The 100 member rule for convening company meetings will be abolished under legislative amendments introduced into Parliament this week, following consultation by the Federal Government on draft legislation earlier this year. Proposed streamlining of remuneration disclosure obligations is also still included in the new Bill, but the amendments exclude long-awaited changes to the dividends payment test that were previously proposed. Partner and Head Office & Governance team leader Greg Bosmans, Managing Associate Matt Ireland and Associate Dominic Blaxill discuss the amendments.
- If the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill is passed into law, the rule that allows at least 100 members to requisition a general meeting will be abolished; however, at least 100 members will still be able to place matters on the agenda of general meetings convened through other existing means.
- If the Bill is passed into law, unlisted disclosing entities will no longer need to produce remuneration reports, and remuneration report requirements will change for listed disclosing entities.
- The Federal Government's earlier proposals to replace the current dividends payment test with a simple solvency test, and to exempt certain dividends from the capital maintenance rules, have been dropped from the Bill.
The so-called '100 member rule' entitles 100 members of a company to require the company's directors to hold a general meeting, at the expense of the company. This rule can be used by a very small minority of members to require that meetings be held to vote on resolutions that are often very unlikely to be passed.
If the Bill is passed into law, the 100 member rule will be abolished. As a result, only members with at least five per cent of voting entitlements will have the ability to require the directors to hold a general meeting.
However, a group of 100 members will continue to be able to place matters on the agenda of general meetings that are convened otherwise.
As noted in our earlier Focus: Draft legislation released to improve corporate law compliance burden, we believe this is an appropriate reform. However, the Bill still does not propose the same change for registered managed investment schemes, which can lead to anomalies for stapled groups.
If the Bill is passed into law, unlisted disclosing entities will no longer be required to produce remuneration reports.
In addition, listed disclosing entities will be relieved of the obligation to disclose in the remuneration report the value of options held by key management personnel that lapse during a financial year, and the percentage value of their remuneration that consists of options. Instead, those entities will simply need to disclose the number of lapsed options and the year in which the lapsed options were granted.
The Bill does not include the Government's previous proposal that remuneration reports of listed entities should include a description of their process for determining remuneration of key management personnel, to the extent not included elsewhere in the annual report. In practice, we expect that most listed entities already include information of this type in their annual reports.
As part of its earlier consultation, the Government proposed replacing the current test for whether a company is able to pay dividends (which includes a net assets test) with a pure solvency test. It also proposed to exempt dividends in which all shareholders participated equally from the share capital reduction provisions in the Corporations Act (which require shareholder approval and other formalities to be followed).
These proposals have not been included in the new Bill.
This is a disappointing outcome. As noted in our Focus, it was our view that the earlier proposals, while not resolving all the uncertainties and concerns with the existing regime, would have provided welcome flexibility for companies. The proposals would have resolved administrative difficulties with the current net assets test; addressed the criticism that the test is not always a true indicator of the liquidity or ongoing viability of a company; and to a large extent dispensed with concerns that the current dividends payment test still only permits a dividend to be paid out of profits.
It remains to be seen whether the Government will continue to pursue legislative reform in this area independently of the new Bill.