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Company Law — Lecture 10. Restrictions on shareholders’ voting rights overview equitable limitation on majority voting power Gambotto other restrictions on voting power. Overview of restrictions. Why are restrictions needed? to stop unfair exploitation of minority shareholders by majority
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Company Law — Lecture 10 • Restrictions on shareholders’ voting rights • overview • equitable limitation on majority voting power • Gambotto • other restrictions on voting power
Overview of restrictions • Why are restrictions needed? • to stop unfair exploitation of minority shareholders by majority • not always possible for minority to sell • Summary of restrictions • must comply with all pro cedural requirements • Companies Act1993 sections protecting minorities • shareholders’ personal rights • limits on power of majority to ratify breaches of directors’ duties • the equitable limitation on majority voting power • Companies Act 1993 and NZX Listing Rules re: interested shareholders voting
The equitable limitation • Not a positive duty • Rather • if majority passes a resolution which no group of reasonable people would think is within the majority’s power, a court can declare the resolution void (invalid) • Sometimes overlaps with oppression remedy (Lecture 16)
Cases other than amendment of constitution • Taking the company’s property • Majority unwilling to sue where they are the alleged wrongdoers
Amendments to constitution • Even where s 32(2) of the Companies Act 1993 is complied with, amendment may be invalid due to equitable limitation • Gambotto — application in New Zealand uncertain
IEL Mr Gambotto Other non-IEL shareholders 0.09% 99.7% 0.21% WCP Ltd Gambotto
Gambotto (cont) • Different legal test depending on type of amendment • category 1 amendments: amendments to allow expropriation of • minority’s shares, or • valuable proprietary rights attached to their shares (eg voting or dividend rights) • category 2 amendments: other amendments involving a conflict of interest
Gambotto (cont) • Category 1 amendments — valid only if • proper purpose, and • no oppression of minority shareholders • Proper purpose • to prevent harm being done to company • eg minority shareholder is competing with company • eg expropriation of minority’s shares is necessary to allow company to continue in present business • advancing company’s commercial interests is not a proper purpose • No oppression • amendment must be “fair” • procedural fairness • substantive fairness
Gambotto (cont) • Category 2 amendments — valid only if • done for a company purpose • no oppression of minority shareholders • More “purposes” are valid here compared to Category 1 • Policy aspects • is it appropriate to disregard commercial advantages to the company? • should price be the only concern? • does Gambotto facilitate “greenmail”?
Gambotto (cont) • That Gambotto is not cited or discussed in New Zealand law suggests caution • There are two views (see text book) • Morison • Grantham and Rickett
Examples of the application of Gambotto • Gray Eisdell Pty Ltd v Combined Auctions Pty Ltd • clause in constitution allowing expropriation of shares held invalid • Bundaberg Sugar Ltd v Isis Central Sugar Mill Co Ltd • clause in constitution allowing expropriation of shares held valid
Other restrictions on voting power • Must comply with procedural requirements(eg requirements for holding meetings — Lecture 9) • Voting restrictions • Statutory protections for minority shareholders (Lecture 16) • Limits on power of majority to ratify breaches of directors’ duties (Lecture 16)