Key Business Court Decisions

Can’t Get A Shareholder Meeting Called? Help Just Might Be Available

Where a company rebuffs a qualifying shareholder’s demand to hold a special meeting for a particular purpose, the Business Court obtains jurisdiction to order a meeting once the by-laws’ time to notice a meeting passes.  In Re Matter of Special Shareholders’ Meeting of Phytonix Corporation, 2020 NCBC 3 (J.Robinson).  The Business Court could then order a special meeting for the sole purpose requested by the shareholder, notwithstanding the company’s efforts to schedule another meeting to cover other topics.

Phytonix Corporation (“Phytonix”) is a privately-held, North Carolina industrial biotechnology company. Bruce Dannenberg (“Dannenberg”), a 26% shareholder of Phytonix, delivered a written demand on December 4, 2019, for Phytonix to hold a special shareholder meeting to vote on the removal of four company directors.  Dannenberg requested the meeting be held by December 20, 2019, but no later than January 3, 2020.  When no meeting was held on December 20, Dannenberg filed an Application for Court-Ordered Shareholder Meeting Pursuant to G.S. §55-7-03 (“Application”) on December 27, 2019, asking the Court to summarily order the special shareholder meeting be held.  On January 3, 2020, Phytonix’s Board of Directors adopted a resolution that set a special shareholders’ meeting for January 31, 2020.   Phytonix then responded to the Application contending that Dannenberg had filed the Application too early because the time for Phytonix to hold the meeting had not yet expired. Because of the early filing, Phytonix contended, the Business Court did not have subject matter jurisdiction over the Application and thus did not have the authority to order the meeting. 

The Business Court disagreed, recognizing that a non-public corporation must hold a special meeting of shareholders within 30 days of a demand made by any holders of at least 10% of all votes entitled to be cast on the issue (N.C.G.S. §55-7-03(a)(2)).  The Business Court held a company must provide the requisite notice of the demanded meeting and that, because Phytonix’s by-laws required a greater notice to shareholders (15 days) than required by statute (10 days), the by-laws’ notice timeline controlled. (Opinion, ¶13).  Since the statute required the meeting take place by January 3, 2020, and because the company’s by-laws required notice of the meeting be given by December 19, 2019, Phytonix’s failure to notice the meeting by December 19 gave the Business Court jurisdiction to hear the Application.  The Business Court then summarily directed Phytonix to hold Dannenberg’s special meeting by January 24, 2020 and further refused Phytonix’s request to include the issues scheduled for the January 31 meeting in the January 24 meeting.            

Based upon this decision, a private corporation should understand that any qualifying shareholder can seek judicial intervention to hold a meeting if the demanded meeting is not noticed by the requisite time set forth in the company’s by-laws.

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