There are two ways shareholders can requisition a general meeting of members under the Corporations Act 2001 (Cth) (the Act) pursuant to s.249D and s.249F. Meetings that are requisitioned by shareholders pursuant to these provisions are most commonly for the appointment or removal of directors.

The following sets out a number of issues that should be taken into consideration when shareholders requisition a general meeting.

Meetings requisitioned pursuant to s.249D of the Act

 Shareholders who intend to requisition a general meeting pursuant to s.249D of the Corporations Act must ensure that the following steps are satisfied:

  1. ensure that members with at least 5% of the votes that may be cast at a general meeting sign the request;
  2. ensure that the request:
    1. is in writing;
    2. clearly states the resolution(s) to be proposed at the meeting;
    3. is signed by the members making the request. Separate copies of a document setting out a request may be used if the wording in each copy is identical; and
    4. is given to the Company.

Once a request is delivered to the company, the directors have an obligation to call the meeting within 21 days. The meeting must then be held within 2 months of the request being delivered to the Company.

A notice of meeting prepared under s. 249D is drafted by the company. It will include the resolutions and typically, a statement regarding those resolutions as drafted by the members requisitioning the meeting. The notice of meeting will be issued by order of the Board and can include a statement regarding each resolution and accompanying recommendations as sanctioned by the directors.

If directors fail to call the meeting within 21 days of the notice being delivered to the company, members with at least 50% of all of the votes that may be cast by those members who requisitioned the meeting may call and arrange to hold a general meeting. The meeting must not be held more than 3 months after the date that the requisition notice was delivered to the company and the company must pay the reasonable expenses the members incurred because the directors failed to call and hold the meeting.

Directors may be personally liable for the costs incurred by the company for their failure to call and hold the meeting unless they can demonstrate that they took all reasonable steps to cause the directors to comply with section 249D of the Act.  The directors who are liable are jointly and individually liable for the amount. If a director who is liable for the amount does not reimburse the company, the company must deduct the amount from any sum payable as fees to, or remuneration of, the director.

Shareholders calling and arranging the meeting pursuant to s.249F of the Act

If members do not want to direct a company to call a general meeting pursuant to s.249D of the Act, members with at least 5% of the votes that may be cast at a general meeting may call, and arrange to hold, a general meeting themselves pursuant to s.249F of the Act. By arranging the meeting themselves, shareholders retain the element of surprise in notifying the Board of the meeting and are also able to maintain control over the preparation of the notice of meeting and the location at which the meeting is to be held. However, in this instance the members calling the meeting must pay the expenses associated with calling and holding the meeting themselves. The meeting must still be called in the same way (so far as possible) in which meetings of the Company are called.

Section 203D of the Act

If members wish to convene a meeting for the purposes of removing a director or directors from the Board of a company, they must also comply with s.203D of the Act. Section 203D requires members to give notice to the Company at least 2 months before the meeting is to be held. Once the notice is delivered to the company, the company then has the ability to call and hold the meeting less than 2 months after the notice is given.

Once a notice is given to the company pursuant to s.203D of the Act, the company must give the director or directors concerned a copy of the notice as soon as practicable and must include the resolution in the notice of the next general meeting of the company. Merely delivering a notice to the company under s.203D does not oblige the company to call a special meeting. If members also wish to have a special meeting called, either s. 249D or s.249F of the Act must also be complied with.

The director or directors concerned have the right to submit written representations of no more than 1,000 words with a request that copies of the submission be circulated to members prior to the meeting at the company’s expense. The director or directors also have the right speak to the motion at the meeting.

If a director was appointed to represent the interests of a particular shareholder, the resolution to remove the director will not take effect until a replacement to represent the interests of that shareholder has been appointed.

 Compliance with the Act and a Company’s Constitution

When calling a general meeting of members, it is important to ensure that both the Act and the notice provisions of the company’s constitution are carefully reviewed and complied with. In Mortimer v Proto Resources & Investments Limited (2015) FCA 654, Proto Resources & Investments (ASX: PRW) was restrained from holding a general meeting called by shareholders on the basis that the notice of meeting was held to be invalid. Some of the defects in the notice of meeting noted by the Court were as follows:

  • the notice included proposed resolutions which were not matters within the power of a general meeting, so that those resolutions, if passed, would have been invalid. These resolutions included (among other things) resolutions seeking the appointment of individuals as chairman of the Board and chairman of the general meeting and the appointment of a company secretary. As the responsibility for passing these resolutions rests with the directors under PRW’s constitution, they were deemed invalid;
  • the procedure required by s 203D of the Act for providing procedural fairness to directors by giving them an entitlement to put their case when removal is proposed did not appear to have been followed;
  • the notice did not comply with the timing requirements in either s 203D or s 249HA of the Act, and gave less time than that stipulated by PRW’s constitution. The notice only provided shareholders with 21 days notice of the meeting and not the 28 days that was required by the Act and PRW’s constitution; and
  • the resolutions that related to the removal of the existing Board members called for the directors to be “dismissed”, rather than for their removal. Both the Act and PRW’s constitution make reference to directors being “removed”. As this terminology was not followed in the proposed resolutions, the resolutions were deemed to be invalid.

This example highlights the importance of ensuring that shareholders obtain professional advice to ensure that any notice of meeting complies with the requirements of both the Act and the relevant company’s constitution.

A recent finding of unacceptable circumstances by the Takeovers Panel also highlights the requirement for members of listed companies to ensure that all disclosures have been made about any associations that may exist between members. In September 2015, Resource Generation Limited received a notice from one of its substantial shareholders, Altius Investment Holdings (Pty) Limited requisitioning a general meeting to remove and replace the current directors. Resource Generation applied to the Takeovers Panel for a declaration of unacceptable circumstances on the basis that two substantial shareholders Noble Group Limited and Altius Investment Holdings (Pty) Limited had failed to disclose their association. It was established that Altius and Noble who are also joint venture partners, had previously met to discuss the composition of the Resource Generation Board and appropriate replacement candidates for the Board.

The Panel determined that since 25 August 2015, Noble and Altius were associated under s12(2)(b) of the Act for the purpose of controlling or influencing the composition of the board of Resource Generation or s12(2)(c) of the Act in relation to the affairs of Resource Generation, in respect of controlling or influencing the composition of Resource Generation’s board. As a result of the association, the voting power of each of Noble and Altius in Resource Generation’s shares aggregated to 24.38%.

The Panel considered that the failure of Noble and Altius to disclose their association resulted in RES shareholders being unaware ahead of the requisitioned meeting that Noble and Altius are associates. The Panel ordered that Noble and Altius each provide a notice of change of interest of substantial holder disclosing the existence and nature of their association and that they disclose their association in any communication Noble or Altius has with Resource Generation shareholders or the media in respect of the requisitioned meeting.

Summary of Changes

  • Entities will have to have net tangible assets of a minimum of at least $5 million or a market capitalisation of at least $20 million.
  • Entities to have a minimum 20% free float at the time of admission to the official list.
  • Minimum spread requirements are set to change to require that entities have 200 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of less than $50 million; 100 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of $50 million or more.
  • Entities in emerging markets will be required to have 75% of their minimum spread coming from Australian resident investors.
  • All entities admitted under the assets test, no longer just oil, mining and gas exploration entities, will be required to have $1.5 million in working capital available after allowing for the first financial year’s budgeted administration costs and the costs of acquiring plant etc.
  • Entities seeking admission under the asset test will now have to produce audited accounts for the last 3 full financial years together with the audited accounts for 3 years for any business or entity to be acquired by the entity at or ahead of listing.
  • ASX will continue to use its general discretion to refuse admission applications on grounds such as the applicant’s structure and operations, its business and where it is conducted, its reasons for seeking the listing, the credentials of its promoters and management and any issues that have been raised by a regulator or another market operator.

On 12 May 2016, the ASX released a consultation paper in respect of amendments that it proposes to make to the ASX Listing Rules. The majority of the proposed amendments relate to the admission requirements for entities.

The amendments are still in the consultation stage but if adopted, it is proposed that the amendments will come into effect on 1 September 2016. However there are a number of proposals that may be implemented transitionally under ASX’s general overarching discretion.

Increasing the financial thresholds for listing

Entities seeking admission to the ASX must satisfy one of the following financial tests:

  1. the profit test; or
  2. the asset test.

Currently, the minimum requirements for entities (other than investment entities) to meet the assets test is:

  • net tangible assets of at least $3 million (after deducting the costs of the fundraising); or
  • a market capitalisation of at least $10 million.

The ASX proposes to increase these thresholds so that entities must have net tangible assets of at least $5 million or a market capitalisation of at least $20 million.

Minimum free float requirement

Currently, the ASX generally expects that entities will have a free float of at least 10% at the time of listing. The ASX has also been prepared to admit entities with a lower free float if the entity has detailed its plans to increase its free float to at least 10% and the timeframe in which this will occur in its prospectus or disclosure document.

Currently “free float” is interpreted as the percentage of the entity’s main class of securities held by parties other than related parties and the trustee or trustees of any employee incentive scheme.

There is no existing listing rule that addresses the 10% free float requirements, it is merely a condition that ASX takes into consideration when reviewing a listing application. The ASX now proposes to introduce a new rule which requires entities to have a minimum 20% free float at the time of admission.

It is proposed that “free float” will be defined in the Listing Rules to be the percentage of the entity’s main class of securities that are:

  1. not restricted securities or subject to voluntary escrow; and
  2. that are held by non-affiliated security holders.

A “non-affiliated security holder” will be defined as a security holder who is not a related party of the entity, an associate of a related party of the entity or a person whose relationship to the entity or to a related party of the entity or their associates is such that, in the ASX’s opinion, they should be treated as affiliated with the entity.

The ASX has confirmed that it is currently implementing this new listing condition under its general discretionary powers. As such, entities will be required to have at least a 20% free float at the time of admission.

Spread requirements

Currently the ASX’s spread requirements can be satisfied by meeting any of the following conditions:

  1. 400 security holders who hold a parcel of securities with a value of at least $2,000;
  2. 350 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 25%; or
  3. 300 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 50%.

The ASX now proposes to amend the minimum spread requirements as follows:

  1. by having 200 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of less than $50 million; or
  2. by having 100 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of $50 million or more.

ASX has also indicated that where an entity has its main business operations in an emerging market, it will require the entity to ensure that at least 75% of the minimum spread will come from investors who are resident in Australia.

Working capital requirements

Currently all entities admitted under the assets test are required to have at least $1.5 million in working capital (after taking into account any budgeted revenue for the first full financial year after listing). However, for mining and oil and gas exploration entities, the $1.5 million in working capital must be available after allowing for the first financial year’s budgeted administration costs and the costs of acquiring plant, equipment and/or tenements.

The ASX now proposes to extend the additional requirements imposed on mining and oil and gas exploration entities, to all entities admitted under the test.

Audited Accounts

Currently entities admitted under the assets test can provide unaudited accounts, provide accounts that are shorter than 3 full financial years and provide a pro forma statement of financial position that has been reviewed by an auditor or independent accountant.

ASX now proposes to require entities seeking admission under the assets test to produce audited accounts for the last 3 full financial years together with the audited accounts for 3 years for any business or entity to be acquired by the entity at or ahead of listing.

The proposed rules also require that the audit reports must be “clean” (i.e. not contain a modified opinion, emphasis of matter or other matter paragraph that ASX considers unacceptable).

The ASX will have a discretion to accept less than 3 full financial years of audited accounts (for example, if the entity has been in operation for less than 3 full years) but has indicated that it will generally only do so in the same circumstances where ASIC will accept less than 3 full years of audited accounts in a disclosure document.

ASX discretion

As previously noted, the ASX currently has a general discretion to refuse an admission application. Relevant factors that may be considered by the ASX, include the entity’s structure and operations, its business and where it is conducted, its reasons for seeking the listing, the credentials of its promoters and management and any issues that have been raised by a regulator or another market operator.

The ASX has confirmed that applications from entities who have their main business operations in an emerging market will be subject to this review process. This will apply to all current applications.

The ASX proposes to include a list of examples of when it will exercise its discretion.

Transitional arrangements

While not yet fully and officially implemented, it is recommended that entities contemplating applying for listing even in the lead up to 1 September 2016 should give due consideration to properly satisfying the new requirements.

Article collaborated by Harry Pratt, Fiona Rose and Alfonso Grillo

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