Key issues:
- Shareholder activism has seen a sharp rise in recent months, with particular shareholders requesting that public companies convene meetings to remove the members of the board of directors.
- The method in which a shareholder requests to call a meeting will impact on a number of factors, including who bears the cost of calling and holding the meeting.
- It is important to understand which and how meetings are called and what must be done to ensure compliance with the Corporations Act 2001 (Cth).
Following on our previous article, this update outlines and discusses the process in responding and resisting shareholders’ requests to call meetings.
Meetings can be requested and called in the following ways:
- calling of meetings by Directors when requested by Shareholders (249D Meeting);
- calling of meetings by Shareholders (249F Meeting); and
- calling of meetings by Directors (249C Meeting).
The method in which a shareholder requests to call a meeting will impact on a number of factors, including who bears the cost of calling and holding the meeting.
249D Meeting and 249F Meeting
Section 249D of the Corporations Act 2001 (Cth) (Corporations Act) provides that directors of a company must call and arrange to hold a general meeting on the request of members with at least 5% of the votes that may be cast at a general meeting.
A similar power exists for shareholders to call and hold a meeting. Section 249F of the Corporations Act provides that 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. The members calling the meeting must pay the expenses of both calling and holding the meeting.
In the interest of time and costs, the preparation of a notice under these sections must be done with great care and meticulous attention to detail, as subtle errors could result in the notice being rejected by the company board.
The procedural requirements for a 249D Meeting and 249F Meeting are quite similar and are as follows:
1. Members holding 5%
It is a requirement that members either calling the meeting or requesting the directors call the meeting hold at least 5% of the issued share capital in the company. The percentage of votes that members have is to be worked out as at the midnight before the request is given to the company.
We recommend that the company engage with their share registry to confirm the holdings of the members making the 249D request.
In circumstances where it is not obvious who the shareholder is (say, in circumstances where the shares are held non-beneficially), it is open for the company to give notice under section 672A of the Corporations Act requesting:
- full details of the holder’s relevant interest in the shares;
- the circumstances that gave rise to the holder’s interests;
- the name and address of each other person who has a relative interest in those shares; and
- the name and address of each person who has given the holder instructions about the acquisition or disposal of the shares, exercise of any voting or other rights of the shares, and any other matter relating to the shares.
2. Request must be in writing
3. Request must state any resolution proposed at the meeting
The notice should set out each resolution to be put to the shareholders.
If the resolutions and objects of the meeting are not correctly contained within the notice, the meeting may be restrained. Case law suggests that if a resolution within the shareholders’ notice cannot be lawfully effected at the meeting, the directors of a company are entitled to omit that resolution from the notice of meeting.
Where the purpose of the requisition is to remove the board, we recommend the following be included in the request:
a. Nomination
In circumstances where the shareholders are requesting the entire board be removed or the number of directors be reduced to below three (3), (being the minimum prescribed number of directors of a public company) the shareholders should set out their proposed directors to fill the place of the removed directors.
We recommend that the nomination appointments be set out in the notice of meeting first to ensure that at all times the minimum director numbers are maintained. Where the resolutions are set out in such a way that could result in the number of directors falling to below three, this would technically be a breach of the Corporations Act and gives rise to the possibility of the notice being rejected.
b. Consent
Section 201D of the Corporations Act requires individuals to provide written consent to a company prior to being appointed as a director of that company.
We recommend that a consent to act as director be lodged with the company, alongside the meeting notice. It is important to ensure that the consent contains all information as set out in section 205B of the Corporations Act (including their given and family names, all former given and family names, date and place of birth, and address).
c. Removal
Our previous article covered this in more detail.
We recommend that a 203D Notice be given prior to a notice for a 249D Meeting. However, the 249D Meeting notice should also set out each resolution to remove a director. Where the extent and entirety of a 203D Notice is contained in a 249D Meeting notice, there is grounds for the company to refuse the request to call the meeting as the requisite notice under section 203D has not been given.
4. Signed by the members making the request
The Notice requires:
- one document with both the request and requisite number of signatures; or
- a series of signed documents each containing the same identical request and bearing, in total, the requisite number of signatures.
In the case of Gratton v Carlton Football Club Ltd [2004] VSC 379, a request was deemed invalid for a number of reasons including where 10 sheets of the request only contained the shareholders details, not the request to call a meeting. Additionally, the court considered that these 10 sheets did not relate to the request as it appeared on the other pages, as these pages were bulldog clipped together and not securely fixed or fastened. The Court formed the view that ‘the Directors could not objectively determine, solely from an inspection of the sheets of paper submitted to the company, whether the signatures on the 10 sheets bearing no printed text relate to, or where intended to relate to, any particular request.’
This requires significant attention to detail and we recommend each individual shareholder sign directly underneath the proposed resolutions or that the resolutions are set out with an annexure of signatures.
We also recommend that:
- where the shareholder is a company, the company sign in accordance with section 127 of the Corporations Act. This requires the document to be signed by two directors of the company, a director and secretary of the company, or the sole director.
- where the shareholder holds shares in multiple forms (for example, personally, through their superannuation fund and through a company) this should be split in to three separate documents or signature panels to remove the argument that it was not signed correctly; and
- the document be paginated.
5. Given to the Company
The Request must be given to the Company in accordance with section 109X of the Corporations Act. This can occur by leaving it at, or posting it to, the company’s registered address, or delivering a copy to the document personally to a director or company secretary of the company who resides in Australia or in an external Territory.
6. For a proper purpose
A request to hold a meeting must be made bona fide and for the purpose which it is conferred.
Case law has illustrated that the resolutions sought to be passed must be within the powers of the shareholders to consider and pass.
Where the notice of meeting was given for the purposes of harassing the company, it is open to the Court to relieve directors of their obligations to call a meeting and restrain the requisitioning shareholders from holding a meeting.
Procedurally, the differences between a 249D Meeting and 249F Meeting are as follows:
| 249D Meeting | 249F Meeting |
|---|---|
Procedure for calling The directors’ must call the meeting within 21 days after the request is given to the Company and the meeting must be held no later than two months after the request (Section 249D(5)). The obligation to call the meeting is imposed on the directors, whereas the obligation to hold the meeting is imposed on the company. | Procedure for calling The meeting must be called in the same way, so far as is possible, in which meetings of the company may be called. This means that the meeting must be called in accordance with the company constitution, Corporations Act and ASX Listing Rules. It is common place for a company constitution to provide for meeting procedures, which often includes information pertaining to the Chair of the meeting. This means that even though the meeting was called and held by the shareholders, the meeting will be chaired by the Chairperson of the company. Where shareholders elect to call and hold their meetings pursuant to section 249F, it gives the members full editorial control over the content of the meeting materials. |
Expense The company must pay the cost of calling and holding the meeting. As briefly mentioned above, where a 50% Meeting is called by shareholders, the company must bear the cost of calling and holding the meeting. In these circumstances, the company may recover the amount of the expenses from the directors; however, a director is not liable for the amount if they prove that they took all reasonable steps to comply with section 249D. Where the directors are liable, they are jointly and individually liable. If a director who is liable for the amount does not reimburse the company, the company must deduct the amount from any fees or remuneration payable to that director. | Expense The shareholders’ calling the meeting must pay all associated expenses. The Corporations Act does not provide any guidance or commentary as to how these costs should be divided between shareholders and the Company. While this has not been decided by case law, it is arguable that expenses include:
The shareholders may also be liable to pay the legal fees of the Company in reviewing the meeting materials to ensure their compliance with the Corporations Act and the ASX Listing Rules. |
Proxies Proxy forms should be distributed in the normal course for a company meeting. | Proxies Section 250B(1) of the Corporations Act provides that the proxy documents must be received by the company at least 48 hours before the meeting. Even where a meeting is called by shareholders under section 249F, the company must receive the proxy forms at least 48 hours before the meeting. In the decision of Bisan v Cellante (2002) 43 ASCR 322 , the proxy forms were issued by the shareholder calling the meeting and called for the forms to be returned to the shareholder. The court held that the receipt of proxy forms by the shareholder calling a meeting will render an appointment invalid and ineffective. We recommend that both shareholders convening the meeting and any company receiving a 249F Meeting request be mindful of the proxy obligations. |
249C Meeting
Section 249C of the Corporations Act provides that a director of an unlisted company may call a meeting of the company’s members. This is a replaceable rule and may be excluded in a company’s constitution.
Section 249CA provides an analogous provision for listed entities. This is not a replaceable rule and applies despite anything the company’s constitution.
While unusual, it is open for a director of a company to call a meeting to remove one, some or all of the other directors pursuant to section 203D.
Final thoughts
Our third and final article will touch upon how to avoid oppressive conduct and potential applications to the Takeovers Panel; however, we recommend that directors be mindful of their obligations under the ASX Listing Rules, particularly of their continuous disclosure obligations.
We recommend that upon receipt of a 249D or 249F Meeting notice, a Company makes an announcement to that effect and that investigations are being made into the validly of the request.
For more information on how to respond to or reject a 249D or 249F Meeting Notice, please contact HopgoodGanim Lawyers’ Corporate Advisory and Governance team.