|
|||
|
|||
|
 |
|
| Additional mail costs associated with first class mail of 8 cents per item | $28,000 |
| Overtime costs or printers | 10,000 |
| Overtime costs of mail house (who envelope and prepare for mailing) | 10,000 |
| Total direct additional costs | $48,000 |
In the event that we fail to have the Annual Report ready to meet the 28 days deadline and so mail Annual Report separately from the Notice of Meeting |
|
| Additional mail costs of 45 cents per item | $157,500 |
| Additional envelope costs of 4 cents per item | 14,000 |
| Additional costs of mail house to process 350,000 items | 30,000 |
| Further costs | $201,500 |
| Total cost | $249,500 |
7.19 The PJSC was told that a consequence of the extended notice period will be that a number of companies will have to mail their notices of meeting separately from their annual reports, thereby incurring additional costs.[22] The additional costs to companies that have no option but to mail the documents separately will be in the order of $1.00 per shareholder. For companies with large numbers of shareholders such as Telstra this will obviously involve very large sums.[23] The Law Society of Western Australia noted that two mail outs would result in added costs and confusion.[24]
7.20 GIO estimated that the additional cost to it had it split the normal mailing of the annual report and the notice of meeting into two separate mailings would have been in the order of $60,000.[25]
7.21 Arnold Bloch Leibler cautioned that additional mail-outs might be required where information becomes out-dated adding to the expense in meeting the obligation to afford shareholders sufficient opportunity to consider proposals put to them for consideration.[26] Arnold Bloch Leibler stated:
...information mailed to shareholders may well be out of date by the time the relevant meeting is held. The directors may need to dispatch additional material to shareholders prior to the meeting, thereby adding to the costs associated with holding meetings. As this material may be received during the 28-day period, it will be open for shareholders to argue that they have not had a reasonable opportunity to consider the additional material. Delaying the meeting further will involve considerable further expense and will delay the company’s ability to take the required action and conduct its business within a reasonable time frame.[27]
7.22 Arnold Bloch Leibler also advised that the actual timeframe is invariably longer than 28 days. Directors need to ensure that there are 28 clear days between the date on which the notice of meeting is dispatched and the date on which the meeting is held, additional days must also be allowed for weekends and public holidays.[28] Mr John Fast, a partner with the law firm Arnold Bloch Leibler stated:
What happens practically is that 28 days effectively becomes five weeks. I have been involved in umpteen reconstructions and scheme arrangements and, yes, you have to give 28 days notice, but, being ever cautious and allowing for bits and pieces that can arise, you tend to err on the conservative side, and my experience is that more often than not you tack on a number of days to begin with.[29]
7.23 The PJSC was advised that as a consequence of the application of section 249J(4) of the Corporations Law the 28 days notice becomes effectively 31 days. It was submitted that unless a company’s constitution specified another period for receipt of a notice of meeting “receipt is deemed to have occurred three days after the date of postage.”[30] Section 249J(4), which is referred to as the three-day rule, provides that:
A notice of meeting sent by post is taken to be given 3 days after it is posted. A notice of meeting sent by fax, or other electronic means, is taken to be given on the business day after it is sent.
7.24 In addition, ASX Listing Rule 15.1 provides for a 5-day period of review of draft company documentation. The PJSC was told that the change to 28 days extended the timeframe for the notification of meetings, especially when added to the three-day rule and the time the ASX takes to review company documentation:
Mr Cantrick-Brooks-We are talking about listed companies here because that is where most impact occurs. The ASX has a reviewing period-it has five days in which to review documents-so you have to factor that into it as well.
CHAIR-Is that necessary or could that be eliminated in the 28 days.
Mr Cantrick-Brooks-No. The ASX requirement is an ASX listing rule requirement and you need to comply with that. Indeed, there are very good reasons you would want that to occur, because it provides a level of security and satisfaction to shareholders that the thing has been properly reviewed and there has been nothing-
CHAIR-So, effectively, if you have the 28 plus the three plus five, you are really up to 36 to 37 days.
Mr Cantrick-Brooks-Yes. That is not even counting the logistics of getting the printer to get the stuff printed, which a lot of people forget about. From a day-to-day, real life perspective, that is just so critical for us. We are finding ourselves working at the eleventh hour trying to get the stuff out.[31]
7.25 The Law Society of Western Australia warned that the extension might disadvantage companies requiring member approval to a commercial transaction. If conditional agreement is reached, the delay in shareholder approval being given will deny certainty and result in a reluctance to deal with companies in this position.[32] Similarly, the Chartered Institute of Company Secretaries submitted that the 28 days notice period could result in companies missing important commercial opportunities.[33]
7.26 It was also claimed that the 28 days notice for a general meeting was excessive and might jeopardise capital market raisings or distress situations.[34] In particular, the 28 day requirement could inhibit capital raising by junior or medium size exploration/mining companies. Lynas Gold NL submitted that:
If a company needs to obtain shareholder approval under Listing Rule 7.1 for a proposed share issue, it may not be able to capture a market opportunity due to the inordinate amount of time required to obtain shareholder approval before the capital is raised. In worst case scenarios, this time log may lead to the company perishing if capital cannot be raised quickly which would not be in the interests of shareholders.[35]
7.27 It was suggested therefore that the 28 day period should only apply to listed companies with a defined percentage of overseas shareholders (for example, 40 per cent).[36]
7.28 Several organisations pointed out that there had been no request from the corporate sector for an extension of the notice period or that the 14/21 days notice regime was inadequate.[37] The PJSC was told that if problems existed with the previous timeframes other options were available to resolve the situation. If, for example, the complaint is that there are delays in nominees of shareholders receiving and notifying beneficial or overseas shareholders, discussions should have been held between the institutional investors and the principal nominee companies. The mere prolonging of the timetable will not guarantee that such problems will be overcome.[38] Similarly, the AICD suggested that instead of legislating to extend notice periods, institutional investor internal procedures could be reviewed and streamlined to allow investors to exercise their voting rights within existing timeframes.[39]
7.29 It was recommended to the PJSC that the previous 14 day notice period should be reinstated as a more workable company timeframe.[40] Given the advent and widespread use of electronic communication, the extension of the notice period could not be justified.
7.30 It was argued that in certain circumstances, the extended notice period is too long, particularly where shareholders are asked to vote on matters that are subject to change or are affected by movements in market conditions. According to Allen Allen & Hemsley, shorter time periods are more appropriate in those circumstances to avoid the dissemination of information that may rapidly become misleading as a result of those changes.[41] Similarly, GIO noted that after 28 days, the issues raised in the Annual Report lose their ‘immediacy’.[42]
7.31 Freehill Hollingdale and Page highlighted the fact that the amendment may have the opposite effect to that which was intended:
This amendment appears to have been intended to improve the notice given to shareholders of general meetings. However, it may in fact reduce the quality of information provided to shareholders with a notice meeting, because that information will be at least 4 weeks (and up to, perhaps, 6 weeks allowing time for meeting documentation to be drafted and distributed to shareholders) out of date by the time the vote is taken.[43]
7.32 The West Australia Joint Legislative Review Committee of the Australian Society of Certified Practising Accountants, the Institute of Chartered Accountants and the Chartered Institute of Company Secretaries opposed the extended notice period on several grounds, including that it results in inconsistency between the timetable for reporting to members (21 days) and the notice period (now 28 days). The Review Committee commented that the annual report is as important as the notice of the meeting and noted that:
Apart from the significant mailing cost in this transition year, in the future it is expected that companies will report and give notice together. That is, all end of year activities will be advanced by 2 weeks over what they have been to date. This can only result in greater costs and a speed of process that could contribute to a greater risk of error for no discernible advantage.[44]
7.33 Several submissions argued that in these days of advanced technology, longer notice periods are unnecessary given the speed and ease of electronic communication.[45] It was suggested that the notice periods should be reduced, if anything, given the availability of fax and e-mail facilities.[46] The PJSC was told that the advent and widespread use of electronic communication “permits almost instantaneous communication with shareholders Australia wide and globally. As such, a 28 day notice period is not justified.”[47]
7.34 Preuss Feinauer and Associates were of the view that the lengthening of the notice period was contrary to the flow of modern technology. Preuss Feinauer noted that the argument in favour of the change to 28 days is that it gives all participants a greater opportunity to consider proposals being put to members. In reality, few members attend meetings and the board has usually pre-arranged the votes for passing the necessary resolutions and the 28 day notice is a nominal time period only. In addition, the 28 day period is extended by other time periods such as obtaining consent from the ASX or ASIC or because of printing or mailing issues. In any event, the capacity of members to appoint proxies covers situations where members who wish to attend the meeting are unable to do so, because of the “short notice” of 21 days.[48]
7.35 As the Law now makes provision for lodgement of proxy forms by fax or e-mail, the ASX submitted that it was not convinced a 28 days notice period is necessary. According to the ASX, this facility should assist in concerns expressed on behalf of overseas investors.[49]
7.36 In its submission to the PJSC, the ASX stated that the introduction of the 28 day requirement had caused practical problems in terms of the requirements for companies to hold meetings under the Listing Rules.[50] The ASX submitted that 28 days notice should not apply to meetings required by the Listing Rules. Of the Listing Rules which require meetings, some require a special resolution but the majority require an ordinary resolution. Many of the Listing Rules requiring meetings are triggered by proposed commercial transactions that have a limited window of opportunity. Therefore, entities will apply for a waiver of the Listing Rules and the ASX will either do this (and prevent shareholders from voting on it) or refuse (and perhaps frustrate transactions).
7.37 The ASX recommended that if the 28 days notice is retained, it should not apply to meetings required by the Listing Rules. It recommended that the 28 days notice could be limited to meetings required by the Corporations Law.[51]
7.38 Reflecting the views of the majority of submissions critical of the change to 28 days, GIO argued that 21 days is sufficient notice period:
21 days is regarded as ample time by all shareholders to come to grips with the issues being raised at our Annual General Meeting. After 28 days, the Annual Report and the issues raised in it have lost their immediacy.[52]
7.39 The Law Society of Western Australia submitted that, in all the circumstances, the 21 day notice period is sufficient. Under the Listing Rules of the ASX, companies must obtain shareholders’ approval to pursue certain commercial transactions. Preparation of the notice of meeting and the submission to the ASX for approval, printing and posting takes one to three weeks in addition to the notice period. The Law Society supported the extension of the notice period for ordinary resolutions to 21 days because it was necessary to permit the receipt and consideration of meeting material and the return of proxies. However, it did not believe that the further increase to 28 days was necessary.[53]
7.40 Submissions to the PJSC made reference to other grounds for opposing the 28 days notice:
Conclusions
7.41 In its March 1998 Report on the Company Law Review Bill 1997, the PJSC did not support calls for extending the period of notice from 21 days to 28 days. The PJSC had considerable sympathy for those concerned that the 14 days was too short but was not convinced that the doubling to 28 days was either justified, necessary or in the interests of the company. It recommended that the clause in the Bill requiring a minimum 21 days notice of meetings should proceed.[59]
7.42 The evidence put to the PJSC during its inquiry has reinforced its earlier view and recommendation. The 28 days notice has placed greater demands on directors and company management and has increased costs without any measurable corresponding benefit to shareholders. Moreover, the evidence that companies have been forced to the major expense and disruption of two mailings for the purpose of an AGM gives rise to concern.
7.43 In the view of the PJSC the doubling of the period of notice from 14 to 28 days has added considerably to costs and inefficiency in company meeting cycles. It was argued that the extension of the period of notice ran counter to the flow of modern technology which has the capacity to shorten periods of time as opposed to lengthening them. The PJSC believes that increased use of electronic communication provides a more appropriate solution than extending the notice period for meetings.
7.44 As the PJSC noted earlier, the 28 days is a minimum nominal period which can be extended by other time periods such as the three-day rule and obtaining consent from the ASX. The PJSC is mindful that delays to general meetings can cause inefficiencies in capital raising particular for small listed companies and in approvals for share issues and schemes of arrangements. The PJSC agrees with the Law Society of Western Australia that the 28 days notice creates a competitive disadvantage for companies requiring shareholder approval of a commercial transaction. In addition, considerable changes would need to be made to the ASX Listing Rules and timeframes.
7.45 The PJSC is also concerned that the Law differentiates between listed companies and unlisted companies for the purpose of notice of meetings and no strong argument was made to the PJSC for this distinction. As several witnesses told the PJSC, retention of the 28 days notice period would mean that members of listed companies may be disadvantaged by out of date information or positions that were overtaken by the lapse of over a month or longer. In these circumstances where members are required to vote on matters which are subject to changes in market conditions, information and director’s recommendations could be out of date, inaccurate or misleading as a result of changed circumstances. The PJSC believes that the issue of the timeliness and quality of information supplied to members is critical to a company’s ability to conduct its affairs. Any action that can delay the holding of a meeting is not in the best interests of the company or its shareholders.
7.46 The PJSC recommends that the 28 day period of notice for meetings of listed companies should be reduced to 21 days.
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