Section 1322 orders - when automatic validation is not automatic in practice

What you need to know

• In a rare case, a court has refused to make a section 1322 order to rectify a lack of quorum at a general meeting.
• The decision provides important guidance on three matters of significance to corporate governance practitioners:
  • Firstly, the interaction between shareholders agreements and company constitutions in determining procedural requirements such as quorum;
  • Secondly, the scope of the statutory definition of "procedural irregularity" in section 1322(1)(b)(i) of the Corporations Act 2001 (Cth); and
  • Thirdly, the circumstances in which a lack of quorum will amount to “substantial injustice” precluding the automatic validation of proceedings under section 1322(2).

What you need to do

• Always check both the constitution and any shareholders agreement before convening a meeting or relying on a meeting's validity.
• Be aware that:
  • whilst a lack of quorum is expressly recognized as a "procedural irregularity" under section 1322(1)(b)(i), this does not guarantee automatic validation.
  • Section 1322(2) will not cure irregularities causing "substantial injustice" — deliberately proceeding without quorum, aware of majority opposition, is a paradigm example.
  • Noting an intention to "rely on section 1322 if needed" in meeting minutes offers no protection if conduct is deliberate and prejudicial.

Section 1322 orders - when automatic validation is not automatic in practice

In a rare case, a court has refused to make a section 1322 order to rectify a lack of quorum at a general meeting. Whilst section 1322(2) validates proceedings despite procedural irregularity as a general rule, it will not do so where the irregularity causes substantial injustice. Deliberately proceeding without a quorum, with knowledge of majority shareholder opposition, is a paradigm case of substantial injustice.

In Kelly & Anor v Lask Nominees Pty Limited & Anor [2026] TASSC 43, the Supreme Court of Tasmania (Brett J) declared invalid a shareholders’ meeting at which minority shareholders purported to remove a managing director, holding that the meeting lacked a quorum as determined by reference to a shareholders agreement rather than the company’s constitution.

The decision provides important guidance on three matters of significance to corporate governance practitioners:

• the interaction between shareholders agreements and company constitutions in determining procedural requirements such as quorum;
• the scope of the statutory definition of "procedural irregularity" in section 1322(1)(b)(i) of the Corporations Act 2001 (Cth); and
• the circumstances in which a lack of quorum will amount to “substantial injustice” precluding the automatic validation of proceedings under section 1322(2).

Background

Evolution Hardware Pty Ltd (Company) had five shareholders. On 31 July 2019, the shareholders entered into a shareholders agreement which was expressed to prevail over the Company’s constitution in case of inconsistency. Relevantly, the agreement named a Mr Kelly as managing director, replaceable only “via a majority vote of the Owners at any time” (clause 1.2). Clause 2.2(c) required a quorum of at least 50% of shareholding for meetings of “Owners”. The agreement further provided that it bound the parties notwithstanding the constitution (clause 10.4) and that the shareholders consented to vary the constitution to the extent of any conflict (clause 4.9).

By September 2025, the shareholders had divided into two opposing camps, with a number of shareholders wishing to remove Mr Kelly as managing director. On 14 August 2025, one of the shareholders sent a Notice of Shareholders Meeting and Agenda for a meeting to be held to remove the managing director. The notice itself referenced the 50% quorum requirement under clause 2.2(c) of the shareholders agreement.

The meeting proceeded as planned with only 2 shareholders in attendance. Those 2 shareholders did not hold 50% of the shares on issue. The meeting purported to pass resolutions removing Mr Kelly as director and company secretary, appointing a Mr Cowley as managing director and secretary, and appointing a Mr Newman as a director. The minutes recorded that a quorum was present under the constitution, and noted that section 1322 of the Corporations Act “will be implemented if need be” to cure any irregularity.

The proceedings

Two of the shareholders applied to the court for a declaration that the meeting and all resolutions passed at it were invalid. The sole ground of invalidity pursued at the hearing was the lack of a quorum.

The key issues for determination were:

• What was the applicable quorum requirement for the meeting — two members (as provided in the constitution) or at least 50% of shareholding (as provided in the shareholders agreement)?
• The Court held that the quorum requirement in clause 2.2(c) of the shareholders agreement (at least 50% of shareholding) prevailed over the constitution’s provision for a quorum of two members, due to the inconsistency clause included in the shareholders agreement. The Court concluded that the meeting, attended by only 2 shareholders (representing 8,333 of 16,668 shares — less than 50%), was inquorate.
• Was the lack of quorum a “procedural irregularity” within the meaning of section 1322(1)(b)(i) of the Corporations Act?
• The Court held that the lack of quorum was a procedural irregularity, noting that section 1322 expressly includes an absence of quorum as a procedural irregularity.
• Did section 1322(2) automatically validate the meeting notwithstanding the irregularity, or did the irregularity cause or was it likely to cause “substantial injustice” that could not be remedied by court order?

The Court found that the irregularity caused or may cause substantial injustice that cannot be remedied by any order of the Court. His Honour found that the respondents proceeded with the meeting knowing that the majority shareholders opposed the resolutions and had stated they would not attend. In doing so, they undermined the framework the shareholders had agreed upon — namely, that the managing director should be the person supported by the majority. This deliberate conduct in proceeding without a quorum, in circumstances where the majority had clearly communicated their opposition, constituted substantial injustice to the applicants which mean that the Court would not make an order pursuant to section 1322.