Key issues:
- The 2019 Annual General Meeting (AGM) season is fast approaching.
- Companies should take care to ensure they are adequately future proofing their corporate strategy with the selection of resolutions put to shareholders at the AGM.
- Shareholder scrutiny of remuneration and board composition continues to increase.
As the 2019 Annual General Meeting (AGM) season gets underway, it is time for Boards and senior management of listed entities to consider what resolutions are to be put to shareholders at the upcoming AGM. With this in mind, we have set out a number of resolutions you may consider putting to shareholders at the AGM as well as some of the underlying themes emerging from last year’s AGM season, below.
Key requirements
Public companies must hold their AGM within five months of the end of their financial year. For most public companies, this requires an AGM to be held by 30 November each year. There are two main timing considerations:
- shareholders must be given 28 days’ notice of the AGM; and
- certain resolutions require lodgement with ASX or ASIC to confirm whether they have any objections before despatch to shareholders.
For these reasons, boards and management should begin preparing for the AGM as soon as possible if they have not already done so.
Common resolutions to be aware of
In preparing this year’s notice of AGM, there are several common resolutions which your company may need to consider. These include:
| Board and management | Director re-election | Generally speaking, one-third of directors (other than any Managing Director) are to retire and, if eligible, stand for re-election at an AGM. Effectively, this results in directors not holding office for more than three years without re-election. Companies should consult their constitution as to how this operates in their specific circumstances. |
|---|---|---|
| Remuneration report | Shareholders must approve the company’s remuneration report at the AGM. Where more than 25% of eligible votes were cast against the remuneration report at last year’s AGM, a specific resolution (and accompanying explanatory note) is required in the Notice of Meeting. This is known as the two-strikes rule. | |
| LR 7.1 – 15% issued capital | Ratification of previous allotments | ASX Listing Rule 7.1 prevents a company from issuing more than 15% of their issued capital in any one year subject to certain exceptions. To maximise this 15% issue capacity, it is ideal to ratify any previous allotments of securities made over the past 12 months in reliance on ASX Listing Rule 7.1. |
| Additional 10% capacity | Companies with a market capitalisation of less than $300 million and who are not included in the A&P/ASX300 Index can seek shareholder approval to issue up to an additional 10% of their issued capital over the 12-month period. Specific information must be included in the Notice of Meeting if a company is seeking this approval for a second time. | |
| ESOP approval | An Employee Share and Option Plan (ESOP) or performance rights plan should be put to shareholders for re-approval every three years to enable the company to rely on exception 9 in ASX Listing Rule 7.2. | |
| CH 6 | Proportional takeovers | If a company’s constitution contains a provision dealing with proportional takeovers (essentially a takeover bid where the bidder seeks a percentage of each shareholder’s parcel), this provision needs to be needs to be renewed every three years and must be approved by special resolution. |
AGM trends
On 31 January 2019, ASIC published its overview of the 2018 AGM season for companies in the ASX 200 (AGM Report). The AGM Report identified several key trends:
- Executive remuneration: There was an increase in the number of first ‘strikes’ (being at least 25% ‘against’ votes on remuneration reports) on company’s remuneration reports and a continuing trend of companies coming close to a first strike. Some 12 companies received a first strike compared to five companies in 2017. Overall, ASIC credits this to negative shareholder sentiment arising from the banking Royal Commission, issues with how the remuneration amounts are structured (including their perceived complexity and lack of transparency), and general company underperformance.
- Shareholder engagement: ASIC notes that the average number of votes against director election resolutions continued its upward trajectory. The commentary suggests this may be attributable to growing concerns around director workloads and that some directors (particularly those on multiple ASX 200 boards) hold too many board positions. ASIC also noted an uptick in the percentage of votes cast ‘for’ shareholder requisitioned resolutions based on environmental, social and governance issues.
- Related party transactions: Companies seeking shareholder approval for related party transactions are required to lodge their notices of meeting with ASIC. ASIC noted that the number of such notices decreased by 20% on 2017 figures for ASX 200 companies and smaller listed companies seem to be placing greater reliance on the “arm’s length” exception contained in section 210 of the Corporations Act 2001 (Cth).
We believe these themes, among others, will continue to dominate the 2019 AGM season. Recently, the Australian Council of Superannuation Investors published its report on CEO Pay in ASX 200 Companies, which has attracted its fair share of media coverage. The report indicates that executive remuneration will continue to attract scrutiny, both from investors and ASIC, into the 2019 season and beyond.
If you would like further advice about your company’s AGM obligations, or assistance in the review or preparation of your company’s AGM Meeting Materials, please contact a member of HopgoodGanim Lawyers' Corporate Advisory and Governance team.