13 Nov 2014
Farewell to the 100 shareholder rule
The Federal Government will abolish the 100 shareholder rule, but still allow meetings to be requisitioned by 5% of shareholders.
After many false starts, it seems that the 100 shareholder rule may finally be headed for the exit.
A general meeting can be requisitioned by 100 shareholders (the "100 member rule") or shareholders holding 5% of the voting shares. A new Bill before Parliament aims to abolish the 100 member rule, but still allow meetings to be requisitioned by 5% of shareholders. Importantly, the Bill appears have bipartisan political support.
The ability of 100 shareholders to requisition meetings has been used by activist groups to pressure listed companies and promote non-business agendas. These attempts usually result in additional publicity as opposed to a favourable shareholder vote, because 100 shareholding activists usually amount to only a miniscule percentage of the total number of shareholders in a listed company. Nevertheless, the attempt can be an extremely expensive exercise for the targeted company, since it has to comply with the request and convene a general meeting.
Earlier this year, the Federal Government announced its intention to abolish the 100 shareholder rule (but still allow meetings to be requisitioned by 5% of shareholders). Commentators with long memories would remember that previous attempts have foundered on the rock of Senate opposition. This time around, however, the rule may finally be abolished: on 28 October, the ALP caucus decided to back the Bill. The combined votes of the Coalition and the ALP in the Senate would be enough to ensure that the amendment Bill is passed by both Houses of Parliament.
The Bill contains some other changes.
These include three amendments to the remuneration report:
- the requirement to disclose the value of KMP options that have lapsed will be replaced by a requirement to disclose only the number of each KMP's options that have lapsed (and the year in which those options were granted);
- the requirement to disclose the percentage value of each KMP's remuneration that consists of options will be abolished; and
- unlisted companies will no longer have to produce a remuneration report.
A earlier draft proposal to require companies to include in their directors' or financial reports a description of their process for determining KMP remuneration has not been included in the Bill currently before Parliament.
When the Government originally released its proposal to abolish the 100 shareholder rule, the accompanying draft Bill included a proposal to rewrite the rules governing dividends.
Two of the key proposals were:
- clarification that dividends do not require shareholder approval under share capital reduction rules (provided, of course, that the dividend constitutes an equal reduction of capital);
- the dropping of the much-criticised "balance sheet test" for determining whether dividends can be declared.
The Bill that is currently before Parliament does not address any of these issues. There has been no explanation of why it was dropped or whether the Government intends to pursue these changes in another Bill.