A fundamental principle of corporate governance is that investors should be able to hold the board and management to account for the company’s performance. Effective investor engagement can enhance the long-term performance and corporate value of a company for all investors. The Australian Securities and Investments Commission (ASIC) has provided guidance to assist investors and directors in our Regulatory Guide 128: Collective action by investors.
One of the key tenets of corporate governance is the ability of shareholders to propose resolutions to be decided at a general meeting. Shareholders with at least 5 per cent of the votes may call a meeting themselves or give notice to the company of a resolution they will propose at a general meeting. In addition, the Corporations Act 2001 (Cth) (the Act) requires directors of a company to call and arrange to hold a meeting which is validly requested by shareholders with at least 5 per cent of the votes which may be cast at the meeting.
These meetings are often referred to as “shareholder requisitioned meetings” and are one of the few ways shareholders can affect significant timely change in the management and direction of their company.
A request from shareholders for a general meeting must be in writing, state any resolution to be proposed, be signed by the members making the request and be given to the company.
Quite often, the resolutions to be proposed at the meeting may not be supported by the directors of the company. This does not mean that the directors can treat the request for a meeting as invalid and ignore it. To do so would undermine the purpose of the provisions: to allow shareholders with a significant amount of voting power to initiate action concerning the company. It is important that it is all the shareholders voting at a general meeting who are given the opportunity to decide the merit of any proposed resolution.
But there are limits to what the subject of shareholder resolutions may be. Recent cases of shareholder activism which have focused on environmental and social concerns has led to some dispute regarding shareholder requisitioned meetings. Where resolutions relate to a power vested in the board by the constitution, courts have clarified that this power can only be exercised by the board. Courts have also confirmed that, in some very limited circumstances, a requisition made for an improper purpose should not be treated as valid.
Shareholder requisitioned meetings are a fundamental right. The Act places the obligation of calling, arranging and holding a shareholder requisitioned meeting on the directors of the company. This includes ensuring that shareholders are provided with all material information to enable them to make a properly informed decision regarding how to vote. Key obligations on directors who receive a request are that the meeting must be called within 21 days of receipt of a valid request and held no later than two months after the same.
One question which may arise is what the term “held” means. In law, “held” means that a meeting must be called and concluded within two months from the date the request was provided. If this was not the case, it would be possible for the chair of a meeting to continually and indefinitely adjourn the meeting and essentially deny a right afforded to the shareholders.
There may be circumstances where a meeting is not able to be held on the date it was called. In such circumstances, the directors do not have the power to postpone or adjourn outside the two months (unless by order of the court).
The requirements in relation to shareholder requisitioned meetings apply even where the directors are no longer in charge of the company. For example, where voluntary administrators are appointed to the company, it is ASIC’s view that the administrators do not have broader powers than the directors to adjourn the meeting outside the two month period from the date the request is received.
If the directors form a view that a meeting cannot be held within two months of receiving the request and the request has not been formally withdrawn by the requisitioning shareholders, a court order should be sought as soon as possible to prevent any delay and uncertainty.