Boardroom drama: failure to act on a valid s 249D request can leave directors out of pocket

Shareholder activism is on the rise in Australia.  When shareholders are not happy with the way that a company is being managed, they have a number of tools at their disposal to achieve their preferred agenda. 

One of those tools is the ability to requisition a meeting under s 249D of the Corporations Act.1  This section enables shareholders to require directors of a company to call, and arrange to hold, a general meeting.

Actions directors should take after receiving a valid s 249D request

Section 249D requires directors to call and arrange to hold a general meeting at the request of members who hold at least 5% of the votes that may be cast at the general meeting.  The percentage of votes that members have is determined as at the midnight before the request is given to the company.

This section of the Corporations Act provides shareholders with the ability to request that a general meeting be called and held, at which they can then put their resolutions to the company’s members (for example, resolutions for the removal and/or appointment of directors of the company).

Under s 249D, directors must call the meeting within 21 days of the company being given the request.  Further, the meeting must be held within two months of receipt of the request.

What directors need to know

The Corporations Act places the obligation to call, and arrange to hold, a s 249D shareholder requisitioned meeting on the directors of the company.  The cost of calling, arranging and holding the meeting is borne by the company.

However, there are some circumstances in which directors may decline to call and hold a meeting after receiving a s 249D request.  For example, in circumstances where the request does not comply with the requirements of the Corporations Act or where the requisition has not been made in good faith or constitutes an abuse of process.

That said, where directors fail to convene a meeting within 21 days of the company receiving a valid s 249D request, then under s 249E, members with more than 50% of the votes of all the members who made the s 249D request may call and arrange to hold a general meeting at the company’s expense.  In such cases, the company is then required to pay the reasonable expenses incurred by the members as a result of the directors failing to call and hold the meeting in response to the valid s 249D request.

In such a scenario, the company may recover the amount of these expenses from the directors.  However, a director will not liable for these expenses if they prove that they took all reasonable steps to cause the other directors to comply with the valid s 249D request.

The directors who are liable for these expenses are jointly and severally liable.  Further, where a director fails to reimburse the company for these expenses, the company may deduct this amount from any sum payable as fees to, or remuneration of, the director.

Lavan comment

It is imperative that directors take prompt action in response to valid requisition notices.  Failure of directors to take all reasonable steps to comply with a valid s 249D request can result in directors becoming personally liable for costs incurred by the company as a result.  Directors should seek legal advice if they are unsure whether a requisition notice is valid and should be complied with.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.