Having access to the state of the proxies can provide a significant tactical advantage in a proxy battle. In a recent matter, an activist security holder sought to understand whether they had been successful in winning over the members using the power of a member to inspect the books of the company.
The law of proxies and proxy management is complex and difficult to predict. But in this case, Corrs' client was successful in its claim that proxies are not 'books of the company' and are not subject to the statutory access rights.
In the course of the judgment her Honour, Justice Rees, went some of the way to clarify the previous inconsistent law regarding a member's right to access proxies. The judgment denies the activist shareholder the ability to access the proxies in a proxy contest and says, in effect, the existing statutory regime is sufficient without tilting the field in favour of the activist.
What was the case about?
In this case ARA, Cromwell Property Group's largest security holder, had nominated a candidate for appointment as a director the annual general meeting. The Cromwell directors recommended security holders vote against the resolution.
After the notice of meeting was distributed, ARA wrote to security holders enclosing a pre-completed proxy form to be delivered using a third party registry and putting in place a proxy handling facility to properly handle and deliver the proxies 48 hours before the AGM.
ARA commenced an application under s 247A of the Corporations Act 2001 (Cth) and the general law for access to proxy forms. Under that provision a member may make an application to the court to inspect the books of the company if acting in good faith and for a proper purpose.
The NSW Supreme Court refused the application on the basis that proxy forms are not books of the company and that the general law did not create a general right of access.
Why did ARA want the proxy forms?
In an application under s 247A, the applicant bears the onus of establishing that they have a proper purpose for seeking access to the books of the company. Here, ARA sought access to the proxy information for the purposes of:
- Contacting Cromwell security holders in relation to the exercise of their voting rights at the AGM.
- Verifying and assessing the validity of the proxy forms.
- Monitoring the integrity of the process.
- Verifying the vote.
Are proxy forms 'books of the company' for the purposes of s 247A?
The Court found that completed proxies are not books of the company. A proxy form filled out by a member or unitholder and delivered to the company for the purpose of a meeting does not belong to the company. An instrument of proxy is a grant of authority by a member to the proxy (often the Chair) to act as agent. A proxy form is a record of a member's instruction to the proxy as to how that member wishes to vote. It is required to be delivered to the company and is held by it, not for the company's purposes, but for the purposes of independent functions performed by the Chair acting as the 'agent' of the appointor.
Is there a common law right of access to proxy forms?
ARA argued it was entitled to the proxy forms under general law. The Court found that while there is ample authority for a director to be given access to documents, including proxy forms, the right of a member existed only where the right was being sought to resolve some specific dispute or question and it is only granted to such an extent as is necessary to the particular occasion.
ARA claimed it needed the details of the proxy in order to have a 'level playing field' to solicit votes. But, Justice Rees was not persuaded that the Corporations Act or the general law included any such right. To grant an activist such rights would have created an information asymmetry in favour of the activist in circumstances where the nominator already had substantial statutory rights.
While proxy battles have become much more the norm in Australian corporate life, Justice Rees has confirmed that the activist does not ordinarily have a right to access the proxies in a proxy contest.
The Court found that the existing body of rights in the Corporations Act provides sufficient avenues for the activist shareholder to communicate its message to members. That included providing a statement under s 249P to be circulated with the notice of meeting and by accessing the register of members and obtaining the contact details of the members and communicating directly with them.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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