Voting upon resolutions where an associate has an extraneous interest in those resolutions
The recent decision of In the matter of AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund (ARSN 122 303 744)) highlights the importance of legislative interpretation when assessing whether an “associate” of the responsible entity (RE) is able to vote upon a resolution in the context of a managed investment scheme.
In this case the plaintiff, the RE, sought declaratory relief as to whether a unitholder in the scheme (Unitholder) was permitted to vote on two resolutions proposed to be put to Unitholders at an extraordinary general meeting when the RE and Unitholder shared the same ultimate holding company.
The facts and the issues
The issue in this case was whether there was a conflict of interest between the Unitholder and the RE such as to prevent the Unitholder from voting on resolutions as follows:
The first resolution and the second resolution are collectively referred to as the Resolutions.
The issue arose because of competing authorities on the construction of section 253E of the Act which provides:
The responsible entity of a registered scheme and its associates are not entitled to vote their interest on a resolution at a meeting of the scheme’s members if they have an interest in the resolution or matter other than as a member (our emphasis).
Accordingly, the New South Wales Supreme Court had to decide whether:
The considerations and the decision
There are competing authorities regarding section 253E of the Act and therefore, prior to this decision, the law was in a state of flux. In this decision, the RE was looking for guidance regarding the two resolutions and sought the Court’s relief to justify its legal interpretation of section 253E.
Whilst the Court was unwilling to do this on the basis that it pre-empted the role of the chair of the meeting, Brereton J was prepared to provide directions as to the construction of section 253E and, in particular, the use of the phrase “the responsible entity and its associates”.
In coming to a decision, the Court noted (amongst other things) that the entitlement to vote at the meeting is first and foremost a matter for the chair which is to be decided upon the factual situation prevailing at the time of the meeting (as opposed to prior to the meeting).
However, there was commercial and legal utility in granting declaratory relief prior to the meeting as doing so would quell an impending legal dispute (which would have to be resolved by the chair at the meeting with considerably less assistance on the legal issues).
That was so notwithstanding that the chair was not a party to the proceedings and therefore not bound by any declarations made and a challenge to a right to vote at the meeting could still be made at the meeting which would have to be determined by the chair.
It was reiterated that:
As section 253E of the Act:
the Court ultimately held that section 253E applies to any associate of the RE when the RE or its associates has an extraneous interest and therefore the Unitholder was disqualified from voting in respect of the Resolutions because of the RE’s extraneous interest. This provision operated irrespective of the fact that the Unitholder did not itself have an interest in the Resolutions other than as a member of the scheme.
On appeal, the decision of the New South Wales Supreme Court was upheld.
Lavan Legal comment
This case provides clarification with respect to the construction of section 253E of the Act. It stands as authority for the proposition that a broad interpretation of this section is to be adopted such that the RE and its associates are to be treated as one for the purposes of section 253E.
Importantly, it illustrates that a corporation can apply to the Court seeking declaratory relief in the context of a managed investment scheme with respect to a particular entity voting upon resolutions in the event that:
  NSWSC 986.
 In the matter of AMP Capital Funds Management Limited (in its capacity as responsible entity of the AMP Capital China Growth Fund (ARSN 122 303 744))  NSWSC 986 at paragraphs  – .