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All employers should have a clear and accessible ‘action plan’ in the event of workplace injuries. The plan ought to address practical issues, like first aid and emergency response, counselling and potential media enquiries, as well as the many and onerous legal duties and risks.

This short article is not intended as a comprehensive list of legal duties and risks but provides some general guidance in regard to handling injured workers.

Employers’ Responsibilities

It is important to be aware that criminal prosecution may be pursued if employees are permitted to perform hazardous work. Post-injury safety assessment and investigations are vital and we recommend initiating this only after seeking legal advice so that, potentially, the results are subject to legal professional privilege.

Employers must proceed with caution. In Queensland, WorkCover must be notified immediately of any injury for which compensation may be payable. It is advisable to encourage the employee to obtain a medical assessment from an independent medical practitioner, and not to assume the cause of injury, to avoid subsequent claims of bias.

Once the immediate injury and safety issues are contained, in preparation for defending against possible discrimination or unlawful dismissal complaints, an employer should also collect and retain all records of attempts to find alternative or modified duties for an injured worker.

Legislation

• The Fair Work Act 2009 prohibits employers from taking adverse action, including terminating the employment, because of a temporary absence from work due to illness or injury. Contravention gives rise to a potential ‘general protections’ claim for compensation and penalties, including against individual directors or managers ‘knowingly involved’.

• The Workers’ Compensation and Rehabilitation Act (WorkCover) extends the prohibition against termination to one year of a compensable injury if the termination arises “solely or mainly” because the employee is not fit for work. Contravention attracts a max. fine of 40 p.u. (i.e. currently $4,400).

• Also, anti-discrimination legislation in most States prohibits discrimination on the basis of impairment. Naturally, a court is likely to take a particularly harsh view of discrimination by an employer where the impairment arose from a workplace accident.

Courses of Action

Employers should also consider guarding against stress, anxiety or depression related illnesses in the workplace.  These are particularly difficult to defend against, they are becoming increasingly common, and damages can be as much or more than any physical injury.  Take all reasonable steps to assist an injured employee in returning to work, including considering the potential for other duties. Termination can only be considered as a last resort, and must follow a complete inquiry, including a functional capacity assessment and safety risk analysis.

Having a clear plan before an injury occurs is infinitely better than trying to address these issues ‘on the fly’.

For further information on these topics, please contact:

Ben Warren – Director

M: 0402 003 364

E:  bwarren@ellemwarren.com.au

Richard Ellem – Director

M: 0403 464 875

E: rellem@ellemwarren.com.au
 

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Shareholders agreements should always be read in conjunction with the constitution, notwithstanding the ‘inconsistency clause’

The Inconsistency Dilemma
The ‘inconsistency clause’ often found in shareholders agreements plays a key role in settling internal company disputes. Where an inconsistency exists between a shareholders agreement (“SA”) and a company constitution, an inconsistency clause within the SA will generally state that the SA prevails. Consequently, a common assumption exists that where an internal company dispute arises the SA will always prevail.

However, the decision of Cody v Live Board Holdings Ltd[1] by the NSW Supreme Court has highlighted a flaw in this assumption and has underlined the dangers of reading the SA to the exclusion of the constitution.

The Facts

Directors of the defendant company, Live Board Holdings Ltd (“LBH”) sought to raise capital by issuing preference shares to new shareholders. A dispute arose between an existing shareholder (the plaintiff) and the company regarding the validity of the share issue.  Both the SA and the LBH constitution contained provisions regarding the power of the directors to issue shares.

The Shareholders Agreement

The LBH shareholders agreement reserved for the shareholders the general power to issue shares. Where a decision by the Board was made the issue shares, the SA stated that the issue required approval by a simple majority of shareholders.

The Constitution

Consistent with the SA, the LBH constitution stated that the Board could cause the company to issue shares. However, the constitution further stated that where an issue of shares affected the rights of existing shareholders, it required approval by a special resolution.[2]

The Issue

The ultimate dispute related to whether or not the SA or constitution applied. Both parties acknowledged that the Board had the power to issue shares[1], however the arguments put forward by the plaintiff and defendant both sought to establish that different provisions of either the SA or LBH constitution prevailed regarding the issue of shares.

The defendants relied on the inconsistency clause to argue that the SA prevailed and permitted the issues of shares without the special resolution. The plaintiff submitted that the constitution clause was not superseded by the clauses in the SA.

As a result of s198A Corporations Act 2001 (the “Act”) and the SA, acknowledging that an issue of shares and variation of shareholder rights was a decision to be made by the board, the inconsistency regarded the type of majority required for a Board decision regarding shares to be approved. It was either to be a special majority (75% shareholder approval) as stated in the company constitution, or a simple majority (50%), allowed by the SA.

Inconsistency? What Inconsistency?

The Court held that no inconsistency existed, and the inconsistency provision in the SA was not enlivened.  The LBH constitution prevailed and a special majority was held to be required to issue preference shares.  In coming to its decision, the Court looked to the purpose for which each provision had been drafted.

Firstly, clause 6 of LBH constitution existed to protect the rights of its existing shareholders.  Brereton J held that by issuing preference shares only to new shareholders, LBH had indirectly varied the rights of existing shareholders by issuing shares that would rank ahead of their interest.  As such, clause 6 of the constitution directly applied – LBH could not validly issue preference shares unless passed by special majority.

The provision in SA existed simply to reserve the power to issue shares to the shareholders.  Brereton J held that the SA provision was therefore not inconsistent with clause 6 of the constitution and therefore, approval of the issuing of preference shares by special majority was consistent.

Brereton J ultimately held that the combined effect of the SA and constitution was that, in ordinary circumstances, shareholders had the power to approve the issue of shares by simple majority. However, where the issuing of shares would affect the rights of existing shareholders, a special majority would be required.

Implications for Directors

Company directors should be aware that the SA and company constitution should be read in conjunction, not in isolation. The judgment of the Court makes it clear that one instrument can serve as a guide for interpretation of the other and a purposive approach should be taken in resolving any potential inconsistencies.  The judgment highlights the pitfalls associated with relying too heavily on inconsistency provisions.

The Courts will preserve the power of directors to exercise control over business matters.  However, clauses designed to protect the interests of minority shareholders will prevail, particularly where the shareholder(s) interests are directly or indirectly affected by the proposed director resolution.  A company constitution creates a statutory contract between the company (and, by extension, it directors) and the shareholders, as per s140(1)(a) of the Act.

Conclusion

Shareholders agreements should be read in conjunction with the company constitution, even when an ‘inconsistency clause’ exists.  Directors should consider clauses aimed at protecting minority shareholder interests before making resolutions affecting shareholders, in both the constitution and any shareholders’ agreement, as these clauses are likely to prevail in the absence of clear contrary intent.

For further information about directors’ duties, corporate governance, shareholder agreements or similar topics, please contact:

Ben Warren – Director

M: 0402 003 364

E: bwarren@ellemwarren.com.au

Richard Ellem – Director

M: 0403 464 875

E: rellem@ellemwarren.com.au

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In June 2013, an Australian court confirmed the fears of those in the hire industry with imperfect documentation and procedures [1].

Those in the vehicle-equipment hire and finance industries, and construction and resources industries, should be aware that the Personal Property Securities Act 2009 (PPSA) created a legal concept new to Australia called a “PPS Lease”. As the name suggests, the “PPS Lease” concept applies to leases, however, it also often includes a licence, bailment, hire-purchase, consignment and/or retention of title arrangement; in fact, it covers most occasions when an asset is in the possession of a non-owner.

If the non-owner has possession of the asset for 12+ months (or 90+ days for serial numbered assets, e.g. vehicles), or is entitled to possession for an indefinite period (e.g. under a long or a renewing hire arrangement), and the true ownership of the asset is not registered properly as a security interest then receivers, liquidators, bankruptcy trustees and some secured creditors (e.g. financiers with broad-based security – fixed and floating charges in the pre-PPSA terminology) can ignore the true ownership, and seize and sell the assets.

The Dispute
Queensland Excavation Services (QES) leased excavators and loaders to Maiden Civil (Maiden), which got into financial difficulty during the lease. This resulted in Maiden granting security over all of its assets to Fast Financial Solutions (Fast). Fast perfected its security interest by registration under the PPSA, whereas QES had not registered its interests plant.

Fast appointed receivers to Maiden. Meanwhile, QES terminated its leases to Maiden and asserted primary rights as owners. Fast’s receivers also asserted primary rights to the equipment as the sole perfected security interest holder. There were no written leases between QES and Maiden and QES periodically invoiced Maiden for the use of the equipment.

The Outcome
The receivers were entitled to possession of the excavators and loaders. QES and Fast each had security interests attaching to the equipment. The dispute was a PPSA priority dispute, not an ownership dispute. Since the QES lease was not perfected by PPS registration and the Fast lease was, the solution from the Court was relatively simple – despite some transitional issues, the Fast perfected security interest had priority over the QES unperfected interest.

Was this expected?

In short, “yes”, this was a predictable outcome. The QES leases were entered into before 31 January 2013, making them transitional security leases. Most transitional leases were perfected without registration until 31 January 2014, however in this case they were not as they were capable of registration (and had not been registered) under applicable N.T. legislation.

Hire companies and their financiers need to be particularly wary. We recommend against reliance on “wet” hire distinctions, and all PPSA users should be aware of the strict time limits required to preserve a security interest. In many cases, it will be necessary to register a hire company’s ownership interest in an asset before possession passes to the hirer.

[1] In the matter of Maiden Civil (P&E) Pty Ltd; Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852.

For further information about the PPSA, or other security issues, please contact:

Ben Warren – Director
M: 0402 003 364
E: bwarren@ellemwarren.com.au

Richard Ellem – Director
M: 0403 464 875
E: rellem@ellemwarren.com.au