Background information: SA Farms Pty Ltd

SA Farms Pty Ltd (SAFPL) traces its history back to the 1880s, when Timothy and

Angela Henry emigrated to Australia from England. In the late 1880s, the Henrys moved

to the south-east of South Australia and founded a farming business in wheat and sheep.

The farming business grew and diversified over time; ownership stayed largely in the family.

In 2017-18, SAFPL's revenue was $78 million and it had 30 employees.

Ownership structure

SAFPL is a proprietary company limited by shares. It was registered in 1981 to acquire

the family's farm businesses which had until that time been operating through several

small companies, trusts and partnerships. There are 120 ordinary shares on issue, all held

by members of the Henry family (or by trusts or companies controlled by them). As at 30

June 2018, the distribution of shares is as follows:

David Henry 30

Nick Henry 25

Patricia Henry 25

Steven Henry 20

Jennifer Jones 10

Jason Jones 10

David, Nick, Patricia and Steven are siblings and the children of Michael Henry.

David is the managing director of SAFPL; Nick is the head of livestock operations and

Patricia is the head of marketing. Steven Henry is the youngest Henry sibling he is

an artist who lives and works in Italy and has no ongoing involvement with the family

business.

Jennifer and Jason Jones are the children of Lucia Henry Boyle, who was Michael's

sister; they inherited their shares in SAFPL from their mother's estate in 2006. Jennifer

is a solicitor in Sydney and Jason is a stockbroker. Jason is also the sole director and

shareholder of a company called JJ Investments Pty Ltd, which has invested in various

nightclubs in Sydney.

SAFPL also has 50 'A class' shares on issue. By tradition, each Henry grandchild is

issued with five A Class shares on their 21st birthday. The A class shares carry limited

voting rights, but do allow for the grandchildren to share in the company's profits at the

discretion of the board. The grandchildren who currently hold the A Class shares include

Jennifer and Jason and eight of their cousins. The terms of issue of the A Class shares mean

they cannot be transferred to anyone other than a lineal descendant of Angela Henry.

Management structure

SAFPL has four directors. They are David Henry, Nick Henry, Patricia Henry and

Peter O'Donnell. Peter has been a trusted friend of the family for many years and has a

background in transport and agribusiness. He is the managing director and controlling

shareholder of RiverTrans Pty Ltd, a trucking company based in the Riverina.

Internal governance rules

When it was formed in 1981, the company adopted memoranda and articles of association.

In 2001, the company repealed the memoranda and articles of association, and adopted

a constitution that incorporates all of the replaceable rules in the Corporations Act 2001

(Cth) (Corporations Act) and includes the terms of issue of the A Class shares. Holders

of A Class shares have one vote for each five shares held on a resolution to amend the

constitution of SAFPL or to wind up the company. They are entitled to share pro rata in

any dividend that the board resolves should be paid to holders of A Class shares in any

financial year.

The constitution of SAFPL allows for the directors to pay a dividend to holders of

A Class shares at their discretion. Over many years the company had paid a dividend

which, although not sizeable, was sufficient for the shareholders who chose to do so

to live on it. However, David and his siblings are angry about the discontent that

Jason has been stirring up among the Henry grandchildren, some of whom they

see as lazy and undeserving. So the board of SAFPL resolves not to pay a dividend

to the A Class shareholders this year and, instead, to retain earnings to fund the

development of the organic farm in the Riverina. What action, if any, can the Henry

grandchildren take in respect of non-payment of the dividend?