The Government recently announced the proposed removal
of the "100 member rule" from the Corporations Act as a
part of its "red-tape slash". If the proposed amendment
proceeds, it will (hopefully) be the end of a long campaign for its
removal. Like a slinky feline this strange little rule seems to
have escaped numerous life-threatening situations. Too many times
it has fallen only to land on its feet.
The 100 member rule has proven to be surprisingly resilient
despite being little more than an expensive distraction. Over the
course of the last two decades Governments (Minister
Hockey and Parliamentary Secretaries
CAMAC and the
AICD to name but a few, have all pressed to reform or abolish
the 100 member rule. The rule was even removed once by the passage
of a regulation to the Act in April of 2000, but the rule rose like
Lazarus (not Senator Glen) when the regulation was disallowed only
a few months later by the Senate.
Who would have thought, back in
December 1982 when it was first mooted, that this unremarkable
little provision would cause so much angst? Indeed, the then
Minister for Trade
Lionel Bowen referred to it as simply rationalising the
requirements for convening meetings upon requisition of members.
You might think it unremarkable to provide that 100 members holding
shares on which there has been paid an average of at least $200
could requisition such a meeting, but you'd be wrong.
Australia is alone in providing for a shareholder numerical test
that applies regardless of how much share capital the
requisitionists hold. More usual is an analogue of the issued
capital rule, where requisitionists must hold at least 5% or 10% of
the shares before they can call a general meeting, something which
is done at a substantial cost to a company and all of its
In the wake of demutualisations and the growth of large listed
companies, whose membership often reaches six or seven figures, the
rule places an extraordinary amount of power in the hands of a very
small group of people.
The reality is that the 100 member rule has most often been
abused by activists who seek to compel companies to consider
resolutions that further their own agenda, with little regard for
the collective benefit of shareholders.
An example of this occurred in 2012, when 210 Woolworths
shareholders, backed by GetUp!, compelled Woolworths to hold an EGM
to consider resolutions in relation to $1 limits on poker machines.
Woolworths sought relief from the Federal Court in respect of the
$500,000 cost of notifying its 432,000 shareholders of the EGM, but
to no avail. Unsurprisingly, the resolution received just 2.5%
This is not a recent trend. In the two years from late 1999 to
late 2001, NRMA was forced to call 12 EGMs to consider resolutions
removing directors, each of which incurred several million in costs
and resulted in none of the relevant resolutions being passed.
It is something of a wonder that the 100 member rule has
received such championing over the years, especially given that the
support has been given in the name of shareholder democracy.
Democracy provides for equal rights of participation. Contrarily,
use of the 100 member rule in the last two decades has frequently
served to allow a cabal of a few vexatious shareholders to generate
costs far out of proportion to their shareholding.
The death of the 100 member rule is by no means the end of
statutory protection of shareholder rights. The proposed amendment
will not affect the right of 100 shareholders to put a resolution
to be considered at a general meeting or to distribute a
shareholders' statement with the notice convening that
Shareholder activism is a component of corporate governance.
Shareholders should be able to put issues on the AGM agenda and to
instigate a debate at the meeting. This right is of particular
importance to retail shareholders who have limited opportunities to
meet with the company prior to the AGM. That does not mean that 100
shareholders, who may hold just a tiny fraction of the capital of
the company, should be able to put the company to the cost of
holding a meeting of their choosing.
The removal of the 100 member rule is long overdue. It's had
more lives than it should. It is time for it to become a footnote
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