Question

Truck Hire Pty Ltd (Truck) is a company that hires out large machinery. Since January 2020 the company has been in a difficult financial position. The Board of Truck have passed a resolution to sell some of the assets to reduce their debt.

Sally and Tom are two shareholders of Truck, they obtained a valuation report that shows the assets have been sold off at a significant undervalue in breach of s 180 of the Corporations Act 2001 (Cth).

Advise Sally and Tom whether the court will grant them leave to bring a statutory derivative action under ss 236/237 of the Corporations Act 2001 (Cth).

Answer 1

The court will only grant leave if the particular case satisifes the specified criteria and both 236(1) and 237(2) shall be understood for this purpose -

Let us see 236 (1) first -

A member/shareholder has a right to in initiate proceedings and these proceedings must be on behalf of company in instances where the members are parties to such a proceeding.

However to grant leave criteria is specified in 237(2) as follows -

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b) the applicant is acting in good faith; and

(c) it is in the best interests of the company that the applicant be granted leave; and

(d) if the applicant is applying for leave to bring proceedings – there is a serious question to be tried; and

(e) either: (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or (ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.

If the case satisfies all the above mentioned criteria then the court shall grant leave.Note that this grant of leave is further subject to a rebuttable presumption of rejecting leave under 237(3).