Australia: High Court judgments - preference shares and the scope of section 1322(4) of the Corporations Act 2001

The High Court - the highest court in the Australian judicial system - gave judgment today in Beck v Weinstock [2013] HCA 15. The court upheld the decision of the New South Wales Court of Appeal (see [2011] NSWCA 228) and unanimously held that preference shares could be validly issued even where, at the time of their issue, there were no other issued shares over which they enjoyed priority. Justice Gageler noted that "Questions of contemporary corporate finance are not readily determined by implications drawn from practices of past centuries ... It is inherent in the concept of a preference share that the rights attaching to it are differentiated from the rights attaching to an ordinary share. But it is not intrinsic to that differentiation of rights that there be ordinary shares on issue." (paras. 80 and 91). A summary of the court's decision is available here (pdf).

The court also gave judgment in related proceedings, Weinstock v Beck [2013] HCA 14, on appeal from [2012] NSWCA 76. The court upheld the appeal and held that the court could, under section 1322(4) of the Corporations Act 2001, validate the appointment of a director. Chief Justice French stated (para. 39):

Corporations, in contemporary Australian society, serve the purposes of enterprises, large and small, owned and operated by men and women, some of whom are sophisticated, knowledgeable and well-advised on matters of corporate governance and some, perhaps many, of whom are not. Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form."

A summary of the court's decision is available here (pdf).