The Annual General Meeting (“AGM”) provides a forum for shareholders and the board of directors to share information, have discussions and make decisions. Ahead of the 2021 AGM season, this article identifies some of the common scenarios and issues that can arise at the AGM and the recommended solutions. An emphasis has been placed on the delivery of Hybrid or Virtual Meetings as well as the rise of shareholder activism.
This is an update of our previous article – AGMs – The Practice, Potential Problems and Solutions.
Background
A public company must hold an AGM within 18 months after its registration, at least once each calendar year, and within five months after the end of its financial year (Corporations Act 2001 (Cth) (“Act”)). The AGM provides a broad overview of the company’s financial health and current directions, including changes to a company’s constitution, name and auditor, the re-election of directors, proposed share placements and director remuneration.
The requirements for a valid AGM are governed by Chapter 2G.2 – 2G.4 of the Act, the company’s constitution and, in the case of listed companies, by the ASX Listing Rules. AGMs must be convened, constituted and conducted in accordance with legislative requirements and governance standards.
Virtual & Hybrid Meetings
On 29 March 2021, ASIC re-confirmed their ‘no action’ position on non-compliance with provisions of the Corporations Act that may prevent the holding of AGMs and other investor meetings via technology.
ASIC Position on Virtual Technology for Investor Meetings
It is important that hybrid or virtual meetings are facilitated and conducted in a way that provides a reasonable opportunity for shareholders to participate (see sections 249S and 252Q of the Corporations Act and the conditions of ASIC’s ‘no-action’ letter).
Refer to our previous article on the guidelines for running a Virtual or Hybrid AGM for more information.
Technical Problems During a Hybrid or Virtual Meeting
ASIC guidelines encourages companies to:
- assess virtual technologies in advance of the meeting. Consider whether the technology adequately facilitates shareholder participation and can handle anticipated usage. Companies should be able to demonstrate that they have met this hurdle based on past shareholder participation as well as expected participation in the event to major events within the company. It is also expected that the Chair and their Boards will hold rehearsals to identify issues ahead of the meeting.
- if technical issues result in a number of shareholders being unable to reasonably participate, the meeting should be adjourned until the problem is fixed. ASIC has extended the statutory timeframe that may be required to facilitate meetings. In the case of AGMs of entities with financial years ending up to 7 April 2021, a company may rely on ASIC’s ‘no-action’ position to extend the time within which they can hold the AGM by up to two months.
- consider backup solutions and plans to overcome technical issues. Plan for how you might communicate in real-time to shareholders participating virtually to provide new instructions or a change in plans. Let participants know at the beginning of the meeting how you will communicate these updates if technical issues do arise.
Disruption Events
Individual companies should consider how potential disruption events may impact their shareholder meeting and contingencies that need to be deployed in advance of the meeting:
- Shareholder Disruption: the Chair of a meeting must allow a reasonable opportunity for shareholders as a whole to ask questions about or make comments regarding the management of the company. That said, where questions are repetitive, rude or offensive, the Chair can (and should) enforce decorum at a meeting of shareholders.
- Agitation and Questioning: It is not uncommon for aggrieved customers, special interest groups or disgruntled shareholders to use a shareholder meeting to highlight a particular issue or matter that the entity is involved in. A lot of work can be done to engage with those parties (where appropriate) to mitigate disruption at the AGM. Often issues are not understood or facts misunderstood which may cause agitation. That said, it is healthy to have a wide range of views on your board table and within your investor base.
- Protest or Security Event: The safety of all shareholders, staff and participants at a shareholder meeting is paramount. The Chair of a meeting should be comfortable ejecting shareholders who pose a threat to the orderly running of a meeting where the protestor or security threat interfere with the ability of all shareholders to safely participate in a meeting including asking questions and voting without the fear of intimidation.
- Protest or Security Event: The safety of all shareholders, staff and participants at a shareholder meeting is paramount. The Chair of a meeting should be comfortable ejecting shareholders who pose a threat to the orderly running of a meeting where the protestor or security threat interfere with the ability of all shareholders to safely participate in a meeting including asking questions and voting without the fear of intimidation.
Communicating Disruption Events
For listed entities, the use of the relevant Market Announcement Platform to communicate to shareholders in the event of a disruption event (including technology failure, protestors, security threat, auditors not present etc.) is appropriate. We would expect listed entities to have two announcements pre-prepared and approved for release to address a:
- short adjournment. To address a disruption event that lasts between 20min to 2hrs.
- longer adjournment. To address a disruption event exceeding 2hrs where the meeting will need to be held on another date.
This also requires entities to consider contingencies whereby service providers such as BoardRoom are utilised as an off site backup to lodge documents on a company’s behalf. Companies can also consider the use of a fax option to communicate directly with the ASX as well.
Lack of Quorum at the AGM
A valid AGM must have a quorum, a minimum number of shareholders or their appointed agents, present at the meeting in order to proceed. Without this, the formal business of the meeting cannot be transacted.
In the instance where the quorum is not present, the procedure to be undertaken will be prescribed by the company’s constitution or Section 249T of the Act (“Replaceable Rule”).
The Replaceable Rules require:
- a quorum of two members, unless the company constitution specifies another quorum, to be present within 30 minutes of the scheduled start time. This quorum must be present for the duration of the meeting. If this is not achieved, the meeting must be adjourned to a date, time and place specified by the Directors. If the details are not specified, the location and time will remain the same as detailed within the Notice of Meeting, and the day will be the same day in the following week.
- that if a quorum is not present within 30 minutes of the resumed AGM time, the AGM will be dissolved.
Absent Meeting Chair
In the event that the meeting Chair is absent at the AGM, a new Chair must be appointed. The board of directors must first refer to the constitution of the company and Board Charter to determine the process for electing a new Chair for the meeting.
In cases where the constitution of the company and/or the Board Charter are silent on this point, the Chair of the AGM must be appointed by the directors or the shareholders present. The newly appointed Chair may only chair the meeting:
- if they are chosen by the members at the meeting who have a right to vote; or
- they are not the only person forming a quorum at the meeting.
If there is no appropriate candidate to Chair the meeting, the meeting must be adjourned and reconvened in the manner provided for by the company constitution. The Company Secretary should be available to guide the temporarily elected Chair on the appropriate manner of convening an AGM. It is important to also clarify the Chair’s power in respect of exercising open or other designated proxy votes, as stipulated in the Notice of Meeting.
Adjournment of the AGM
The Chair of an AGM is vested with the power to adjourn a meeting in certain circumstances including:
- the absence of a quorum;
- to maintain order at the meeting; or
- the absence of crucial documents.
Prior to adjourning a meeting for any purpose, the Chair should seek to comply with the rules specified in the company’s constitution and endeavor to secure a vote for the motion on adjournment.
For the purposes of completing any unfinished business of the previous meeting, an adjourned meeting is deemed a continuation of that meeting and no new Notice of Meeting is required unless the meeting is adjourned for one month or more, when a new Notice of Meeting must be issued.
At the continuation of the meeting the only business that can be conducted is the unfinished business of the original meeting.
Shareholder Demanding a Poll
A resolution put to the vote at a meeting of a company’s shareholders must be decided on a show of hands, unless a poll is demanded (Section 250J of the Act). (Note: as this is a replacement rule, it is important to refer to your company’s constitution).
Under section 250L of the Act, a poll may be demanded by:
- the Chair;
- at least five shareholders entitled to vote on the resolution;
- shareholders representing at least 5% of the vote that may be cast on the resolution at a poll; or
- a lower number or percentage of shareholders, as prescribed by the company’s constitution.
Each share held by a shareholder (or the shareholder’s appointed proxy) entitles the shareholder to one vote on a poll (unless stated otherwise on the company’s constitution). A person entitled to two or more votes in a poll is not compelled to cast all their votes on the resolution and may split their vote to a percentage either way.
Usually, a poll may be demanded on any resolution; however, the company’s constitution may provide that a poll cannot be demanded on a resolution to elect the Chair of the meeting, or a resolution to adjourn a meeting.
Subject to any provisions of the company’s constitution relating to the poll procedure, the poll must be conducted in accordance with the directions of the Chair of the meeting. Exceptions to this include polls taken on a resolution to elect the Chair of a meeting or a resolution on an adjournment of the meeting, which should be taken immediately.
Generally, conducting a poll involves:
- handing out voting forms (ballot papers) where each shareholder’s voting intention (and discretionary proxy votes) are marked;
- votes are counted with reference to the shareholders’ register to ensure the validity of voting entitlements. Generally, when there is a large number of shareholders present, or a large number of votes to be tallied, it is advisable to have an additional scrutineer available (e.g. the auditor or a representative of the share registry) to assist in the counting and verification process; and
- the Chair announces the result of the poll and declares the result at the meeting.
For listed companies, the ASX must be notified of the results immediately after the meeting. It is good practice to send a notification to shareholders to advise of the outcome of the poll, especially if the shareholders have dispersed before the ballots have been counted.
Shareholder Challenging the Chair
As the Chair is responsible for running the meeting, it is essential to consider the powers provided to the Chair of a meeting under the company’s constitution. Additionally, it is important to note that the Common Law derives much of the precedent set for a Chair’s powers and abilities.
As one of their key duties, the Chair is responsible for and should have considerable power, autonomy and flexibility to maintain order during the meeting. This includes:
- providing sufficient opportunity to those allowed to speak and present their opposing views. However, with the consent of the majority of those present, debate on that topic can be terminated after a reasonable discussion.
- asking a shareholder to return to their seat, should they take a disproportionate amount of time in questioning.
- providing a general call to order should the meeting get out of control. If the disturbance continues, the Chair can use their authority to adjourn the meeting immediately.
No Auditor Representation at the AGM
A listed company’s Auditor, or their authorised representative, must attend the AGM to answer any questions relating to the Annual Report, in particular the Audit Report (Section 250RA of the Act). It is considered a contravention of this section and is a strict liability offense if the Auditor, or their authorised representative, fails to attend or arrange to be represented at the AGM.
Under section 249V of the Act, the auditor of an unlisted public company is entitled but not required to attend the AGM.
In accordance with section 249K of the Act, the Auditor must be given the Notice of Meeting and any other communication relating to the AGM that a member of the company is entitled to receive.
Director Not Re-elected and Board with Insufficient Number of Directors
A public company must have at least three directors (not counting alternate directors), of which two must ordinarily reside in Australia (Section 201A of the Act). The company’s constitution and the ASX Listing Rules impose requirements on particular directors to stand for election or re-election at each AGM.
Prior to the AGM, It is advised that the board of directors should regularly review the proxy votes on each resolution. This will ensure that the company is prepared in the event that a director or directors may not be re-elected at the AGM and as a result, the company may not satisfy the requirements of Section 201A of the Act. It is recommended that the company have alternative director(s) available for appointment to the board immediately following the AGM. If the company is unable to make such arrangements before the AGM, it is recommended that the company request ASX to place the company in trading halt or voluntary suspension while it seeks new director(s).
Withdrawal of an AGM Resolution
A resolution contained within a Notice of Meeting may be withdrawn prior to the meeting, or before it is put to the vote of shareholders at the meeting.
The reasons for withdrawing an AGM resoltion must be communicated to shareholders:
- before the AGM if a resolution is withdrawn prior to the meeting.
- during the AGM if there is insufficient time before the meeting. It is the Chair’s responsibility to inform and explain to shareholders the reasons for withdrawing.
It is a requirement for listed companies to notify the ASX and its shareholders of the withdrawal of a resolution as soon as the information becomes available. The announcement of results after the meeting should contain information on the withdrawal of the resolution.
Procedural Irregularities
Section 1322 (1) of the Corporations Act 2001 provides that a proceeding (which includes a general meeting) under that Act is not invalidated because of any procedural irregularity. However, this can be overturned if in the court’s opinion the irregularity caused or may cause “substantial injustice” that cannot be remedied by any order of the court. This reinforces the requirement for procedural fairness in a meeting e.g. ensuring shareholders have a right to participate in a meeting including a reasonable opportunity to ask questions, make statements or comments.
Contact BoardRoom for more information:
Tom Bloomfield
General Manager, Growth & Partnerships
tom.bloomfield@boardroomlimited.com.au+61 2 9290 9617
