- Members' meetings - more Corporations Act reform proposals
- CLERP 7 simplifies document lodgment and removes director age restriction
- Repayment of Directors' Bonuses Bill now an Act
Members' meetings - more Corporations Act reform proposals
With the FSR reforms to the Corporations Act 2001 (Cth) only barely bedded down, yet further reforms to the Corporations Act are proposed. This time the focus is on members' meetings of listed companies and disclosure of certain information in financial reports. The reforms are proposed in the exposure draft of the Corporations Amendment Bill 2002. One of the stated aims of these reforms is to reduce the variety of ways in which meetings may be called and targets economic interest as the key prerequisite to a meeting being called.
Among the proposed amendments to the Corporations Act are:
- the repeal of the provision which gives any director of a listed company the power to call a meeting of the company's members (s 249CA). If the Bill is passed, this power may still be included by a company in its constitution, if appropriate, by means of replaceable rule s 249C;
- the removal of the section that allows 100 members to requisition a meeting (the 100 member rule - see comment below) (s 249D);
- a reduction in the period of notice for meetings of listed companies from 28 to 21 days (s 249HA to be repealed);
- adding a requirement that the annual reports of public companies disclose the qualifications and experience of their company secretaries (s 300(10));
- the repeal of the requirement that before a vote is taken the chair must inform the meeting whether any proxy votes have been received and how those proxy votes are to be cast (s 250J(1A));
- clarification of the requirements for disclosure of remuneration details in the directors' annual report (ss 300A and 300(1)). The proposed amendments will enhance transparency and make it clear that remuneration details must be disclosed for each of the 5 most highly paid executive officers other than directors. The amendments will also strengthen the disclosure requirements for non-cash benefits;
- the abolition of the requirement that companies include details of compliance with environmental legislation in their annual directors' reports (s 299(1)(f)); and
- the removal of the obligation for listed companies to disclose to the ASX information reported to overseas exchanges (s 323DA).
100 member rule
A significant reform proposal is the removal of the 100 member rule. On 19 April 2000 the Government introduced reg 2G.2.01 under s 249D(1A). This regulation attempted to remove the 100 member rule, specifying that the directors of a public company were obliged to call and arrange to hold a general meeting only on the request of members with at least 5% of the votes that may be cast at the general meeting, rather than 100 members who are entitled to vote at a general meeting. This regulation was disallowed by the Senate on 28 June 2000.
In July 2000 the Companies and Securities Advisory Committee (now the Corporations and Markets Advisory Committee) released a report entitled 'Shareholder Participation in the Modern Listed Company'. This report recommended the abolition of the statutory right of 100 members of a public company to requisition a meeting. The Committee was in favour of retaining the 5% minimum threshold as the only means by which members could request meetings. A 1999 report of the Parliamentary Joint Statutory Committee on Corporations and Financial Services included a similar recommendation.
The removal of the 100-member rule would align the Australian corporations legislation with foreign law. The requirements for member requisition of a meeting in the United States and United Kingdom is 10% of the votes that may be cast at a general meeting, 5% in Canada and New Zealand and between 5% and 20% in Europe. There has been judicial support for the abolition of the rule, most recently evidenced in the string of cases involving National Roads and Motorists' Association Ltd (NRMA) meetings being requisitioned by 100 members, or 0.005% of the total shareholding. In NRMA Ltd v Snodgrass Windeyer J said: 'It seems to me extraordinary that in a company limited by guarantee with about 2 million members, a general meeting can be summoned by requisition of 100 members'. These sentiments were endorsed by Palmer J of the NSW Supreme Court in NRMA Ltd v Scandrett.
The public comment period on the exposure draft closed on 25 March 2003 and the Government is now considering responses.
CLERP 7 simplifies document lodgment and removes director age restriction
FSR was CLERP 6 and now the CLERP 7 legislative package has become law.
(For those wanting to keep on top of the CLERP reform process, CLERP 8 relates to cross border insolvency laws and whether Australia should adopt the UNCITRAL Model law. A discussion paper was released by the government last October. CLERP 9, which is entitled 'Corporate Disclosure', covers a range of matters such as analyst independence, prospectus disclosure and disclosure requirements for secondary sales. It also covers a number of corporate governance areas - see our Corporate Governance site. The Treasury is currently considering comments received on the CLERP 9 discussion paper.)
The CLERP 7 package is of limited application to the capital markets area but we have included this brief commentary so that you are not left wondering about its significance.
The main thrust of the CLERP 7 Acts (ie, the Corporations Legislation Amendment Act 2003 (Cth), Corporations (Review Fees) Act 2003 (Cth) and the Corporations (Fees) Amendment Act 2003 ) (Cth) is the simplification of document lodgment and compliance in Australia. (The Acts were not available on line at the time of publication.
The CLERP 7 reforms are intended to streamline the process of lodging documentation and maintaining compliance procedures for companies, particularly small businesses. Additionally, the package aims to improve the efficiency of corporate regulation generally and to facilitate a more efficient and competitive business environment. These amendments will commence on 1 July 2003.
Other key amendments include:
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the abolition of annual returns, which will be replaced by a requirement that companies confirm or correct particulars using information provided by ASIC. However, if there are no changes to company details throughout the year, no paperwork will need to be lodged with ASIC;
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streamlining the document lodgment requirements so that the numerous existing 'notification of change' forms will be replaced by one multi-purpose form;
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the prescribed periods for lodgment of certain forms will be extended; and
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ABNs will be permitted on company seals.
Removal of 72 year age restriction on public company directors
However as is often the case, the Bills contain some additional reforms in unrelated areas that are worthy of note. Of particular significance is the removal of the general prohibition in s 201C on the election or re-election of directors of a public company (and any of its subsidiaries) who have reached the age of 72. This amendment (contained in the Corporations Legislation Amendment Act 2003 (Cth)) took effect on 11 April 2003, when Royal Assent was given to the Bill. This move forms part of the Federal Government's push against age discrimination in the workplace. The law for public companies in this area is now the same as for proprietary companies, where there is no upper age limit on the election of directors.
Repayment of Directors' Bonuses Bill now an Act
The Corporations Amendment (Repayment of Directors' Bonuses) Bill 2002 , is now an Act (the Act), having been assented to on 11 April 2003. This Act, whose origins lie in the One.Tel collapse and the public outcry concerning payments that had been made to certain directors, amends the Corporations Act 2001 to permit liquidators to reclaim unreasonable bonuses awarded to the directors of insolvent companies.
However the Act is not limited to bonuses as such: it also covers payments made by the company as well as transfers of property or issues of securities (including options). The Act applies to transactions that involve a director of the company or close associate, meaning a relative of the director or the spouse of a director. In both cases, de facto spouses are included.
The transaction must have been unreasonable and entered into during the four years leading up to a company's liquidation, regardless of its solvency at the time of the transaction. Unreasonable transactions are those transactions made to a director in circumstances where a reasonable person in the company's circumstances would not have entered into the transaction.
The money that is recouped is intended to be used to meet the lawful and legitimate entitlements of workers and the other creditors of the company.
(Source: Treasury press release, 28 March 2003.)
