COMPANY LAW REVIEW ACT 1998 By Margaret Taylor, Corporate
Partner, Sydney
From 1 July 1998 Australian company law was fundamentally
changed by the Company Law Review Act 1998. What follows is a
summary of some of the changes which have practical
implications for companies.
Share capital
Shares no longer have nominal or par values. A company limited
by shares does not have an authorised or nominal share capital,
and there is no limit on the number of shares which a company
can issue (previously limited by a company's authorised
capital). Any provisions in a company's constitution
(formerly its memorandum and articles of association) stating
the amount of the company's share capital, and dividing
that share capital into shares of a fixed amount, were repealed
as from 1 July 1998.
Share premium account and capital redemption reserves no longer
separately exist. These reserves have been incorporated into
share capital. Any amount in a company's share premium
account immediately before 1 July 1998 can still, however, be
applied to:
- pay any premium on redemption of redeemable preference shares or debentures issued before 1 July 1998
- write off expenses incurred or discounts allowed before 1 July 1998 on share or debenture issues.
Some other consequences include:
- profits can be capitalised without issuing shares
- any consolidation or subdivision of share capital will be by number of shares and not par value
- companies will not have access to a share premium account to pay any premium on redemption of redeemable preference shares. There will be no distinction between par and premium and all redemptions must be from the proceeds of a fresh share issue or out of profits.
Replaceable rules
A company's internal management is now governed by its
constitution and replaceable rules, as applicable. Replaceable
rules comprise a limited set of rules for internal management,
set out in the Corporations Law.
Replaceable rules apply to an existing company:
- if it repeals its constitution on or after 1 July 1998
- if it repeals its constitution and adopts a new constitution on or after 1 July 1998, to the extent that the new constitution does not displace or modify the replaceable rules.
Replaceable rules apply to all companies formed on or after
1 July 1998 to the extent that they are not displaced or
modified by the company's constitution.
Table A (the set of rules for internal management which
operated before 1 July 1998) has been repealed. However, the
rules in Table A continue to apply to existing companies to the
same extent that they applied before 1 July 1998.
Some replaceable rules will be mandatory for public companies.
At 1 July 1998, the only mandatory rule relates to the
appointment of and voting by proxies.
General Meetings
General meetings:
- can be conducted using any form of technology which gives all members a reasonable opportunity to participate, and
- require 28 days notice in the case of Australian incorporated ASX listed companies and 21 days notice for all other companies.
General meetings of a proprietary company can be held by
circulating a resolution signed by all members (except a
resolution to remove the auditor).
Members holding 5% of votes or 100 members can require:
- directors to call a general meeting
- a proposed resolution to be put on the agenda for a general meeting and a statement about that proposed resolution to be distributed to all members.
At the annual general meeting of a company, members as a
whole must be given an opportunity to ask questions of
management and to ask the auditors about their audit
report.
Proxy forms can be lodged by facsimile or other electronic
means specified in the form of proxy. Notices of meeting for
Australian incorporated ASX listed companies must include a
place and facsimile number for proxies and may include an
electronic address. Unless a company's constitution
provides otherwise, a proxy can vote on a show of hands.
The old rule 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 has been replaced
with a default rule that if no proportion is stated each will
represent half.
A form of proxy will be valid if it is signed and contains
certain basic details (as to the member's name and address,
the company's name, the proxy's name or the name of the
office held by the proxy, and the meetings at which the
appointment may be used) - that is, a company must now accept
as valid an appointment which meets these minimum requirements,
even if it has asked members to make their appointments in a
different form.
An Australian incorporated ASX listed company must record
specified information about proxy votes in the minutes of each
meeting and provide that information to ASX.
Financial assistance
A company can provide financial assistance for the acquisition
of shares in the company provided that there is no material
prejudice to the company, its shareholders or creditors.
Material prejudice is a question of fact which must be judged
in light of the circumstances of the company when the
assistance is proposed.
These changes remove a major technical obstacle to many normal
commercial transactions and will reduce compliance costs.
Financial reporting
Financial reporting requirements have been revised with changes
to specific information required, time periods and information
to be distributed to shareholders.
The changes include the following:
- Specific procedures for the preparation and lodgement of consolidated financial statements are no longer set out in the Corporations Law. The procedures are now those required by the accounting standards.
- Directors' statements and reports must now be completed in time to comply with the obligation to report to members and lodge with the ASIC.
- Companies can now send abridged financial reports to shareholders, and send the complete report on request.
- Directors' reports for each Australian Incorporated ASX listed company must include details of each director's and the five highest earning officers' salary and other compensation and a discussion of the company's policy for determining salary and other compensation against the performance of the company for the relevant year.
General
The Minimum Number of Members For a Public Company is
One.
Common seals are now optional. A company may execute a document
(including a deed) by two directors, or by a director and
secretary, signing the document - that is, without using a
seal. A person dealing with the company may assume that
documents executed in this way have been validly executed with
due authority.
A public company may grant options which are exercisable more
than five years after they were granted.
The procedure to reduce a company's share capital is
easier. Shareholder approval is necessary but court
confirmation is no longer required.
Timing
The Company Law Review Act Commenced on 1 July 1998 ('new
law').
Notices of meeting sent to members of Australian incorporated
ASX listed companies before 1 July 1998 which comply with the
old law do not have to comply with the new law. However, all
meetings held after 1 July 1998 must comply with the new
meeting procedure requirements.
An authority to act as a body corporate's representative at
a meeting given before 1 July 1998 will be treated as if it
were given under the new law.
Subject to some specific exceptions, the new financial
reporting requirements apply to financial years and half years
ending after 1 July 1998. For most companies on a 30 June year,
the new requirements apply for the financial year which began
on 1 July 1998.
For further information please contact:
Ralph Ayling Direct phone: (+61 2) 9210 4805 E-mail:ralph.ayling@minters.com.commlog@mondaq.com ralph.ayling@minters.com.
Paul Ali Direct phone: (+61 2) 9210 4961 E-mail:paul.ali@minters.com.au, commlog:mondaq.com paul.ali@minters.com. Direct fax: (+61 2) 9210 4691
Minter Ellison 44 Martin Place Sydney NSW 2000 AUSTRALIA
Phone:(61 2) 9210 4444
Fax:(61 2) 9235 2711
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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.