BTB2220 Study Guide - Final Guide: De Jure, Corporations Act 2001, Richard Hillman
5.5 Enforceability of the replaceable rules in a contest for company control
(By Richard Hillman, Freehills)
Smolarek v Liwszyc [2006] WASCA 50, Supreme Court of Western Australia, Court of
Appeal, Steytler P, Mclure JA and Buss JA, 29 March 2006
The full text of this judgment is available at:
http://cclsr.law.unimelb.edu.au/judgments/states/wa/2006/march/2006wasca50.ht
m
or
http://cclsr.law.unimelb.edu.au/judgments/search/advcorp.asp
(a) Summary
Smolarek v Liwszyc provides guidance upon the circumstances under which a State
Supreme Court will grant interlocutory relief where there are allegations that
procedures in the replaceable rules of the Corporations Act 2001 (Cth) (the Act) have
not been complied with. The core of the decision by the Court of Appeal looked at
whether there was a serious issue to be tried concerning several alleged breaches of
the replaceable rules. The breaches all had repercussions for the composition of the
board of Eznut Pty Ltd (Eznut), which was the key aspect of the litigation. The
enforceability of the rules is an interesting issue given that two provisions in the Act,
sections 135(3) and 1322(2), limit the relief that may be obtained where a lack of
compliance with procedural rules is alleged.
(b) Facts
Smolarek incorporated Eznut with Liwszyc to commercialise an invention. Both
parties were the directors of the company, although Smolarek held a majority of the
share capital. Eznut was incorporated without a constitution, instead operating under
the replaceable rules in the Act. Duta was employed by Eznut to give engineering
advice and became a director of the company on 1 July 2003.
Early in 2005 significant disputes arose between Smolarek and the other directors as
to the direction of the company. At this time Smolarek continued to hold a majority
of the share capital in Eznut, with the remainder held by Liwsyc, Duta and various
others. On 4 March 2005 Smolarek called a general meeting for 27 May 2005 to vote
on two resolutions, one seeking the removal of Liwszyc from the board and the other
seeking the appointment of her daughter. Shortly after, in April 2005, the issue of
1.5 million shares to shareholders was discussed by the board. The share issue was
allegedly approved by a majority of directors and allotments were made to all
shareholders except Smolarek, who did not participate. If the share issue was valid,
it would deprive Smolarek of her majority position in Eznut upon the registration of
the allotted shares.
The resolutions were purportedly passed by the shareholders at the general meeting,
Document Summary
5. 5 enforceability of the replaceable rules in a contest for company control (by richard hillman, freehills) Smolarek v liwszyc [2006] wasca 50, supreme court of western australia, court of. Appeal, steytler p, mclure ja and buss ja, 29 march 2006. The full text of this judgment is available at: http://cclsr. law. unimelb. edu. au/judgments/states/wa/2006/march/2006wasca50. ht m or http://cclsr. law. unimelb. edu. au/judgments/search/advcorp. asp (a) summary. Smolarek v liwszyc provides guidance upon the circumstances under which a state. Supreme court will grant interlocutory relief where there are allegations that procedures in the replaceable rules of the corporations act 2001 (cth) (the act) have not been complied with. The core of the decision by the court of appeal looked at whether there was a serious issue to be tried concerning several alleged breaches of the replaceable rules. The breaches all had repercussions for the composition of the board of eznut pty ltd (eznut), which was the key aspect of the litigation.
