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Days numbered for ‘100-member’ rule

Days numbered for ‘100-member’ rule

Tim Stewart
— 1 minute read

Retail and institutional shareholders alike have backed the government’s proposal to scrap the '100-member' rule for triggering extraordinary general meetings (EGMs).

The Corporations Legislation Amendment (Deregulatory and Other measures) Bill 2014 is currently before the Senate.

The bill, which seeks to remove the obligation upon companies to hold a general meeting at the request of 100 shareholders, has been referred to the Senate Standing Committee on Economics, which is due to report by 11 February 2015.

While the 100-member rule will be removed if the bill successfully passes the Senate, a provision that allows for five per cent of all shareholders to requisition a general meeting will remain.

In a submission to the inquiry posted this week, the Governance Institute of Australia said it strongly supported the removal of the 100-member rule – noting that its members had been advocating for the change for "more than a decade".

The Governance Institute is opposed to the "vexatious use" of the 100-member rule to call a general meeting other than the AGM at "substantial cost to the company", said the submission.

The submission cited an example in 2012 when Woolworths, the largest owner of poker machines in Australia, was forced to hold an EGM on a resolution limiting the maximum poker machine bet to $1.

The meeting cost $500,000 to run, said the Governance Institute submission, but only received support from 2.5 per cent of the issued capital that was voted at the meeting (about 1.1 per cent of the entire issued capital).

"Our members query how it can be anything other than vexatious to have 100 shareholders force a company such as Woolworths to call a special general meeting that had absolutely no chance of achieving anything other than costing shareholders significant sums of money," the submission said.

Actions such as these "constitute mischief", said the Governance Institute.

The Australian Council of Superannuation Investors (ACSI) also accepted the proposal to remove the 100-member rule was a "reasonable measure".

However, the ACSI submission added the bill, if successful, would constitute a diminution of existing shareholder rights.

ACSI's support for the bill is predicated on the retention of the five per cent threshold for shareholders to be able to requisition an EGM, as well as the fact that the effect of the change will be "relatively inconsequential in practice", said the submission.

The Australian Shareholders Association (ASA), which represents "primarily individual and retail investors", argued that the proposed amendment would be a "reduction in shareholder rights" and therefore "a concern to us".

However, the ASA acknowledged the 100-member rule is rarely used "owing to costs involved in gaining the support needed".

"To compensate, we suggested in our 14 May 2014 submission that the number of signatories needed in subsection 249P to require a resolution to be put to an annual general meeting should be reduced to just 10 shareholders, provided each holding is a marketable parcel worth more than $500," said the ASA submission.

"Further, each of those 10 shareholders would be required to have held the shares for a period of 12 months, as is the case in the USA," it said.

However, the Governance Institute submission argued against the ASA's proposal, pointing out that the ability of US companies to disallow proposed shareholder-led resolutions makes "the capacity [of shareholders] to place resolutions on the agenda at an AGM considerably more constrained in the United States than in Australia".

 

Days numbered for ‘100-member’ rule
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