Brian Moller, Partner; Nicole Radice, Partner; Michael Hansel, Partner; Michele Muscillo, Partner; Michelle Eastwell, Partner; Lea Fua, Senior Associate
In the lead up to this year's annual general meeting season, public companies will need to be alive to recent developments in corporate law.
What you need to know
- Changes to the Corporations Act 2001 (Corporations Act) introduced by the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 impacts on the voting on remuneration report resolutions.
- A new regulatory guide has been issued by the Australian Securities and Investments Commission (ASIC) clarifying content requirements for notices of meeting in relation to related party transactions.
In this alert, Senior Associate Lea Fua looks at these developments and what they may mean for public companies preparing to hold their annual general meetings (AGMs) and what they need to tell their shareholders in their AGM notice.
Voting restrictions on remuneration report resolutions
As a result of amendments to the Corporations Act (which came into effect on 1 July 2011), members of the key management personnel (which would include the Chairperson, other directors and generally senior management), their proxies and closely related parties are restricted from voting on remuneration report resolutions put to shareholders where the remuneration report includes details of the remuneration of the key management personnel.
This voting restriction does not apply where the Chairperson or any other member of the key management personnel is appointed in writing (by a shareholder who is not a member of the key management personnel) as a proxy with specific instructions on how to vote on a resolution to adopt the remuneration report of the company. The amendments to the Corporations Act do not specifically deal with whether the Chairperson is able to vote undirected proxies. In order to resolve this, the Federal Government proposes in its next sitting to amend the Corporations Act to make clear that a Chairperson is permitted to vote undirected proxies on remuneration report resolutions. However such amendments (if passed) may not be in time for all AGMs in the coming AGM season.
In the meantime, ASIC has advised that it will consider granting relief from Section 250R(4), allowing the Chairperson to vote undirected proxies. Obtaining relief would remove the possibility of confusion amongst shareholders regarding the proxy forms and would enable the Chairperson to vote undirected proxies, ensuring all shareholders have the opportunity to vote on this issue.
We recommend that ASIC relief be sought to ensure a certain outcome for shareholders.
The issue of whether the Chairman can vote undirected proxies is relevant to the 'board spill' provisions in the Corporations Act as a result of the '2 strikes' rule. The 2 strikes rule applies where at 2 consecutive AGMs at least 25% of votes cast on a remuneration report resolution were against adoption of the report. With the recent amendments to the Corporations Act, an automatic vote on a board spill is triggered if the '2 strikes' rule applies.
A diagrammatic representation of the restrictions on voting on remuneration report resolutions is set out in this alert, in the attached PDF.
Related party transactions
In addition to the standard resolutions to be put to members at their annual general meeting, companies may also seek to obtain shareholder approval for certain related party transactions with directors of the company. ASIC issued earlier this year a new regulatory guide for related party transactions (Regulatory Guide 76). This regulatory guide clarifies the content companies need to ensure is included in any notice of meeting that includes any resolution seeking to approve a related party transaction.
The content required of related party meeting materials are set out below:
- Identity of the related party;
- Nature of the financial benefit;
- Directors' recommendations;
- Directors' interest in the outcome;
- Valuation of the financial benefit;
- Disclosure of a relevant director's total remuneration package;
- Related parties' existing interest;
- Dilution effect of the transaction on existing members' interests; and
- All other information that is reasonably required by members to decide whether or not it is in the entity's interest to pass the related party resolution.
Care will need to be taken to ensure the required detail is included. Please contact us if you require assistance in this regard.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
