Key Takeouts
Companies need to plan their AGMs well in advance and consider all regulatory requirements under the Corporations Act, ASX Listing Rules, and companies' own constitutions, especially for meeting materials like NOMs.
NOMs containing ASX Listing Rule resolutions must be reviewed by ASX, and those containing related party benefits resolutions must also be reviewed by ASIC, with ASIC recently reminding entities that less than 7 days’ notice for its review when related party benefits are involved may not be sufficient.
Companies should ensure AGMs allow shareholders a reasonable opportunity to participate, especially in hybrid or virtual meeting formats. There is also a growing emphasis on ESG issues, executive remuneration, and data security, which companies need to address effectively.
In this article, we discuss important compliance matters for the 2024 AGM season and remind listed companies about the importance of careful and considered timing and preparation for AGMs, including for key documents such as notices of meeting (NOMs).
Timing is key
The Australian Securities Exchange (ASX) reported in August 2023 that nearly 90% of listed entities have a balance date of 30 June. These entities would ordinarily have to hold their AGMs by 30 November each year. While many entities have already locked in the date, time, and location for their 2024 AGM, entities must consider the various timing requirements of the Corporations Act 2001 (Cth) (Corporations Act), the ASX Listing Rules, and their own company constitutions well before this date to ensure compliance during what can be a very busy time for boards, management, advisers, and regulatory bodies alike.
As we explain further below, public entities should be particularly mindful of recent reminders from the Australian Securities and Investments Commission (ASIC) with respect to the time afforded to ASIC to review meeting materials (including NOMs) under Part 2E of the Corporations Act, including those review applications which have accompanying abridgement applications.
ASX, ASIC, and related party notices
As company secretaries would be aware, NOMs that contain ASX Listing Rule resolutions must be submitted to ASX for review before they are sent to shareholders. Further, under ASX Listing Rule 15.1, ASX may take up to 5 business days (or longer) to review and advise whether it objects to the content of a NOM. ASX may also extend this deadline if further time to review the NOM is required or a waiver in respect of the NOM is applied for.
ASIC may also need to review a public company’s NOM in certain circumstances. ASIC must review a NOM that proposes a resolution asking for shareholder approval to confer a related party benefit. In these cases, the Corporations Act ordinarily requires that meeting materials be lodged with ASIC at least 14 days before the NOM is given to shareholders (unless the company applies for and is granted an abridgement of the 14-day notice period by ASIC). Where lodgement of meeting materials with ASIC is required in this regard, ASIC may comment on the proposed resolution in the NOM and consult with the relevant market operator (such as ASX) for the purposes of giving comments to the company.
ASIC has observed that during the AGM season for the year ending 30 June 2023, 81% of the NOMs lodged with it for review included a corresponding request for abridgement of 14-day review period prescribed by section 218 of the Corporations Act. With this in mind, ASIC has recently reminded companies that meeting materials:
- must provide sufficient information to enable shareholders to decide if the related party benefit is in the best interests of the company;
- must satisfy Chapter 2E of the Corporations Act and ASIC Regulatory Guide 76 (RG 76);
- must be lodged (if required) in final form via the ASIC regulatory portal at the earliest possible opportunity;
- may not be approved in the timeframe requested by the company if lodged with ASIC with less than 7 days’ notice as such meeting materials may require more time for review; and
- may need to be relodged (with new fees payable) in the event amendments are required to be made to the meeting materials initially lodged (see section 221 of the Corporations Act and RG 76.120 and RG 76.127).
Entities should be conscious of ASIC’s position articulated above with respect to its review of related party notices and any associated applications for abridgement of time under section 218 of the Corporations Act. To avoid falling foul of any timing/notice requirements, entities should factor in both the required notice timeframe and the likely time it may take ASX and ASIC to approve a related party notice when confirming the date and time of their AGMs and finalising their meeting materials, including ensuring that sufficient notice is given to shareholders once final approval is obtained. Entities should also be aware of the potential for circumstances to arise where either one or both of ASX or ASIC request material amendments to the NOM such that resubmission of a revised NOM (and other meeting materials) is required.
What’s new this year?
A major focus of publicity from the 2023 AGM season was the attention given to the remuneration report and director re-election resolutions of major listed entities. A high number of “protest” votes against such resolutions were reported during that season, presumably to emphasise the apparent disconnect between executive pay and an entity’s performance. Listed companies should ensure that they have robust checks and balances in place when exercising any component of directors’ remuneration, particularly in relation to matters with a discretionary aspect such as performance targets, awards, incentive plan measures, and golden parachute payments.
Holding meetings other than just “in person” or physically continues to be increasingly popular trend. Meetings are now being more regularly held as hybrid meetings that have both a physical location and are accessible online using virtual meeting software, or wholly in a virtual manner, in order to act as effective alternative mediums through which entities can engage with a broader cross-section of their shareholder bases. Companies should be mindful that specific ASIC relief is required to hold a wholly virtual meeting in limited circumstances if provision to hold a virtual meeting is not already catered for in the company constitution.
With the above in mind, it is a requirement of the Corporations Act that shareholders be provided with a reasonable opportunity to participate in the AGM. Holding the meeting at a reasonable time and, if held in a hybrid manner or virtually, with accessible and reasonable technology to allow shareholders to exercise their right to ask questions and make comments both orally and in writing, will assist to ensure that entities meet this requirement.
Broadly, environmental, social, and governance (ESG) practices have continued to be prevalent in the Australian corporate psyche, with recent revisions to climate and sustainability reporting standards remaining a hot topic for 2024 in the regulatory space. Companies should similarly expect to continue to observe increased attention on ESG-related matters as they interact with their shareholders this year. Issues such as greenwashing, cyber security, ethnic equality, gender parity, and digital disruption (for example, the use of artificial intelligence technologies) remain prominent matters. Recent high-profile data breaches in particular have put data security front of mind for many, and board members should be cognisant of their duties to monitor and manage cyber risks and effectively deal with a crisis as it occurs (including ensuring compliance with the entity’s ongoing disclosure requirements). Shareholders may seek confirmation that the board has adopted appropriate policies and procedures to ensure these duties are discharged and that data is adequately protected.
Further, commentators such as proxy advisers may foreground these issues when reporting and advising on NOMs and may place scrutiny on the reasonableness of some resolutions, including on those related to executive remuneration, which are likely to resonate with shareholders in a time of relatively high interest rates and difficulties experienced with the cost of living. Boards should be prepared to answer any questions shareholders may have at the AGM, particularly in respect of these trends.