Case: Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587
Outcome: cited
In Paringa Mining and Exploration Co Plc v North Flinders Mines Ltd (1988) 14 ACLR 587, Paringa held 49.59% of the issued capital of North Flinders. It requested certain directors of North Flinders resign and be replaced by Paringa's nominees to give it control of the board. The board decided instead to make a takeover offer for Paringa and for another company financing the offers by a rights issue. Paringa requisitioned an extraordinary general meeting of North Flinders with a view to the replacement of certain members of the board. The meeting was scheduled for the last day permitted by the Code. Paringa instituted proceedings challenging the takeover offer and rights issue decisions on the basis they had been made for improper purposes. It obtained interlocutory injunctions restraining the offers and the issue pending the outcome of the proceeding. The trial judge also ordered that the extraordinary general meeting be adjourned to 57 days after discharge of the injunctions and that no other business be transacted at the meeting. The appeal was against that latter order. The question whether interlocutory injunctive relief was rightly granted in respect of the rights issues and the takeover offer did not fall for decision. However in the course of the judgment of King CJ, with which White and O'Loughlin JJ agreed, the Chief Justice said (at 591): The controlling shareholder, or majority shareholders, are entitled to use their voting power to exercise such control of the company as is permitted to shareholders in general meetings. That power is exercised, of course, by means of a general meeting of the shareholders. A reasonable period of time is permitted after requisition to enable the meeting to be arranged, that is to say, to put in place the mechanism whereby the shareholders can exercise their power. The directors are, of course, free to exercise their powers during that interval, but the reality is that from the time a meeting is requisitioned for the purpose of replacing them, especially where it is requisitioned by a controlling shareholder, they are caretaker directors. If they choose to make use of the interval to circumvent the known wishes of the controlling shareholder who seeks to replace them, they cannot complain, in my view, if circumstances supervene to prevent them from so doing. The observation of the Chief Justice in that case, does not appear to have been underpinned by some general proposition that when an extraordinary general meeting is requisitioned the directors of the company are deprived of their power to pursue a rights issue. It may be that in such circumstances the pursuit of a rights issue will be scrutinised closely with a view to determining whether it is made for the improper purpose of simply protecting the directors' position by creating a new majority prior to the requisitioned meeting. That does not require the adjectival metaphor "caretaker" to be attached to the directors in such a circumstance. It simply requires an analysis of their powers, duties and purposes. 90 Owen J considered the decision of the Full Court of the Supreme Court of South Australia in Woonda Nominees Pty Ltd v Chng (2000) 34 ACSR 558. After referring to the judgment of King CJ and the passage quoted above and also the decision of Giles J in Utilicorp NZ Inc v Power New Zealand Ltd (1997) 8 NZCLC 261,465, his Honour referred to the submission that he should find "... that there is no principle of caretaker directors in Australian law" (at 568). His Honour said (at 568): I simply cannot do that in the light of authority such as Paringa Mining .