the future. It cannot be indefinite or sine die.

Decision on liquidator fixing time for reply

His Honour was also critical of the email of the SPL in which he fixed a deadline by which committee members were required to submit their “votes”.

He said at para.31:  “It is no part of the function of a liquidator to prescribe time limits within which members of the committee of inspection must act in relation to decision making. [It is for] the committee itself to take such  time as it required over discussion and deliberation without being brow-beaten by the liquidator to come to a decision by a particular time …The power to adjourn the meeting was also … in the hands of the committee itself, in the sense that the meeting could have directed that the chairperson adjourn the meeting to some specified later time in the way already noticed.”

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