LAWS3100 Final: L5 Members Voting (Chap 9)
Corporate Law Lecture 5 (Chap 9)
Restrictions on member decision-making
1. Overview
2. Equitable limitation on majority voting power (Gambotto)
3. Other restrictions on voting power
1. Overview of restrictions on member decision-making
Members may exercise voting rights in their own self-interest (even if they are also directors)
Why are restrictions needed?
To stop unfair exploitation of minority shareholders by majority
Not always possible for minority to sell
How does the law protect the minority?
Equitable limitation on majority voting power (including Gambotto)
Procedural requirements
Voting restrictions
Protection of members’ personal rights
Statutory protections
Limits on ratification
2. Equitable limitation on majority voting power
A member, unlike a director, does not have to be concerned about conflict of interest and duty and may vote
to advance his or her own interest; the member has no duty.
Rule: While a member has NO positive duty to consider others when voting there is an overall control in
that, if the majority passes a resolution which no group of reasonable persons would think is within the
majority’s power, a court can declare the resolution void. (invalid).
There is an overlap between the equitable limitation and other restrictions (such as oppression remedy in
Chapter 16). = overlap between principles developed by the courts (the general law), and principles
contained in the Corporations Act.
The equitable limitation can apply to a number of actions of the majority. In particular, there are many cases
about situations where the majority has voted to amend the company’s constitution.
How do the restrictions apply to cases NOT involving an amendment of the company’s constitution?
A) Majority use their voting power to take away the company’s property. The majority must NOT
exercise their vote just to give themselves ‘property advantages or rights which belong to the company’,
as this breaches the quitable limitation
B) Majority use their voting power to prevent being sued by the company.
Also, when the majority is unwilling to bring legal action and majority are alleged wrongdoers.
How do the restrictions apply to cases INVOLVING an amendment of the company’s constitution?
Test to access the validity of an amendment to the constitution of a company where the amendment gives rise
to conflicts between members. The court in Gambotto identified 2 different categories of amendment to the
constitution and imposed different tests for each category.
Gambotto’s importance:
Gambotto is important because it raises the issue of the appropriate balance between the interests of majority
and minority members in the context of the majority wanting to have the majority sell their shares because
this would be in the best interests of the company. The majority offer a fair price to the minority, yet the
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Document Summary
Restrictions on member decision-making: overview, equitable limitation on majority voting power (gambotto, other restrictions on voting power, overview of restrictions on member decision-making. Members may exercise voting rights in their own self-interest (even if they are also directors) To stop unfair exploitation of minority shareholders by majority. Equitable limitation on majority voting power (including gambotto) Limits on rati cation: equitable limitation on majority voting power. A member, unlike a director, does not have to be concerned about con ict of interest and duty and may vote to advance his or her own interest; the member has no duty. There is an overlap between the equitable limitation and other restrictions (such as oppression remedy in. = overlap between principles developed by the courts (the general law), and principles contained in the corporations act. The equitable limitation can apply to a number of actions of the majority.
