Legislation Highlighted - Sections 600B and 600C - Resolutions and Casting Votes

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In the first part of this article (see last month’s Newsletter) we discussed creditor’s rights to apply to the Court for relief against resolutions passed at meetings of creditors, where those resolutions were passed by votes cast by parties related to the company.

The Court would provide relief where it was shown that the resolution was “contrary to the interests of the creditors as a whole or of a class of creditor”. Relief is usually an order setting aside the resolution, or an order that the resolution be put to creditors again, but with some voting restrictions on certain creditors.

This month we explore what relief may be sought by aggrieved creditors when resolutions were passed at meeting by the chairperson using a casting vote – or not using a casting vote - as the case may be.

In May 2008 we looked at the case of Ausino International Pty Ltd v Apex Sports Pty Ltd (Casting Votes Under Scrutiny). The court stated in that instance that a chairperson “should proceed to exercise the casting vote and resolve the deadlock unless there is some good reason to refrain from doing so”. The second case in that article (DCT v Wellnora Pty Ltd) had the court say that the chairperson was “required to exercise his casting vote honestly and in accordance with what he believed to be the best interests of the creditors”.

But what can creditors do when they feel aggrieved?

Section 600B applies when a resolution is passed on the casting vote of the chairperson. The first thing to note is that applications are not restricted to creditors of the company, but in practice it will usually be aggrieved creditors that will make them.

The court will consider an application only if the person making the application voted against the resolution. It would be logical that creditors voting for the resolution would not be aggrieved because it passed - regardless how it was passed.

600B(2)(a) the person voted against the resolution in some capacity (even if the person voted for the resolution in another capacity); or
(b) a person voted against the resolution on the first-mentioned person's behalf.

If the court is convinced that the chairperson’s decision to use the casting vote to pass the resolution was not appropriate, or the manner in which it was used was not appropriate, it may set aside or vary the resolution; and make any orders and give such directions as it thinks necessary and practical. This may include sending the resolution back to creditors, or setting it aside and ordering that another resolution was 'passed' in another way.

Section 600C applies when a resolution fails either because of a casting vote used by the chairperson, or where the chairperson does not use a casting vote. In this case the application may be made if:

600C(2)(a) the person voted for the proposed resolution in some capacity (even if the person voted against the proposed resolution in another capacity); or
(b) a person voted for the proposed resolution on the first-mentioned person's behalf.

If the application is successful, the Court may order that the resolution is taken to have been passed at the meeting, and give such orders and directions, as it thinks necessary and practical. The timing of the passing of the resolution may be important – particularly if it is for the acceptance of a deed of company arrangement and there is a time period to have the deed signed. The order may specify when the resolution is taken to have taken effect. If the order does not specify a date, it is taken to be the time of the making of the order.

When will the court grant orders on these applications? The court will have to be convinced that the chairperson erred in using the casting vote or by not using it. Applicants will have to show that creditors as a group, or a class of creditors, have been prejudiced in some manner by the decision of the chairperson and, in particular, because of the use or not of a casting vote. Most of the time, practitioners will explain their reasons for using their casting vote and why is was used in a particular manner, and record those reasons in the minutes.

Last Updated: 01.09.2008

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