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What is "Proper AGM Business"?

Newsflash 08 October 2013

Many shareholders and members view the Annual General Meeting (‘AGM’) of a company as an opportunity to air their grievances about, and put forward motions on any matter concerning, the Board and management of the company.  This is not a correct view in the modern context of the conduct of AGM’s.

In Re South British Insurance Co Ltd (1980) CLC 34, 419 Justice Holland explains the importance of, and basis upon which, a company is obliged to hold an AGM:

‘It is the one occasion in the year when the shareholders have a right to meet the directors or their representatives and to question them on the company’s accounts, the Directors’ Report and the company’s position and prospects.  In addition, they have a right to vote on, and if appropriate discuss, resolutions as to dividends and the election of directors.’

Although the AGM is an important forum in the ordinary conduct of the business of a company, the rights of members to question the Board are not unlimited and motions put forward from the floor may be rejected by the Chair, subject to any provisions in the company’s Constitution.

Corporations Act and the Constitution of a company

The Corporations Act allows a company’s internal management to be governed by a constitution, which may be adopted either on or after registration: sections 134, 136(1)(a) and (b).  A company constitution is a document that generally specifies the rules governing the relationship between and activities of the company, its directors and shareholders: section 9.  The Corporations Act does not prescribe the rules that must be included in a constitution.

However, the Corporations Act includes a number of provisions which govern the conduct of, and matters which may be raised at, an AGM.  These matters are “proper AGM business”.

The Corporations Act provides that:

  • a company must hold an AGM “at least once in each calendar year and within 5 months after the end of its financial year”: section 250N(2);
  • a company’s directors must lay before the AGM the financial report, directors’ report and auditor’s report for the last financial year that ended before the AGM: section 317(1).

The business of an AGM may include:

  • consideration of the annual financial report, directors’ report and auditor’s report;
  • election of directors;
  • appointment of auditor; and
  • fixing of auditor remuneration, even if not referred to in the notice of meeting: section 250R(1).

All other business transacted at an AGM is special business.

Questions by members

Sections 250S and 250T of the Corporations Act provide some guidance on the scope of “proper AGM business”.  Section 250S(1) requires the Chair of an AGM to allow a reasonable opportunity for the members as a whole at the AGM to ask questions or make comments on the management of the company.  Similarly, section 250T(1) requires the Chair of an AGM to allow a reasonable opportunity for the members as a whole at the AGM to ask the auditor questions relating to the audit (if the auditor attends the AGM).

Sections 250S and 250T are recent additions to the corporations law in Australia.  They were added in 1998 with the introduction of the Company Law Review Bill 1997 (Bill), which rewrote the Corporations Law (the predecessor to the Corporations Act).

Prior to the introduction of sections 250S and 250T it was common practice for members to be given an opportunity to ask questions at an AGM about the management of a company.  The introduction of sections 250S and 250T requires the Chair to allow members as a whole a reasonable opportunity to ask questions: paragraph 10.75 of the Explanatory Memorandum to the Bill.

However, the rights of members to question the Board and management are not unlimited.  The Explanatory Memorandum to the Bill makes it clear that the operation of sections 250S and 250T will not affect the Chair’s power under the common law to run an orderly meeting.  In particular, the Bill only allows the members ‘as a whole’ to ask questions (and not each individual member who wishes to do so).  The Chair is able to limit the number of questions or comments made by members and move on to the next item on the agenda when he or she considers (taking into account all the circumstances of the AGM) that the members have been given a reasonable amount of time to ask questions or make comments: paragraph 10.78 of the Explanatory Memorandum to the Bill.

Further, there is no corresponding legal obligation on the directors or auditor to answer any questions they are asked by the members.  Such an obligation would be both inappropriate and impractical: paragraph 10.77 of the Explanatory Memorandum to the Bill.

Motions by members

Section 249N(1) of the Corporations Act provides that the following members can give notice to the company of a resolution that they propose to move at a general meeting:

  1. members with at least 5% of the votes that may be cast on the resolution; or
  2. at least 100 members who are entitled to vote at a general meeting.

The notice must be in writing, set out the wording of the proposed resolution and be signed by the members proposing to move the resolution: section 249N(2). If the company is given notice of a resolution under section 249N, the resolution is to be considered at the next general meeting that occurs more than 2 months after the notice is given: section 249O(1). The company must give all its members notice of the resolution at the same time, or as soon as practicable afterwards, and in the same way, as it gives notice of a meeting: section 249O(2).   The company need not give notice of the resolution if it is more than 1,000 words long or defamatory: section 249O(5)(a).

Section 249O(4) provides that the members requesting the meeting are jointly and individually liable for the expenses reasonably incurred by the company in giving members notice of the resolution if the company does not receive the members' notice in time to send it out with the notice of meeting. The company, at its general meeting, may resolve to meet the expenses itself.   Further, section 249O(5) provides that the company need not give notice of the resolution if the members making the request are to bear the expenses of sending the notice out, unless the members give the company a sum reasonably sufficient to meet the expenses that it will reasonably incur in giving the notice.

However, members cannot propose a resolution if the subject matter of the resolution is a matter of management that is exclusively vested in the directors: NRMA Ltd v Parker (1986) 6 NSWLR 517.

Case law has established that the provisions of a company’s constitution may provide that the board is exclusively vested with general powers of management. For example, a company’s constitution may include a provision in the following terms:

‘The Board may exercise all powers of the company and on behalf of the company do all acts that may be done and exercise all powers that may be exercised by the company not required to be exercised by the company in general meeting by the Corporations Act or by this constitution.’

Where this occurs the powers of the members to put motions will generally be limited to the powers of the members at general meeting, for example, to remove and appoint directors, to amend the constitution etc.

Statements by Members

Section 249P(1) of the Corporations Act provides that members may request the company to give to all its members a statement provided by the members making the request about:

  1. a resolution that is proposed to be moved at a general meeting; or
  2. any other matter that may be properly considered at a general meeting.

The request must be made by:

  1. members with at least 5% of the votes that may be cast on the resolution; or
  2. at least 100 members who are entitled to vote at the meeting.

The company must distribute a copy of the statement to all of its members at the same time, or as soon as practicable afterwards, and in the same way, as it gives notice of a general meeting: section 249P(6). However, the company need not comply with the request if the statement is more than 1,000 words long or defamatory: section 249P(9).

Section 249P(7) provides that the company is responsible for the cost of making the distribution if the company receives the statement in time to send it out to members with the notice of meeting.   However, section 249P(8) provides that the members making the request are jointly and individually liable for the expenses reasonably incurred by the company in making the distribution if the company does not receive the statement in time to send it out with the notice of meeting. At a general meeting, the company may resolve to meet the expenses itself.   Furthermore, the company need not comply with the request if the members making the request are responsible for the expenses of the distribution, unless the members give the company a sum reasonably sufficient to meet the expenses that it will reasonably incur in making the distribution.

Further limits on questions and motions by members

If a company’s constitution empowers the Board to manage the business of the company, exercise all the powers of the company, do all acts that may be done on behalf of the company and exercise all the powers that may be exercised on behalf of the company (not required to be exercised by the company in general meeting by the Corporations Act and the constitution) then this gives the Board broad powers to manage the business of the company.

If, in managing the business of the company, the Board act within their powers and in the interests of the company then the members are limited in the action they can take to control the Board.  The members of a company cannot usurp the powers of the Board conferred on them by the company’s constitution except by amending the constitution: Quin & Axtens Ltd v Salmon [1909] AC 442.

Where the members have delegated management of the business of the company to the Board it is inappropriate for members to question the Board about, or propose motions in relation to, decisions of the Board on matters of policy with which they do not agree.  If members disagree with the way the Board is managing the company or disapprove of decisions made by the Board on matters of policy then those members should stand for election to the Board.

Conclusion

Although an AGM provides members with an opportunity to question and make comments to the Board about the accounts, directors’ report and the company’s position and prospects, members should carefully consider any questions or comments they wish to make as the rights of members are not unlimited.  The same is true for motions and statements by members regarding proposed resolutions, which must be limited to appropriate and relevant matters and should be presented succinctly.

The AGM is an important forum in the ordinary conduct of the business of a company, however members who have delegated responsibility for the management of the company to the board can appropriately communicate their dissatisfaction with the board’s performance through the nomination and election of directors (i.e. by not re-electing existing directors who stand for re-election) and not merely by asking questions, making comments and putting forward motions from the floor.

TressCox Lawyers advises companies on their AGM and generally. TressCox Lawyers also advises Boards, individual Board members and company members/shareholders on their rights, duties and responsibilities.


Matthew Payne, Partner
Sydney

Ron Heinrich AM, Senior Consultant - General Counsel
Sydney

Newsflash 08 October 2013
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