Tuesday, 24 March 2015

Key corporate reforms enacted as '100 member rule' finally abolished

On 2 March 2015, the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth) (Bill) was passed by the Senate and is now awaiting Royal Assent.

The Bill makes several significant changes to the Corporations Act 2001 (Cth) (Act) of which directors, shareholders and practitioners need to be aware. 

Abolition of the ‘100 member rule’

The Bill removes the ability for 100 or more of a company’s members to require directors to call and hold a general meeting at the company’s expense.

The so-called ‘100 member rule’ had previously been widely criticised on the basis that it allowed a very small proportion of a company’s members to disrupt management and impose significant transaction costs on the company even where the resolutions to be considered at a general meeting had little chance of being passed. 

The 100 member rule has not been abolished for managed investment schemes. 

Further, 100 or more of a company’s members are still able to:
  • propose resolutions for inclusion on the agenda of general meetings, and
  • require the distribution of statements, at the company’s expense, in relation to a proposed resolution or a matter that may be considered at a general meeting. 
The ability for members holding at least 5% of the votes that may be cast at a company’s general meeting to require directors to call and hold a general meeting also remains.

Reporting of executive remuneration

The Bill alters reporting requirements for executive remuneration in an effort to reduce compliance costs and red tape for companies. 

Unlisted disclosing entities no longer need to prepare a remuneration report.  While listed disclosing entities are still required to prepare a remuneration report, in relation to lapsed options, those entities are now only required to disclose the number of options granted to key management personnel as part of their remuneration that lapse during the financial year and the year in which the lapsed options were originally granted.

'Streamlining' amendments

Shortening the financial year
Under the Act, directors can reduce the ordinary 12 month financial year period for the company if the reduction is made in good faith in the best interests of the company, provided that the company’s financial year has not been shortened on that basis alone in any of the previous 5 financial years.
For the sake of clarity, the Bill states that, in determining whether a company’s financial year has been shortened in any of the previous 5 financial years, previous reductions of 7 days or less or that were required to synchronise the reporting period of controlled entities to provide consolidated financial reports (also allowed under the Act) are not to be considered.  
Auditors for companies limited by guarantee
The Bill clarifies that small companies limited by guarantee and companies limited by guarantee that elect to have their accounts reviewed rather than audited are not required to appoint or maintain an auditor.  This is a logical amendment consistent with provisions of the Act designed to reduce the regulatory burden on companies limited by guarantee.

Other amendments

The Bill also enables:
  • the Remuneration Tribunal to determine the remuneration of the Chair and members of the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board, and
  • Takeovers Panel members to perform their functions while overseas.

Dividend requirements

The original exposure draft of the Bill contained provisions which:
  • introduced a pure solvency test for the declaration and payment of dividends, and
  • clarified that a company could make a capital reduction by way of a dividend payment, without the need for shareholder approval, so long as there was an equal reduction to all shareholders. 
Although these provisions were omitted from the Bill as passed, they are likely to be revisited by the Government after further consultation in the future. 
For further details on changes under the Bill, please refer to the recent article by Dr Kai Luck.