By Trent Le Breton, Partner and Jacqueline Monk, Special Counsel

A recent decision of the Federal Court is a reminder of how important it is to make sure that share transfers are documented correctly: Norden Holdings Pty Ltd (Trustee) v Martens Investments Pty Ltd (Trustee), in the matter of Amazonia IP Holdings Pty Ltd [2024] FCA 845.

What happened?

On 27 June 2023, ASIC forms were lodged which transferred shares in two companies, Amazonia IP Holdings and Amazonia Group, from one party (Nordon) to another (Martens).

Nordon questioned the validity of this transfer and argued that there was no underlying agreement to transfer the shares. Martens argued that the transfer was valid because Mr Norden had signed meeting minutes for each of the two Amazonia companies which contained a resolution as to the “ceasing of Shareholders Norden Holdings Pty Ltd”.

Findings

The Court found that the ASIC forms and the meeting minutes did not operate as a valid transfer of shares. This was because they did not satisfy either the requirements of the companies’ constitutions for transferring shares or the requirement under section 1071B of the Corporations Act that a company only register a transfer of shares if a proper instrument of transfer has been delivered to the company.

Martens argued that the primary source of information as to who is or who is not a shareholder is the company’s register of members. While the Court acknowledged the accuracy of this statement, it stated that the company’s register “alone is not sufficient to overcome the lack of a valid transfer”. It also referred to the fact that Nordon still held its share certificates as evidence of its ownership of the shares.

Takeaways

When changing ownership in a company, it is crucial to ensure that the transfer of shares is carried out correctly to avoid any confusion later about who owns what. While this process can sometimes seem like a ‘tick-box’ or ‘paper shuffling’ exercise, especially after months of negotiating a long form sale agreement, the financial consequences of not correctly conveying title can be severe.

At Walter Baden, we understand the intricacies and importance of this process. Our corporate team brings significant experience in advising clients through the entire M&A journey, including the critical closing phase.