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A case of shareholder activism highlights corporate transparency

Insolvency Law News | April 2015

At Forum Law we have been receiving enquiries from disgruntled shareholders and creditors about corporate conduct with unfair consequences for the shareholders and creditors. So what have the courts recently deemed to be acceptable and not acceptable conduct of companies?

The question of "shareholder activism" was examined by the NSW Supreme Court in the recent case of Molopo Endergy Limited v Keybridge Capital Limited [2014] NSWSC 1840 ("Molopo").

In this case concerning ASX-listed companies, Keybridge, a substantial shareholder in Molopo, sought to hold a general meeting of members to propose a resolution to reduce the company's capital by about $54 million. Section 256B of the Corporations Act provides that a company may reduce its share capital in a way that it is not otherwise authorised by law if:

  • the reduction is fair and reasonable to the company's shareholders
  • it does not materially prejudice the company's ability to pay its creditors, and
  • it is approved by shareholders.

The directors of Molopo refused the request to hold the meeting. Keybridge then sought to hold a meeting to change the company's constitution to allow the company's members in a general meeting to "manage" the company's share capital, as opposed to this being within the control of the board of directors. Keybridge also sought, again, to pass a resolution that the share capital be reduced.

The court ruled that in this case, Section 256B of the Corporations Act should be read as "the company, by its directors, may reduce its share capital." The reasoning was that the shareholders (members) of Molopo could not have sufficient information at their disposal to make decisions which would sufficiently protect its members and its creditors to satisfy the pre-requisites to consider the reduction in capital.

This decision then leads to a discussion of to what extent should information about a company (which is not publicly available) be available to members so that the members can engage in greater activism for the benefit of their company, particularly where the information leads to greater scrutiny of the performance of directors and other company officers and questions of corporate governance.

If there is a successful appeal of this decision in Molopo it will be interesting to see if shareholder activism (particularly increased access to company information by shareholders) is further agitated.

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