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Chapter 7 - Notice of meetings
Listed companies must give at least 28 days notice of a general meeting
Section 249HA of the Corporations Law provides
that 28 days notice must be given for meetings of listed companies. The
amendment to extend the period of notice of a meeting from 14 days to 28 days
came into effect from 1 July 1998, and applies to companies that are
incorporated in Australia and included in an official list of the Australian
Stock Exchange (ASX). It also applies regardless of anything to the contrary in
a listed company’s constitution.
This was the third of the four matters about which the business community had
expressed complaint and/or concern to the Government.
The vast majority of submissions were critical
of the 28 days notice requirement.
Arguments in favour of the 28 days notice requirement
The provision will assist
institutional and other investors to exercise their votes responsibly
The Investment & Financial Services
Association Ltd (IFSA) told the PJSC that, as a fundamental principle,
shareholders should be encouraged to exercise their voting rights responsibly:
A vote is a valuable asset of an investor, which must be managed
with the same care and diligence as any other. Ultimately, shareholders’
ability to influence management depends on their willingness and ability to
exercise their voting rights.
At the same time, pressure has increased for
institutional investors to exercise their proxy votes. According to IFSA, it is
now compulsory for US institutional investors to cast their proxies on their
domestic US shares and, consequently, some US institutions are also exercising
their proxy votes on their global shareholdings including Australia. Clients
are exerting pressure on investment managers, particularly superannuation fund trustees,
to exercise votes. IFSA claimed that institutional investors (including foreign
institutions) own or manage about 60% of Australian equities yet face serious
problems in exercising their votes responsibly.
A principal problem for shareholders, especially
foreign investors, in exercising voting rights is the length of time it takes
for investors to receive, consider and execute shareholder material. IFSA
claimed that delays are caused in a number of ways including:
- Late dispatch and the requirement that the material ‘percolate’
through the ‘custodian chain’, that is, from the registered shareholder
custodian to the investment manager with the voting authority;
- The consequential shortening of the period for receiving and
dealing with shareholder information due to weekends and holidays;
- The bulk and complexity of the material;
- The time taken for the return of voting instructions to the
registered custodian and the required completion of proxy forms giving effect
to the voting instructions received from multiple investment managers;
- The need to mail proxy forms so as to reach the registry or
company 48 hours before the meeting;
- ‘Log jams’ caused by the voluminous material investment managers
receive during the ‘season’ for proxy voting.
According to IFSA, the delays facing investors
in Australia are exacerbated for foreign institutional investors who are a
further step removed from this process.
In response to criticism of the introduction of the 28 days notice period, IFSA
IFSA does not believe that a notice period of 28 days imposes an
unreasonable restriction on management and boards of listed companies. It is
often argued that pressures caused by the time taken to finalise and then print
an annual report, particularly in the height of the reporting season, militate
against a 28 days notice period. Overall, on the comparative importance of the
interests of shareowners and company management and the balance of convenience
on this issue, IFSA submits that the interests of shareowners must prevail. The
consequence otherwise is that one of the essential building blocks of best
practice in corporate governance, effective and intended participation in the
process by shareowners, will be materially impaired for a substantial
proportion in value of those owners.
Practical evidence of the value of
the extended period
The Corporate Governance International Pty Ltd
(CGI) told the PJSC that there is already practical evidence of the value of
this requirement since the provision came into force. In one case, the
additional time enabled institutional shareholders in a listed company:
- To obtain and consider independent advice on the resolutions to
be voted on at the meeting;
- To confer with other institutional shareholders in the company;
- To have the matter referred to the ASIC and ASX
- Where upon the ASIC took up the matter with the company; and
- The company then made further material disclosure to shareholders
via a Chairman’s letter;
- To decide and register their proxy vote.
The company subsequently withdrew certain
resolutions previously proposed to be voted on at the meeting. According to
CGI, the extended period is a necessary tool to empower institutional and other
public investors to protect the investments for which they are responsible.
Recommended amendment to
The Accounting Bodies gave qualified support for
the introduction of the 28 days notice period submitting that the additional
time would give members further opportunity to consider resolutions to be
decided at a general meeting.
However, the requirement for 28 days notice may cause some companies particular
problems in terms of their reporting and printing deadlines. To overcome this,
the ASIC should be given authority to grant relief to allow a shorter period
“if the requirements of section 249HA are unreasonably burdensome.”
Arguments against the 28 days notice requirement
No transition period
The Chartered Institute of Company Secretaries
described the effect of the requirement on one major company that has in excess
of 300,000 shareholders. That company publicly re-confirmed the date of its AGM
unaware that only hours earlier, the Senate had amended the notice period to 28
The logistics and additional expense of bringing such a mailing
forward by 7 days must surely not have been appreciated by the legislators. For
instance, we understand that negotiations had to be made by that company with
the New Zealand Post Office to open on a Sunday.
GIO Australia Holdings Ltd (GIO) described the
difficulty it had in complying with the new requirement at short notice.
Publicly listed companies like GIO usually book AGM dates and venues a year in
advance because of the difficulty in finding a suitable venue. The change to 28
days meant GIO either had to change dates and venues or split the mail out with
the annual report and notice of meeting. In the end, GIO changed the timetable
for the production of the Annual Report to accommodate the extra weeks notice.
Concern was also expressed about the effect the
change had on financial reporting timetables for the year ended 30 June 1998:
Turnaround times for annual report preparation are restricted
(in particular printing requirements) and the loss of a full week with out
notice will have cost implications for some listed companies.
Timetable for annual report and
Several companies and professional bodies
commented on the timing difficulties that confront companies in complying with
a 28 days notice period for general meetings. The Chartered Institute of
Company Secretaries advised the PJSC that many companies schedule AGMs and
annual report production one or two years in advance. The timetable for
producing and distributing the report prior to the AGM was already tight within
the earlier timeframes.
The Institute explained that many companies do not have the option of bringing
forward the publishing of the annual report by a week to comply with the
extended notice period. On the other hand, venue and director availability
problems make the option of postponing the AGM unrealistic. The Australian Institute of
Company Directors (AICD) likewise noted that the extended notice period will
affect the finalising, printing and distribution of reports to shareholders.
Siddons Ramset Ltd submitted that the 28 days
notice period would have the effect of prolonging the period between financial
year-end and the holding of an AGM.
Similarly, Freehill Hollingdale and Page noted that the new requirement for 28
days notice of meetings for listed companies:
... effectively means that companies required to hold an Annual
General Meeting must call the meeting within 4 months of year end rather than
four and a half months as was previously the case. Many companies already find
it difficult to call their Annual General Meetings within the required time due
to the time required to complete the audit (at a time of year where there is
intense competition for auditors’ time) and prepare the annual report.
Possible delays in dividend
The PJSC was warned that the amendment might
reverse the emergence of a positive trend in corporate spheres to reduce
company timeframes so that shareholders are in a position to consider the
company’s performance at the AGM:
The Institute is extremely concerned that this amendment is also
likely to reverse a very positive trend that was emerging with many listed
companies, namely to expedite their meetings cycle so that shareholders are put
in the position of being able to consider their company’s performance at the
earliest opportunity. Unfortunately, in practice this amendment is likely to
result in some companies deferring their annual general meetings.
A consequence of the deferral of the AGM is that
where dividend payments are linked to the holding of an AGM those payments may
also be delayed.
Ernst & Young stated that a delay in dividend payments was not in the
interests of shareholders.
Notice of Coles Myer Ltd AGM
The practical difficulties encountered by
companies in meeting the 28 day requirement were demonstrated by the experience
of Coles Myer Ltd which was one of the first reporting entities affected by the
change to 28 days. Coles Myer submitted that:
The 28-day notice of meeting
provision caused great difficulties last year and will continue to cause us
problems this year. The problem arises because the extension of the notice
period decreases the time the company has to print and mail its annual report
to its shareholders.
Last year the increase from 14 days
to 28 days resulted in 14 days being taken out of our annual report production
and mailing timetable. It was suggested that we could overcome this problem by
rescheduling our annual general meeting. We could not do this as large
companies such as Coles Myer are required to book annual general meeting
venues, such as the Melbourne Concert Hall, up to two years in advance and it
is difficult if not impossible to arrange a venue that can accommodate a large
meeting at short notice.
We then had to approach the printing
industry to determine whether they could produce the required notices of
meeting and annual reports within a drastically shortened timeframe. This meant
suppliers had to meet this very tight deadline which was contrary to the way we
operate and resulted in strained relationships and additional costs.
It was also suggested that we could mail a notice of meeting and
follow this with a second mailing of the annual report. Whilst this was an
option, it is hard for company executives and the directors to explain to
shareholders why they have spent over $150,000 in additional postage costs.
Coles Myer recommended a reduction in the period
of notice from 28 days to 21 days. In response to a request from the PJSC for a
cost/benefit analysis to support its recommendation for a reduction in the
period of notice, Coles Myer provided a summary of the costs associated with a
28 day notice period, compared to a 21 day period:
|Additional mail costs associated with first class mail of 8 cents per item
|Overtime costs or printers
|Overtime costs of mail house (who envelope and prepare for mailing)
|Total direct additional costs
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
|Additional envelope costs of 4 cents per item
|Additional costs of mail house to process 350,000 items
Separate mail-out of Annual Report
and additional mail-out of more up to date information will be required
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.
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
The Law Society of Western Australia noted that two mail outs would result in
added costs and confusion.
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.
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. 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.
28 days amounts to 5 weeks in
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.
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.
Three-day rule and ASX Listing Rule
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.” 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.
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.
opportunities might be missed
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.
Similarly, the Chartered Institute of Company Secretaries submitted that the 28
days notice period could result in companies missing important commercial
It was also claimed that the 28 days notice for
a general meeting was excessive and might jeopardise capital market raisings or
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.
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).
Amendment not justified
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. 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. 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.
Reinstatement of 14 day period
It was recommended to the PJSC that the previous
14 day notice period should be reinstated as a more workable company timeframe. Given the advent and
widespread use of electronic communication, the extension of the notice period
could not be justified.
Extended period not appropriate
where voting issues are subject to changing market conditions
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. Similarly, GIO noted that
after 28 days, the issues raised in the Annual Report lose their ‘immediacy’.
Freehill Hollingdale and Page highlighted the
fact that the amendment may have the opposite effect to that which was
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.
Inconsistency in timetable
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
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
Advent of technology
Several submissions argued that in these days of
advanced technology, longer notice periods are unnecessary given the speed and
ease of electronic communication.
It was suggested that the notice periods should be reduced, if anything, given
the availability of fax and e-mail facilities.
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.”
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.
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.
Implications for the ASX’s Listing
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
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
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.
21 days is sufficient
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.
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.
Submissions to the PJSC made reference to other
grounds for opposing the 28 days notice:
- The ASIC is powerless to grant companies relief;
Listed companies should not be treated differently to or
discriminated against other companies in terms of notice periods;
- Only Germany, Austria and Portugal have such lengthy notice
By contrast, the 21 day notice period conforms with the notice period in the UK
and Canada, and is longer than the 10 day minimum notice period in the US and
the 14 days required in New Zealand;
- The amendment was made without a regulation impact statement
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.
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.
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.
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
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.
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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