1. The problem
Section 250BD of the Corporations Act says that a chairman can vote undirected proxies on the remuneration report but section 250R appears to say that he cannot.
Section 250BD(1) says that a key management person cannot vote undirected proxies on a resolution "connected with" the remuneration of key management personnel (which includes the remuneration report). However, section 250BD(2) says that section 250BD(1) does not apply to the chairman if the proxy expressly authorises the chairman to exercise the proxy.
Section 250R(4) and (5) specifically say that a key management person cannot cast any votes on the remuneration report unless s/he is holding a directed proxy. Section 250R(10) says that sections 250R(4) and (5) have effect "despite anything else in this Act".
Both provisions were inserted into the Act at the same time, so which prevails?
2. Parliament's intention
There is absolutely no doubt that the Government intended that the chairman should be able to vote undirected proxies on the remuneration vote.
The Draft form of the Bill did not contain a provision like section 250BD(2). Section 250BD(2) first appeared in the Bill when it was introduced into Parliament. The Explanatory Memorandum and the Second Reading Speech both stated that the purpose of section 250BD(2) was to allow chairmen to vote undirected proxies on the remuneration report:
"In order to ensure that shareholders continue to have the right to empower the chair of the meeting to vote undirected proxies on their behalf, a KMP or their closely related party will be able to vote undirected proxies on remuneration related resolutions if they are the chair of the meeting at which the resolution is voted on and the shareholder expressly provides informed consent for the chair to exercise the proxy even if the resolution is connected with the remuneration of a member of the KMP." (Explanatory Memorandum para 3.6)
"Option C: Prohibit key management personnel from participating in the non-binding vote on the remuneration report
8.61 Under this option, directors and executives that are named in the remuneration report, and their close family members (as defined in the accounting standards), would be prohibited from participating in the non-binding shareholder vote on remuneration (including by voting undirected proxies).
8.62 An exemption to this requirement is proposed where directors and executives are voting directed proxies for other shareholders (who are otherwise entitled to vote) in accordance with the directions on the proxy form. Undirected proxies voted by the Chair would also be exempted, where shareholders have provided informed consent." (Explanatory Memorandum para 8.62, emphasis added)
"Key management personnel and their closely related parties would also be prohibited from voting undirected proxies on the remuneration report and the spill resolution, except when they are the chair of the meeting and the shareholder has indicated their informed consent on their proxy voting form for the chair to exercise the proxy." (Mr Bradbury, Second Reading Speech, 23 February 2011)
"While the exposure draft prohibited key management personnel from voting undirected proxies on remuneration-related resolutions altogether, the legislation has been amended to provide an exception to allow the Chair to vote undirected proxies on remuneration-related resolutions where shareholders have provided informed consent." (Speech by Mr Bradbury to the Guerdon Associates Remuneration Forum 5, 21 March 2011)
3. What the Act says
Sections 250R(4) and (5) contradict section 250BD(2) (insofar as remuneration reports are concerned) and are stated to apply "despite anything else in this Act".
On the face of the Act, therefore, it would appear to follow that section 250BD(2) allows a chairman to cast undirected proxies on any remuneration resolution except the remuneration report.
4. Can't ASIC fix this?
Section 250R(6) allows ASIC to declare that section 250R(4):
does not apply to "a specified resolution" or
does not prevent the casting of a vote "on a specified resolution, by or on behalf of a specified entity" (which means individuals and bodies corporate).
ASIC must be satisfied that the declaration "will not cause unfair prejudice to the interests of any member of the listed company".
The reference to "specified" resolutions and entities, along with the unfair prejudice test, means that this only allows ASIC to grant case-by-case relief, rather than making a class order.
5. What's the worst that can happen?
Breach of section 250R(4) is a criminal offence.
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