Company Law Review Act 1998 - Radical Changes

From 1 July 1998 Australian company law was fundamentally changed by the Company Law Review Act 1998. This 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.

There is no limit on the number of shares which a company can issue (this was previously limited by a company's authorised capital). As an exception, a company can place a limit on share issues if, before 30 September 1998, 100 members or members holding 5% of votes serve a notice on the company requiring the company to include a provision to this effect in its constitution.

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 is 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 governed by its constitution (formerly its memorandum and articles of association) 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 every company 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Table A (the set of rules for internal management which operated before 1 July 1998) has been repealed.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

A general meeting:

• can be conducted using any form of technology which gives all members a reasonable opportunity to participate
• requires 28 days notice in the case of Australian incorporated ASX listed companies and 21 days notice for all other companies
• of a proprietary company, can be held by circulating 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.

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, deadlines and information to be distributed to shareholders.

The changes include:

• 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) without using a seal by two directors, or by a director and secretary, signing the document. 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 not 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.

A meeting called before 1 July 1998 to consider a reduction of share capital will proceed under the old 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.

NATIONAL CONTACTS

Sydney     Bob Austin          +61 2 9210 4948

Melbourne  Michael O'Bryan     +61 3 9229 2943

Brisbane   Nerolie Withnall    +61 7 3226 6295

Canberra   Edwina Menzies      +61 2 6274 3025

Perth      Laurie Shervington  +61 8 9429 7420

Adelaide   Ewan Vickery        +61 8 8233 5411

For further information please contact trish.carroll@minters.com.au 

Minter Ellison
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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.