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Chapter 15 - Requisitioning a General Meeting
15.1
The Company Law Review Act 1998 among
other things inserted the following provisions in the Corporations Law:
Calling of general meeting by
directors when requested by members
249D (1) [Members
request] The directors of a company must call and arrange to hold a
general meeting on the request of:
- members with at
least 5% of the votes that may be cast at the general meeting; or
- at least 100 members
who are entitled to vote at the general meeting.
249D (2) [Form of request] The request must:
- be in writing;
and
- state any resolution
to be proposed at the meeting; and
- be signed by the
members making the request; and
- be given to the
company.
249D (3) [Separate copies may be used for signing]
Separate copies of the document setting out the request may be used for signing
by members if the wording of the request is identical in each copy.
249D (4) [Percentage of votes to be determined] The
percentage of votes that members have is to be worked out as at the midnight
before the request is given to the company.
249D (5) [Time limits for calling and holding of meeting]
The directors must call the meeting within 21 days after the request is given
to the company. The meeting is to be held not later than 2 months after the
request is given to the company.
...
Purpose
249Q A meeting of a company’s members must be held for
a proper purpose.
15.2
Item 4 of Schedule 6 – Miscellaneous
amendments of the Corporations Law of the Corporate Law Economic
Reform Program Bill 1998 provides as follows:
4 After subsection 249D (1)
Insert:
(1A) The regulations may prescribe a different number of members
for the purpose of the application of paragraph (1)(b) to:
- a particular
company; or
- a particular class of
company.
Without limiting this, the regulations may specify the number as
a percentage of the total number of members of the company.
15.3
On 2 August 1999 the Minister for Financial
Services and Regulation, the Hon Joe Hockey MP, referred the operation of
sections 249D and 249Q and Item 4 in Schedule 6 to the PJSC for inquiry. The
Minister also noted that the Companies and Securities Advisory Committee
(CASAC) was currently considering the issues raised by s.249D in a discussion
paper entitled “Shareholder participation in the modern listed public company”.
The CASAC subsequently presented the discussion paper in September 1999.
Submissions
15.4
The PJSC received 21 submissions which addressed
this topic, of which 7 were broadly in favour of the present test or threshold
in s.249D, while 14 were generally opposed to the threshold as being too low.
Arguments against the present threshold
Problems with the provisions
15.5
A majority of the submissions advised that there
were deficiencies in the operation of s.249D. Rio Tinto Limited submitted that
it was important to impose limitations on the way in which a few individuals,
perhaps with only one share each, or small single interest groups, can use the
provision for other than proper purposes. There needs to be a balance between
legitimate shareholders’ rights and the potential abuse of those rights at what
could be a substantial cost to the company. The threshold of 100 members is
totally inadequate because of large share registers and the ease with which the
Internet may be used to obtain this small number. The Law Council of Australia
submitted that the threshold was too low and was open to abuse. The policy
concern is that where requisitioning shareholders with a nominal economic
interest may have purchased shares solely to request the meeting and to further
a particular cause, it is not in the company’s interest to be required to call
the meeting. It is in fact a waste of shareholder funds and executive time.
This is different to the situation where minority shareholders with a real
economic interest in the company raise legitimate concerns. The Investment and
Financial Services Association Ltd (IFSA) submitted that too frequent meetings
will inconvenience and distract management from its core task of conducting
company business, with adverse consequences for shareholder and customer
confidence. At present there is not an appropriate balance. The present
threshold may be requisitioned at considerable cost to the company by people
with a very small economic interest in the company, or within a short time
before or after the annual general meeting. Coles Myer Ltd submitted that the
threshold was too low for large companies. It is a simple task to recruit 100
shareholders. The costs of the provision outweigh the benefits. North Limited
submitted that a special meeting was extremely disruptive for the company. It
not only imposes a considerable cost but also is a major distraction for
directors and management over a considerable period of time. Special meetings
destroy rather than create economic value.
15.6
Blake Dawson Waldron, on behalf of the
Australian Stock Exchange Limited, the Australian Institute of Company
Directors, the Business Council of Australia and the Chartered Institute of
Company Secretaries in Australia Ltd (CICS), submitted that s.249D(1)(b) is
open to serious abuse by disgruntled minorities, single issue groups and others
motivated by concerns other than the interests of the company. Urgent amendment
of the provision was necessary. There is now a virtually unrestricted right for
small numbers of shareholders with a tiny economic interest in the company to
requisition meetings. The provision is already proving to benefit principally
those who seek to damage a company. The CICS separately submitted that the
issue was of critical importance for all major corporates in Australia. A
meeting could be requisitioned at high cost within a short time of the annual
general meeting by shareholders with a small holding, with no consideration for
the rights of other shareholders. The Internet means that it is easier to get
100 requisitioning numbers. A number of submissions made similar points.
15.7
A number of submissions advised that the
Corporations Law provided other safeguards apart from s.249D for the rights of
small and single issue shareholders to place their views before the company in
general meeting.
Meetings must be held for a proper
purpose
15.8
A number of submissions advised that the
requirement in s.249Q that meetings must be held for a proper purpose was not
an effective safeguard for perceived abuse of s.249D. Blake Dawson Waldron
submitted that s.249Q required only that the matters to be put to members
should be within the competence of a general meeting of the company to
consider. Section 249Q is not sufficient to prevent ongoing harassment. North
Limited submitted that s.249Q should include a provision that it is not a
proper purpose if the meeting is not requisitioned in good faith. Evidence of a
lack of good faith could include repeated presentation of issues rejected by
earlier meetings. Also, Canadian safeguards could be adopted under which a
company need not hold a meeting if it is requisitioned for a range of political
or social purposes. The IFSA submitted that s.249Q is of limited use in
preventing a small number of shareholders from requisitioning a meeting which
is not in the interests of the company as a whole. A proper purpose is anything
which a company could do in a general meeting. Also directors may be reluctant
to rely on the proper purpose test given possible litigation and publicity. McCullough
Robertson submitted that there were a number of technical legal problems with
the concept of proper purpose. The Law Council of Australia submitted that the
purpose of s.249Q was to prevent the requisitions power from being used for
invalid, specious or frivolous purposes. Unfortunately it is not clear that
this objective has been achieved.
Mutual companies
15.9
The President of NRMA Limited, Mr Nicholas
Whitlam, submitted that s.249D has particular difficulties for mutual
companies. The question was the threshold and striking a balance between the
legitimate rights of members to call for special meetings on the one hand and
the abuse of the process for frivolous reasons on the other. The NRMA has 1.8
million members and its sister mutual company NRMA Insurance Limited has 1.4
million members. There are no shareholding blocks, with each member having one
vote equally valued. It was easy to obtain 100 signatures and the costs of a
special meeting could be up to $1 million. Costs could be reduced to half this,
however, if special meetings can be held adjacent to an annual general meeting.
The NRMA would prefer a threshold of 1%, which should apply only to mutual
companies. The NRMA is very pleased with the regulation making power in the
Bill.
Suggested remedies
15.10
Submissions which suggested a remedy to the
perceived problem concentrated on economic rather than numerical thresholds.
These included a requirement to hold a marketable parcel of shares, or shares
to a certain value for each individual requisitioning member, or for a total
shareholding of a minimum percentage of voting rights. There was less support
for a purely numerical threshold.
15.11
Other suggested courses included a requirement
for ASIC to approve the requisitioned meeting, provision for individual companies
to exclude the operation of s.249D, provision for requisitioning members to
negotiate with the company before the meeting was held and limits on the
matters which a meeting could address. Several submissions referred to the
Canadian safeguards, which are in addition to a 5% voting rights threshold.
Arguments in favour of the provision
15.12
A number of submissions advised that s.249D was
beneficial for shareholder rights and corporate democracy. Mr Peter Graham QC
submitted that in two cases of which he had personal knowledge the provision
had been useful in dealing with a belligerent and uncompromising management. In
both cases the mere mention of the provision without its actual use was enough
for a positive outcome. Even in another case where the provision was in fact
invoked the costs incurred by the company were preferable to the emasculation
of s.249D rights. The Australian Society of Certified Practising Accountants
and the Institute of Chartered Accountants in Australia submitted that there
were no problems with either the provision or with the proposed regulation
making power to amend the threshold. The Association of Superannuation Funds of
Australia Limited submitted that there were no clear instances of the failure
of the legislation so no changes were necessary.
15.13
The Boral Green Shareholders submitted that the
provision allows dissenting groups to put a point of view. Obtaining 100
members is not easy and represents a real contrary point of view. Any change
should make it easier not harder to requisition a meeting. The North Ethical
Shareholders submitted that the present threshold is considerable. It is hard
to recruit 100 members and there are legal fees and the risk of legal
challenge. There is adequate legal protection for companies against harassment.
Nevertheless, the possibility of abuse exists and it may be reasonable to
require the 100 members each to own 50 shares. However, if the numerical test
was 5% then this would virtually destroy shareholder rights. The BHP
Shareholders for Social Responsibility and the Amcor Green Shareholders
submitted that the provision was important for shareholder democracy and good
corporate governance. The hurdle of 100 members is extremely high; it is
exceedingly difficult to bring together that number of shareholders. Any change
should be to less than 100 members, but it would be acceptable to provide that
each must hold a marketable parcel of shares.
15.14
In relation to mutual companies, Mr Peter
Carroll, an NRMA member, submitted that Mr Whitlam (see paragraph 15.9)
exaggerated the difficulties and overlooked the implications of good governance
for large mutual companies. The provision did not have a history of frequent or
frivolous use. Also the NRMA had routine mailouts to members at least seven
times a year, for the company magazine and the annual general meeting, so costs
would be relatively trivial.
CASAC discussion paper
15.15
As mentioned earlier, CASAC presented
“Shareholder participation in the modern listed public company” in September
1999. The CASAC view was that the present 100 shareholders test is not soundly
based on principle. The shareholder numerical threshold or any variation of it
is unsatisfactory. The test for requisitioning a meeting should be a proportion
of the issued share capital of the company. CASAC has not yet reached a
decision on what that proportion should be, but noted that a 5% threshold would
be compatible with overseas practice.
Conclusions
15.16
The PJSC concludes that the present provision
for 100 members to requisition a meeting of the company is inappropriate and
open to abuse. The current position is that 100 members who together may hold
only a tiny economic interest in a company and be only a minuscule proportion
of the company’s numbers, may require the company to hold a special meeting,
with the resulting costs to be met by the company itself. In addition, the
company is disadvantaged by its directors and managers being diverted from
their core functions.
15.17
The PJSC further concludes that s.249Q, which
provides that a meeting must be held for a proper purpose, is not a safeguard
against abuse of the requisition power. It appears that a proper purpose is any
matter which is within the competence of the company in general meeting. It
would be easy, therefore, to draft a requisition in those terms. Also, if
directors declined to convene a meeting for lack of proper purpose they would
invite litigation.
15.18
The sole test for requisition of a special
meeting should be an issued share capital threshold which must be met
collectively by the requisitioning members. The PJSC endorses the CASAC finding
that the numerical shareholder test or any variation of it is unsatisfactory.
The reason for this is that such tests would not overcome the basic difficulty
that a group of members with an insignificant economic stake in the company may
put the company and the other shareholders to the expense and inconvenience of
a meeting.
15.19
There are further specific difficulties with the
various submissions which attempt to ameliorate the effect of the numerical
shareholder threshold. These include administrative complexity and uncertainty
and the likelihood of litigation. In the case of making the present numerical
test a replaceable rule the PJSC endorses the CASAC finding that requisition of
a meeting is a significant matter of corporate governance, for which a uniform
rule is appropriate.
15.20
The test of a minimum proportion of issued share
capital to be met collectively by requisitioning members is preferable not only
as a matter of principle but also for administration reasons. The issued share
capital test is simpler to administer and more transparent in effect. The PJSC
also endorses the comment by CASAC that if requisitioning members cannot cross,
say, a 5% shareholding threshold, then there must be serious doubts that their
resolution would succeed.
15.21
The PJSC concludes that a 5% issued share
capital test would be reasonable, given CASAC advice that this would be
compatible with overseas practice.
15.22
Large mutual companies such as the NRMA are in a
special position and may need different provisions.
Recommendation
15.23
The PJSC recommends that the Corporations Law be
amended to provide that the sole test to requisition a special meeting of a
company is 5% of the issued share capital to be met collectively by the
requisitioning members.
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