AGMs – The Practice, Potential Problems and Solutions

The Annual General Meeting (“AGM”) is an important event, providing shareholders with an opportunity to meet and discuss company affairs with the board of directors. With the AGM season in full flight, this article identifies some of the common scenarios and issues that can arise at the AGM and the recommended solutions.

Background

The Corporations Act 2001 (Cth) (“Act”) mandates that public companies must hold an AGM at least once each calendar year, and within five months after the end of its financial year. AGMs cover matters beyond the scope of daily business, 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.

Lack of Quorum at the AGM

To constitute a valid AGM, a minimum number of members, or their appointed agents, must be present at the meeting. Without a quorum, 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 Rule requires a quorum of two members to be present within 30 minutes of the scheduled start time. 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.

If a quorum is not present within 30 minutes of the resumed AGM time, the AGM will be dissolved.

Absent Meeting Chair

In the instance of an absent meeting Chair at the AGM, 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 and then appoint the Chair accordingly.

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 members present.

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, such as the absence of a quorum or to maintain order at the meeting. Other circumstances where the Chair could exercise this power includes the absence of crucial documents.

Before adjourning a meeting for any purpose, the Chair should seek to comply with the rules specified in the company’s constitution and endeavour to secure a vote for the motion on adjournment.

An adjourned meeting, for the purposes of completing any unfinished business of the previous 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

Section 250J of the Act states that 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 (please refer to your company’s constitution as this is a replacement rule).

A poll may be called by the Chair or:

• 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.

Unless the company’s constitution provides differently, each share held by a shareholder (or the shareholder’s appointed proxy) entitles the shareholder to one vote on a poll. 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.

Ordinarily, 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. The exceptions being 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.

The poll is conducted by way of ballot and the 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.

Once the ballot count is concluded, the Chair should announce the result of the poll and declare the result at the meeting. If the members have dispersed before the ballots have been counted, it is good practice to send a notification to members to advise of the outcome of the poll. In either event, for listed companies, the ASX must be notified of the results immediately after the meeting.

Shareholder Challenging the Chair

It is important to consider the powers provided to the Chair of a meeting under the company’s constitution. It is also important to note that much of the precedent set for a Chair’s powers and abilities are derived from Common Law.

Maintaining order is one of the primary duties of the Chair. The Chair is required to provide sufficient opportunity to those allowed to speak and present their opposing views, noting that with the consent of the majority of those present, debate on that topic can be terminated after reasonable discussion has been had. Should a member take a disproportionate amount of time in questioning, the Chair may ask that they return to their seat.

Should the meeting get out of control, the Chair can first provide a general call to order. If disturbance continues, the Chair can use their authority to adjourn the meeting immediately.

No Auditor Representation at the AGM

Section 250RA of the Act requires a listed company’s Auditor, or their authorised representative, to attend the AGM to answer any questions relating to the Annual Report, particularly the Audit Report. If the Auditor, or their authorised representative, does not attend the AGM, it would be a contravention of this section and is a strict liability offence.

Under section 249V of the Act, the auditor of an unlisted public company is entitled but not required to attend the AGM.

The Notice of Meeting and any other communication regarding the AGM must be given to the Auditor in accordance with section 249K of the Act.

Director Not Re-elected and Board with Insufficient Number of Directors

Section 201A of the Act requires a public company to have at least three directors (of which two must ordinarily reside in Australia). The company’s constitution and the ASX Listing Rules impose requirements on particular directors to stand for election or re-election at each AGM.

It is advised that the board of directors should regularly review the proxy votes on each resolution in the lead up to the AGM. If the company believes that there is a strong likelihood a director or directors may not be re-elected at the AGM and as a result, the company may not satisfy the requirements of s201A, it is recommended that the company have available alternative director(s) for appointment to the board immediately following the AGM. If the company is unable to make such arrangements prior 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.

Where a resolution is withdrawn prior to the meeting, the reasons for withdrawing the resolution should be provided to the shareholders.

Where there is insufficient time before the meeting, the Chair should inform the shareholders at the meeting that the resolution is withdrawn and will not be voted on, explaining the reasons for withdrawing the resolution.

A listed company must notify the ASX and shareholders of the withdrawal of a resolution as soon as the information becomes available. The announcement of results after the meeting should contain wording covering the withdrawal of the resolution.

Recommendation – Be Prepared

It is recommended that the Company Secretary attends the AGM equipped with a copy of the company’s constitution, the Board Charter, the relevant sections of the Act and the ASX Corporate Governance Principles and Recommendations, in readiness to appropriately respond to any difficult scenario the board of directors may be faced with.

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