Navigating foreign-backed board spills can often be a complex journey for Australian energy and resources companies. We take a look at Global Lithium Resources Limited’s recent battle under such circumstances and propose alternative defence mechanisms for companies grappling with similar challenges.
Need to know
|
Global Lithium Resources Limited (Global Lithium) is the latest Australian energy and resources company to go up against a foreign instigated board spill and lose. On 6 February 2025, the Takeovers Panel (Panel) published its reasons for declining to conduct proceedings in relation to the application made by Global Lithium against certain shareholders (Activist Shareholders) in respect of an alleged undisclosed association and an attempted board spill.1
Global Lithium’s lost battle for board control was not for a lack of trying, with the incumbent board even being accused of ‘jurisdiction shopping’ by the Activist Shareholders.2 Global Lithium’s Panel application followed a protracted and public stoush whereby Global Lithium also sought to enlist the assistance of the Foreign Investment Review Board (FIRB) regarding potential contraventions of the Foreign Acquisition and Takeovers Act 1975 (Cth) (FATA).
While it is unclear what Global Lithium reported to FIRB, there are multiple avenues under the FATA which would require a foreign investor to seek FIRB approval prior to investing in Australia – including in certain circumstances the appointment of a person to the Australian company’s board of directors.3 In actions such as this, if the foreign person does not seek FIRB approval, the Treasurer has the power to ‘call-in’ transactions for review if the Treasurer considers that the action may pose a national security concern.
Global Lithium was able to seek some reprieve from the Supreme Court of Western Australia in delaying its 2024 annual general meeting (AGM) while FIRB investigated the complaints.4 However, FIRB (while seemingly interested at certain points throughout the battle)5 did not intervene to halt the board spill.6 Furthermore, whilst the Takeovers Panel (Panel) was open to considering allegations of illegal accumulation of voting power, it did not ultimately find that any breach had occurred due to evidentiary constraints. With the resignations of its incumbent board announced prior to its 2024 AGM and the appointment and re-election of three board members supported by the Activist Shareholders, Global Lithium lost its battle for board control.
We think it is evident from recent attempts to defend against dissident shareholder attacks on board control that Australian companies are unable to rely on regulatory bodies that have the power to and are initially interested (such as FIRB) or are the intended forum (such as the Panel) to resolve matters such as this.
Given this pattern of continued lack of regulatory intervention, we propose an alternative defence tactic to Australian boards that implementing constitutional limitations surrounding director nominations will assist when coming up against shareholders who are seeking to nominate a person for directorship in circumvention of applicable Australian laws.
Global Lithium –the latest in a string of foreign-supported board spills
Foreign-instigated and supported board spills are not uncommon and are becoming increasingly prevalent with respect to mining explorers and producers. In the past two years, two other Australian mining companies, Northern Minerals Limited (Northern Minerals) and AVZ Minerals Limited (AVZ), have faced similar board control attacks.
Northern Minerals operates the Browns Range heavy rare earths project located in Western Australia. The backdrop to Northern Minerals’ board spill attempt is not dissimilar to Global Lithium’s. In late 2023, Northern Minerals’ shareholder, Yuxiao Fund Pte Ltd (Yuxiao Fund) nominated Mr Wu Tao (the Chinese businessman behind the Yuxiao Fund) to be elected to the board of Northern Minerals and sought to have Mr Nicholas Curtis AM removed as a director. Prior to this, the Yuxiao Fund had attempted to increase its shareholding in Northern Minerals to 19.99% but was blocked by FIRB.7 Unlike in Global Lithium’s case, in June 2024, the Treasurer intervened. The Treasurer ordered that the Yuxiao Fund sell down its shares to 8.5% while other associated parties, two individuals and two companies, were forced to divest their shares in Northern Minerals.8 Prior to the Northern Minerals’ AGM, Mr Curtis resigned from his position as executive chairman and at the company’s 2023 AGM the shareholders did not approve the resolution to appoint Mr Tao as a director of Northern Minerals.
In AVZ’s case, AVZ did not apply to the Takeovers Panel and FIRB did not publicly intervene when the AVZ board was faced with three director nominations by a dissident Australian shareholder, Fat Tail Holdings Pty Ltd, which managed to secure support from certain foreign shareholders. However, AVZ was able to successfully defend against the board attack at its 2023 AGM with a strong vote of confidence from its shareholders with ~70% of its share register by number of shares voting on the resolutions relating to the election and re-election of persons to the AVZ board.
The Panel and FIRB: an imperfect shield
The Panel expressed in the Global Lithium decision that FIRB is better placed than the Panel to investigate issues relating to alleged association noting the presence of foreign persons among the group of Activist Shareholders.9
The Treasurer’s intervention in Northern Minerals was the first (and only time) that the Treasurer has used their powers under the FATA to order an investor to dispose of its shares. While certain actions of foreign persons in the course of a board spill could be a breach of the FATA it is not common practice for the Treasurer to step in and use their broad powers to intervene as we see from other Australian regulators such as ASIC or the ACCC.
Unlike these other regulators, FIRB is guided by national security and more broadly Australia’s national interest. In the wake of the US presidential election and as Australia heads into its own federal election, the geopolitical pressures underlying the decisions of the Treasurer are telling that the identity of the foreign persons may lead to the Treasurer sitting on their hands while the energy and resources sector in Australia is left to fight the board room battles.
In board spill scenarios where a shareholder of a listed company seeks to remove an incumbent director, it is the usual path that the company would turn to the Panel for a declaration of unacceptable circumstances alleging that the shareholder’s actions are contrary to chapter 6 the Corporations Act 2001 (Cth) (Corporations Act). The Panel’s reluctance to interfere with shareholders’ rights to hold a company accountable is evident particularly if an applicant has not lodged an application in time and has not been able to overcome the difficult evidentiary hurdle when alleging undisclosed association. The Panel is limited by its lack of investigatory powers and the definition of ‘associate’ under the Corporations Act.10 In contrast to the definition of ‘associate’ under the FATA, which provides for express deeming of association for particular categories of relationships (such as relatives),11 the definition of ‘associate’ under the Corporations Act is far less practicable to apply and makes convincing the Panel that the alleged association exist notoriously difficult.
Is it time for more robust constitutional protections?
The FATA is unique in that it requires certain director appointments by foreign persons to be the subject of formal clearance or otherwise risk breaching the FATA. Absent the director being disqualified or under the age of majority, there are no equivalent statutory limitations on director appointments.12 Accordingly, given the increased prevalence of foreign supported board spills that may be prohibited under the FATA coupled with the limited capacity to thwart such actions, it may be time for companies to consider implementing their own constitutional restraints.
The aim of implementing constitutional limitations is to provide an incumbent board with discretion to make an assessment as to whether a director nominee or current director may be in breach of applicable laws (such as FATA). Whilst a board’s assessment will be open to challenge, the burden will shift to the dissident shareholder. The onus will be on the dissident shareholder to demonstrate and defend their own legitimacy in an Australian court and will be subject to Australian judicial procedure and laws of evidence.
The statutory and general law backdrop against which constitutional restraints might be imposed is set out below:
- Right to remove directors enshrined in the Corporations Act: shareholders with at least 5% of the voting shares have a right to requisition or convene a general meeting and propose any resolution at the meeting.13 Similarly, shareholders with at least 5% of the voting shares or 100 shareholders may propose one or more resolutions at a to-be-convened general meeting.14 Further, any such resolution may be to remove a certain incumbent director regardless of anything that may be in a company’s constitution or any agreement between the company and the director.15 This means that to the extent of any inconsistencies in the company’s constitution or an agreement, the Corporations Act will prevail. However, to the extent that there are not any inconsistencies, directors may decline to call a meeting under section 249D of the Corporations Act if the proposed resolution is not a resolution which can be effectively passed by the members in a general meeting, or in other words, could not be lawfully effected by the company in that meeting.16
- Shareholder’s common law right to appoint a director: under the Corporations Act, a company or the directors of a company have a statutory right to appoint a person as a director,17 but a shareholder (or a group of shareholders) does not have a statutory right to put forward a nominee for directorship. Rather, it is a common law right that the company, at a meeting constituted by the members in general meeting, has an inherent power to appoint a director by ordinary resolution.18 Bearing in mind that a company’s constitution has the effect of a contract between the company and its shareholders, the common law right of shareholders to appoint a director can only be displaced by clear language evidencing an intention to do so.19
- Role of a company’s constitution in director appointment: the appointment of directors will usually be covered by the company’s constitution which may provide mechanisms of appointment (such as appointment by the board, or by the shareholders via a written resolution or at a general meeting), detailed election procedures (such as notice periods for nominations and provisions of consent) and detailed procedures for vacation of office (such as circumstances under which a director may be disqualified from holding that position e.g. if a director becomes bankrupt or becomes mentally incapable).
In light of the above, we set out below some practical limitations a board could incorporate into their company constitution to assist in preventing a board spill from a foreign entity.
- Director nominations must not be contrary to applicable laws: the company could adopt or amend the constitution to include a requirement that a company cannot accept a director nomination in circumstances where their directorship would constitute a breach of applicable Australian laws (such as FATA) if they were to be appointed to the company’s board.
- Vacation of office in circumstances where a director may be in breach of applicable law: the company could adopt or amend the constitution to include a requirement in its constitution that a director ceases to hold office immediately if, a director’s appointment constitutes a breach of any applicable Australian laws (such as FATA).
- Tightened election mechanisms for director appointments: to assist companies in better managing when they may face a board spill attempt and to prevent having to seek orders from a court to consolidate general meetings, companies can better protect themselves by excluding the replaceable rule in section 201G of the Corporations Act and mandate through an express constitutional requirement that director appointments can only be resolved by members at a company’s AGM.20 This prevents instances where, upon receipt of a section 249D notice, a company has to call an extraordinary general meeting outside of the usual AGM season.
- Conflict of interest protocol: company board’s that include one or more shareholder nominated directors routinely adopt conflict of interest protocols to ensure that any conflict between the interests of the company and the nominating shareholder are appropriately managed through the exclusion of the conflicted director from certain deliberations and accessing materials. Such protocols have also been used to manage foreign interests and their adoption as an express condition of FIRB when clearing foreign investments that include board nomination rights. The difficulty with such protocols is ensuring the director consents to the attenuation of their rights and responsibilities, which directors often baulk at in the proper pursuit of their duties. Conflict protocols have not to date been incorporated into a company’s constitution, but such incorporation could provide an enforceable obligation on the company to manage conflicted directors.
Company boards should balance the preservation of shareholder rights to appoint and remove directors against the difficulties posed by large associated blocs of foreign shareholders acquiring control of the company by stealth. Further, as mentioned above, the incorporation of such constitutional restraints may nonetheless be open to challenge, even post-incorporation of those provisions, however, any such challenge will fall at the feet of the activist shareholder and the merits will need to be weighed by a court of competent jurisdiction on the balance of probabilities – which may just be enough to enable a proper defence by the Australian company.
For more information, please contact James Nicholls.
1Global Lithium Resources Limited [2025] ATP 2 (Global Lithium Decision).
2Global Lithium Decision [68].
3As a general rule, a minimum 20% interest in a target is needed before FIRB approval is mandatory. If the acquirer is a ‘foreign government investor’, a minimum 10% interest in a target is needed before a FIRB approval is mandatory. There is also no minimum percentage if the ‘foreign government investor’ is in a position, or more of a position, to influence or participate in the central management and control of the entity or determine the policy of the entity.
4Global Lithium Resources Ltd v Sincerity Development Pty Ltd [2024] WASC 443.
5Refer to Global Lithium Resources Limited’s ASX announcement ‘Global Lithium Corporate Update’ dated 15 November 2024.
6Refer to Global Lithium Resources Limited’s ASX Announcement ‘Shareholder Update on Regulatory Issues’ dated 12 February 2025.
7Foreign Acquisitions and Takeovers (Prohibition of Proposed Action) Order (No. 1) 2023 (Cth).
8Foreign Acquisitions and Takeovers (Disposal of Interests in Northern Minerals Limited) Orders 2024 (Cth).
9Global Lithium Decision [94].
10Section 12 of the Corporations Act for the definition of ‘associate’.
11Section 6 of the FATA for the definition of ‘associate’.
12In certain circumstances, the appointment of a director by a shareholder may enliven the related party approval regime under the Corporations Act and Chapter 10 of the ASX Listing Rules, however that regime would not disentitle the shareholder from nominating the director or the relevant director holding office.
13Sections 249D and 249F of the Corporations Act.
14Section 249F of the Corporations Act.
15Section 203D of the Corporations Act
16Re Railway & Transport Health Fund Ltd (2020) 150 ACSR 14 [8]; DVT Holdings Ltd v Bigshop.com.au Ltd (2002) 42 ACSR 378 [9] and [14]; and National Roads and Motorists’ Association v Parker (1986) 6 NSWLR 517 at 521 to 522.
17Refer to replaceable rules section 201G and section 201H of the Corporations Act.
18Link Agricultural Pty Ltd v Shananhan, McCallum & Pivot Ltd (1998) 28 ACSR 498 at 518 citing Worcester Corsetry Ltd v Witting [1936] Ch 640; Barron v Potter [1914] 1 Ch 895; and Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 22.
19DVT Holdings Ltd v Bigshop.com.au Ltd and Another (2002) 42 ACSR 378 [10] applied in Re Railway & Transport Health Fund Ltd (2020) 150 ACSR 14 [12].
20Such as in Re Railway & Transport Health Fund Ltd (2020) 150 ACSR 14 and DVT Holdings Ltd v Bigshop.com.au Ltd and Another (2002) 42 ACSR 378. We note that this point has not been directly considered in the Supreme Court of Western Australia, however we note Hill J’s obiter comments in Sheref v UFC Trading Enterprise Pty Ltd [2024] WASC 344 regarding validity of resolutions passed as a meeting pursuant to a section 249D notice which is not called in accordance with the company’s constitution.
