By Margaret Taylor
This paper summarises the changes made by the Company Law Review Act to the law relating to general meetings of companies.
This paper follows these changes in approximate chronological order, beginning with giving notice of the meeting and following through to voting on the questions before it.
A. Notice of meeting
1. The Act has changed the Corporations Law in relation to both the length and content of the notice which a company is required to give its members of a general meeting.
2. Prior to the Act, a company had to give 14 days' notice of a general meeting, unless a special resolution was proposed, in which case 21 days' notice was required. The new section 249H provides that at least 21 days' notice must be given of all meetings, unless the company's constitution provides for a longer period.
3. Section 249HA extends the notice period to 28 days for listed companies, effectively doubling the notice period. The section was inserted into the Act as a last-minute amendment in the Senate. The parliamentary debates saw various senators making much of the rights of small shareholders, but the major beneficiaries of this amendment appear to be institutional investors, which often require more time if they are to involve themselves constructively in the affairs of companies of which they are shareholders.
4. The provision for members to agree to meet on short notice, now in section 249H(2), looks familiar, but contains two significant amendments. First, the redrafted wording suggests that the relevant agreement must be reached before the meeting starts, whereas under the old law members could agree during the meeting. Secondly, where in relation to a meeting that is not an AGM, the old law required the agreement of a majority of members which between them hold 95per cent of the total voting rights, under the new law the requirement is simply that the holders of 95per cent or more of the votes agree.
5. The requirement that all the members entitled to attend and vote at the AGM agree to short notice remains unchanged.
6. Two new provisions setting out requirements for the notice of meeting take what were previously optional provisions of Table A and make them compulsory for all companies. Sections 249J and 249K between them provide that notice must be given:
A company must also give its auditor any other communications relating to the general meeting which a member is entitled to receive.
- individually to each member entitled to vote at the meeting (although if shares are jointly held, notice need only be given to one member);
- individually to each director;
- to the company's auditor.
7. Subsection 249J(3) provides that notice may validly be given by any of the following methods:
- by post to the member's registered address or any alternative address nominated by the member;
- to a facsimile or electronic address nominated by the member; or
- any other means that the company's constitution permits.
8. Section 249L contains new compulsory requirements for the contents of a notice of meeting. The notice must:
- set out the place, date and time for the meeting, and specify any technology that will be used to enable the meeting to be held in more than one place;
- state the general nature of the business to be conducted;
- set out the text of any special resolutions proposed (and, though it seems superfluous, a statement of intention to propose them).
9. Old section 250(5), which used to require public companies to set out certain matters relating to the appointment of proxies in their notices of meeting, has been redrafted, transferred to section 249L, and is compulsory for all companies which have members entitled to appoint proxies. The notice of meeting must state:
- that the member has a right to appoint a proxy;
- whether or not the proxy needs to be a member of the company; and
- that a member who is entitled to cast two or more votes may appoint two proxies and may specify the proportion or number of votes each proxy is appointed to exercise.
B. Members' rights to request general meetings or resolutions to be brought
1. The new law maintains the same three principal rights of shareholders as the old. They are:
- the right to call a meeting;
- the right to require the directors to call a meeting; and
- the right to require the directors to put a resolution to the meeting.
2. However, all of these provisions have been redrafted and modernised, and, from a shareholder's point of view, in one or two cases significantly enhanced.
3. One of those cases is the right of members to call a meeting themselves. This right was set out in section 247 of the old law, but was only binding on a company 'so far as the articles do not make other provision'. The new section 249F is in similar terms (members with 5per cent or more of the votes that may be cast at a general meeting may call a meeting at their own expense) but it now applies regardless of anything in the company's constitution.
4. The right of members to require the directors to call a meeting has undergone modest change, including the replacement of the term 'requisition' as the description of the members' right with the term 'request'. Old section 246 has been replaced by new sections 249D and 249E. The essence of the sections remains that 100 members or members holding at least 5per cent of voting rights can request the directors to call a general meeting, and the directors are required by law to do so. The new sections remove several superfluous requirements such as that the 100 members requesting the meeting have paid-up their shares to an average sum of $200, and a specific provision for the members of companies without share capital.
5. The requirements for the request have been made clearer. It must:
- be in writing;
- state any resolution to be proposed at the meeting;
- be signed by the members making the request; and
- be given to the company.
6. Section 249D also provides that multiple identical copies of the request may be used to facilitate the gathering of the necessary signatures, and resolves a point of previous mild curiosity by providing that the percentages of votes to which members are entitled is to be calculated at the midnight before they make the request.
7. As under the old law, upon receipt of a request, the directors of a company have 21 days to call a meeting, and the meeting must be held not later than two months after the date of the request. If the directors fail to call it, members with more than 50per cent of the votes possessed by the group who were party to the request may call their own meeting at the expense of the company. In some circumstances, the directors will then be personally liable to reimburse the company.
8. Sections 249N and 249O replace section 252 in providing for members' resolutions to be put before a general meeting. The provision has been tidied up in a similar manner to the request procedure, but the substance remains that 100 members or members with 5per cent of the votes may require a resolution to be put before the next general meeting that occurs more than two months after the notice is given..
9. The company is also obliged to circulate a statement given to it by the members proposing it (as long as it is less than 1,000 words long and not defamatory).
10.The part of old section 252(1) which gives the relevant number of members the right to have a statement about any proposed resolution circulated to all members has been spun-off into a new section 249P.
11. In addition to the members' rights, the Act has introduced a new section 250CA which is compulsory only for listed companies, providing that any director may call a general meeting. The fact that a director would potentially be liable to the company for the cost of a meeting which they called other than in accordance with their directors' duties should prevent abuse of this right.
1. Old section 249(3) has been amended and expanded in new section 249T. The main amendment is the alteration of the minimum quorum requirement for a public company from three members to two, and the specification that the quorum must be present throughout the meeting rather that merely at the start.
2. In addition, several provisions have been taken out of Table A and brought into the Law proper, including a provision dealing with the consequences if a quorum is not present, and an amended clause specifying how proxies and representatives are counted for quorum purposes.
3. However, like old section 249(3), which only applied 'so far as the articles do not make other provision', section 249T is a replaceable rule, and may therefore be excluded by a contrary provision in a company's constitution.
1. The new provisions relating to proxies contain the most significant of the changes to the Corporations Law discussed in this paper, and also the most controversial. The controversy stems from a number of amendments to the Act forced on the Government in the Senate only days before the Act came into force.
2. By no means, though, are all the changes to the proxy provisions either controversial or difficult. For example, section 249X replaces the old rule in section 250(3) that a member's appointment of two proxies was invalid unless each was appointed to represent a specified proportion of the member's voting rights with a default rule that if no proportion is stated each will represent half.
3. Section 250(2) used to provide that a proxy could only vote on a show of hands if authorised by the company's articles. New section 249Y sensibly provides that they can vote unless the constitution provides otherwise.
4. Another valuable 'default' rule appears in section 249Y(3). It states that unless a company's constitution provides otherwise, the presence of an appointing member at a meeting suspends the proxy's authority to speak and vote for that member.
5. The new section 249Z aims to ensure that members are treated equally if the company decides to send out appointment forms or lists of people willing to act as a proxy.
6. One of the more significant of the new sections is section 250A. The old law was silent on what form an appointment of proxy could or should take, and so it was left to either the articles or the board of directors to settle on a proxy form, which could then be made the only valid form of appointment. Section 250A(1) provides that a proxy is valid if it is signed and contains the basic requirements set out in subsections (a) -(d). The effect of this is that a company must accept as valid an appointment which meets these minimum requirements, even if it has asked members to make their appointments in a different form.
7. Section 250A(4) contains new rules on proxies voting on a show of hands. It provides that where a proxy has been appointed by more than one member and any two of those members have instructed the proxy to vote differently on a resolution, on a show of hands that proxy may not vote at all as a proxy. The final words of the subsection (which are not as clearly drafted as they might have been, and have therefore caused some confusion) have the effect that if a proxy in that position is also a member of the company themselves, they may still vote on a show of hands in their capacity as member.
8. Although it seems unnecessarily draconian, section 250A(5) makes it an offence for a person whom the company has held out as willing to act as a proxy to vote in contravention of subsection (4).
9. Sections 250B and 250BA are the first of the sections in this part which bear the imprint of Senate amendment.
10.Even in its original form, section 250B had its problems. Amusingly, subsection (3) managed to complete the entire legislative process without anyone noticing that the word 'or' was missing between the words 'appointment' and 'authority'.
11. More significantly, there were and are real problems with the provisions relating to the lodgement of appointment forms by fax. There is a minor drafting issue: the words of subsection (1) would normally be taken to require the lodgement of original documents with the company; but there is a real practical issue as well concerning a company's capacity to verify the authenticity of proxy documents.
12. As originally drafted, section 250B made it optional for companies to accept proxies via fax, and it also provided, in subsection (4), that a company could establish a method of verifying documents transmitted by facsimile, or require appointees to bring the original of their appointment and any authority under which it was given to the meeting.
13. In the Senate, not only was this subsection deleted, but section 250BA was introduced making it compulsory for listed companies to specify a fax number for proxies on their notice of meeting with the effect that by virtue of section 250B(3) listed companies are obliged to accept appointments by fax.
14. The Senate caused further carnage with a new s.251AA, headed 'Disclosure of Proxy Votes -Listed Companies'
15. The intention of this section is to require listed companies to record in their minutes and to disclose to ASX complete details of proxy voting on each resolution at their general meetings.
16. A preliminary issue is whether the requirement that proxy votes be recorded in the minutes of the meeting is a de facto requirement that they be announced at the meeting. In our view, the answer is clearly 'no'. There is no reason why Parliament cannot dictate the contents of company minutes, and it is putting the cart before the horse to read into such a provision an additional obligation in relation to the conduct of the meeting. Further, had that been the intent, it could have been very easily achieved by making section 250J, a replaceable rule which contains just such a requirement, compulsory.
17. The fundamental problem with section 251AA is that it refers to 'votes' and 'votes exercisable' without distinguishing between votes on a show of hands and votes on a poll. As we know, on a show of hands a proxy has one vote, unless the proxy holds multiple appointments which give conflicting instructions on how to vote on a resolution, in which case the proxy has no vote. On a poll, on the other hand, a proxy may have thousands or millions of votes which all may be cast despite conflicting instructions.
18. On the most literal interpretation of the section, if a resolution is decided on a show of hands, the number which the section requires the minutes to record as the total votes exercisable on the resolution will be simply the number of people validly appointed as a proxy, minus the number holding conflicting proxies. It seems unlikely that this is the information which the drafters thought vital to an informed marketplace, so we have advised clients that they should, in addition to fulfilling their statutory duty as outlined, calculate the number of proxy votes that would have been exercisable for and against each resolution had they gone to a poll, and to include that information in the minutes and forward it to ASX on a voluntary basis.
19. A further drafting problem is in subsection (1)(b), which requires that where a resolution is decided on a poll, the minutes specify the total number of votes cast on the poll:
(i) in favour of the resolution; and
(ii) against the resolution; and
(iii) abstaining on the resolution.'
20. What is meant by 'casting a vote abstaining on a resolution' is not instantly apparent. Perhaps the aim is to get a clear handle on how many company members are in the habit of filling out a ballot paper with the words 'I abstain' and nothing more.
21. Finally for this topic, the section relating to a body corporate's appointment of an individual as a representative at company meetings has been re-worked. The key amendment in what is now section 250D is the express provision in subsection (1) that an appointment may be a standing one. The old law had been ambiguous on this point, and the question had been the subject of conflicting judicial authority.
E. Conduct of meetings
1. This section discusses four new sections of the Corporations Law, three of which are to do with how to hold a meeting, while the fourth provides a new way not to hold a meeting.
2. Section 249Q provides simply that: 'A meeting of a company's members must be held for a proper purpose.' In relation to meetings called by directors, this is unremarkable, as normal directors' duties require that all of their acts as directors must be for a proper purpose, including the calling of a meeting. Presumably, when the directors call a meeting as a result of a request under section 249D, the company's compliance with the Corporations Law is a proper purpose in itself. The novel aspect of the section is how it applies to meetings called by members under sections 249E or 249F.
3. Section 249R provides that 'a meeting of a company's members must be held at a reasonable time and place', which seems fair enough.
4. Section 249S enables a company to 'hold a meeting of its members at two or more venues using any technology that gives the members as a whole a reasonable opportunity to participate'. According to the Explanatory Memorandum, 'a reasonable opportunity' will generally be afforded if each member is able to communicate with the chairman and be heard by other members attending the meeting, including those at the other venues. By using the phrase 'the members as a whole', the section gives a court the opportunity to discount the concerns of one or two disgruntled individuals as long as the technology has operated fairly in relation to the bulk of attendees.
5. Finally, section 249A specifically enables proprietary companies to pass resolutions, including special resolutions, by 'flying minutes' and thereby avoid the need to hold a physical meeting of members. The doctrine of unanimous assent has probably always entitled members of closely held companies to validly resolve on corporate action without the need for a formal meeting, however, it has been unclear whether this extended to actions which the Corporations Law required to be approved by a special resolution. This section makes it clear that, as long as the limited degree of formality which it requires is present, the members can resolve without a meeting to do anything they could have done in a formal meeting.
1. It has always been a common practice for Annual General Meetings of public companies to be opened to questions from the floor. New section 250S makes this practice compulsory by obliging the chairperson of an AGM to 'allow a reasonable opportunity for the members as a whole at the meeting to ask questions about or make comments on the management of the company'.
2. Like the provision regarding the use of technology, this section is drafted to provide a certain degree of flexibility. It does not require that every member have an opportunity to have a say, and the opportunity afforded anyone need only be 'reasonable'. It may be quite proper, for example, for a chairperson to set an appropriate number of speakers at the start of question-time, and to limit the length of time which any speaker may occupy. What is 'reasonable', though, could be affected by whether there are particularly pressing issues concerning the company, or if the directors are being unreasonably evasive in their answers. Note, though, that the section does not oblige anyone to answer the questions put.
3. Section 250T creates a similar obligation to allow questions of the company's auditor (if present).
1. The final set of changes are relatively minor modifications of the voting process at general meetings. Most of the voting provisions in the amended Corporations Law are replaceable rules, and can therefore be excluded or modified by a company's constitution. Examples of these include:
- section 250E, which specifies the number of votes which a member has in a show of hands and on a poll;
- section 250G, which sets out the process of challenging a person's right to vote;
- section 250J, which was referred to in relation to section 251AA, and sets out a procedure for conducting a vote; and
- section 250M, which gives the chairperson of a meeting authority to direct when and how a poll must be taken.
2. Of the compulsory sections, the only significant change is in section 250L. Old section 248 provided that a demand for a poll on a resolution could be made by five members or members holding 10per cent of the voting tights on the poll. Section 250L retains the five member option, but reduces the shareholding threshold for the other limb to 5per cent, and, additionally, provides that the chairperson of the meeting may demand a poll as well.
3. Finally, like section 249D(4), section 250L(4) provides that the relevant percentages of votes are to be calculated at the midnight before the poll is demanded.
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The information contained in this article has been prepared by the Minter Ellison Legal Group.Professional advice should be sought before applying the information to particular circumstances.