Tuesday, 23 July 2013

The precedent: 'Invalid' section 249D notices

Given the vast value of control in the Australian listed investment company sector, incumbents have strong incentives to do whatever necessary to avert attempts to wrest control away, including openly illegal acts (usually lacking repercussions anyway). BCC and ELI were among the pioneers of simply refusing lawful requests under section 249D of the Corporations Act. On 13 March 2013 ELI disclosed it had received a s249D notice requesting a general meeting. On 2 April ELI claimed the request was 'invalid', for no apparent reason, and that ELI directors therefore were above following the law and would not comply. 

ELI directors refusal to comply with the Corporations Act was seemingly completely groundless, but since they could do so to great advantage and without repercussion, and at the very least delay the request, they did. Section 249D seems simple enough and would not at first glance be expected to have much leeway for creative interpretation:

But never underestimate the creativity of desperate criminals. At the time, ELI's openly unlawful behaviour was expected to set a precedent for this method of retaining control of other peoples' money:

As expected, other directors receiving s249D notices have started claiming they are 'invalid'. The latest example is Liberty Resources (LBY). On 23 July LBY claimed the s249D notice they had received was 'invalid', due to unspecified 'irregularites, inconsistencies and uncertainties', and that directors thus would ignore this 'invalid' request. What this means is, they make the rules.

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