In Re Bayview Health – Matilda Bay Pharmacy Pty Ltd; ex parte Smith & Jacobs [No 2] [2025] WASC 405, the Court held that a failure to provide the 14 days’ notice of a board meeting, required by a shareholder agreement, to appoint a voluntary administrator, was a procedural irregularity that could be cured.
Key Takeaway
- A procedural irregularity will not invalidate the board’s resolution to appoint voluntary administrators unless substantial injustice is caused.
- The court has flexible remedial powers to validate the appointment of voluntary administrators under sections 447A and 1322 of the Corporations Act 2001 (Cth) (Act).
- The court will prioritise commercial certainty and the continuation of administrations over technical objections.
Case Background
Matilda Bay and North Shore were related companies (Companies), operating under the Bayview Health pharmacy brand, which suffered financial distress. The Companies had three directors in common: Mr McGregor, Ms Godfrey, and Ms Adams.
The constitution of Matilda Bay required a quorum of two directors for a board meeting. However, Matilda Bay’s shareholder agreement stipulated that if one director is absent, the remaining two may constitute a quorum only where at least 14 days’ notice of the meeting has been given to the absent director. North Shore’s shareholder agreement required only two directors to be present at any directors’ meeting.
Two directors of the Companies convened board meetings and passed resolutions to appoint administrators Andrew Smith and Robert Jacobs on 15 May 2025. Ms Adams did not attend the meetings.
Although Ms Adams later attended creditors’ meetings, voted in favour of adjournments, and proposed a deed of company arrangement (DOCA), she claimed that the appointments of the voluntary administrators were not valid because the meetings of directors were inquorate as she was given only 7 days’ notice.
Court’s Reasoning
As North Shore’s shareholder agreement requires only two directors to be present ant director’s meeting, there was not any procedural irregularity in the North Shore’s board meeting. The appointment of administrator in North Shore was therefore valid.
As regard to Matilda Bay, the principal issue concerned whether the board resolution appointing voluntary administrators to Matilda Bay was invalid because Ms Adams had received only seven days’ notice of the board meeting rather than the 14 days stipulated in the shareholder agreement.
Under section 1322(2) of the Act, a resolution would not be invalidated because of a procedural irregularity unless the irregularity has caused or may cause substantial injustice that cannot be remedied. Irregularities include the absence of a quorum at a shareholders’ or directors’ or creditors’ or any defect in the notice or meeting or time of it.
Justice Hill held that seven days’ notice was a procedural irregularity which could, nevertheless, be validated under section 1322(2) of the Act. Justice Hill was not persuaded that any substantial injustice had been caused by the seven days’ notice. Ms Adams received the notice of the board meeting but chose not to attend. The outcome would have been the same even if the 14 days’ notice had been given. Her subsequent conduct, including attending creditors’ meetings, voting in favour of adjournment, and proposing a DOCA, illustrated that she would have accepted the appointment of administrators.
Outcome
Accordingly, the Court declared that the resolutions were not invalid. In the alternative, it held that it would be just and equitable to validate the appointments under section 447A of the Act, which empowers the Court to cure deficiencies in the appointment process.
Further Information
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