Contact: Carter Newell (Queensland, Austrailia)
Where minor irregularities and mistakes occur in corporate governance, the Corporations Act 2001 (Cth) (the Act) has inherited the longstanding principle that it is not in the public interest that such honest mistakes should inflict unnecessary liability or inconvenience if they are able to be remedied without substantial injustice. Section 1322(4)(a) of the Act gives the court the power to make an order declaring that:
(a)...any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation.
The power within s 1322 has been used in the past to validate irregularities such as the lack of a quorum at a meeting,(1) an inadvertent omission in a report provided to shareholders and option holders,(2) and decisions made at a directors meeting convened without proper notice.(3) For the court to make an order under s 1322(4)(a), one of three conditions must be satisfied:
(i) the matter is essentially of a procedural nature;
(ii) the persons concerned acted honestly; or
(iii) it is just and equitable that the order be made.
The court also needs to form the view that in making such an order, no substantial injustice has been or is likely to be caused to any person.
The recent High Court decision of Weinstock v Beck [2013] HCA 14 has provided useful guidance on the scope of the application of the above section. The decision focused on the interpretation of the requirement for a "contravention" under s 1322(4)(a), and reaffirmed that the section, in accordance with its evident purpose, is to be construed broadly and applied pragmatically by references to considerations of substance rather than form.(4)
