Purpose and Role of the Annual General Meeting and Whether AGM Fulfils the Role - Assignment Example

Corporate Law Name Student Number Institution Course Code Instructor Date Task A: Purpose and Role of the Annual General Meeting (AGM) and Whether AGM Fulfils the Role Introduction This part evaluates the purpose and role of the annual general meeting with legal backing in the Australian context. The legality of conducting annual general meetings in Australia is entrenched in the Corporations Act 20011 with specific mentions of the permission to hold the meetings. An annual general meeting (AGM) is very crucial in the corporate settings, as it brings together the board members and the shareholders to discuss, raise and resolve matter pertaining to the company at hand.2 The conveners of a company’s general meeting are the directors who have the obligation to call and arrange an AGM with the request of a minimum of 5% of the votes cast during an annual general meeting.3 In context, the obligation of calling a meeting lies upon the directors, but the obligation of holding a meeting is imposed on the corporate group.4 Through the convening of an AGM, shareholders have chance of getting crucial information pertaining to the company and make inquiries. From tradition, the AGMs are key sources of company information to the members and shareholders.5 Nevertheless, the current dispensation is characterised by a majority of members especially of listed companies, acquiring vast company information from other sources rather than through the AGM.6 This has been orchestrated with the advent of technology where shareholders can access company reports and account from the company’s website. The Roles of an Annual General Meeting The Corporations Act 2001 allows public companies to hold an AGM within 18 months after registration.7 Further, a public company is legally obligated to conduct an annual general meeting at least once a year as well as every five months after the financial year comes to a close.8 The directors are expected to give a notice of an AGM failure to which the meeting may be invalidated.9 On top of being very important in the corporate settings, AGMs are very critical to information sharing among members and shareholders, as well as the board of directors. Generally, there exist various crucial roles that are attached to the AGM.10 At the onset, annual general meetings are critical for both the shareholders and the directors with respect to discussing and evaluating the progress of the company. Upon convening of the AGM, the directors have no power to postpone it unless authorised by the various sections and statute of the constitution.11 The major purpose of an AGM involves reviewing the company’s financial report after the close of the financial year giving the opportunity for shareholders to ask questions and clarifications from the board of directors.12 Every corporate setting engenders accountability through the presentation of reports on the company operations by incorporating the board,13 the auditor and the management through question and answer engagements on the reports given.14 This not only provides the opportunity to ensure accountability and transparency, but also brings about the opportunity to evaluate and assess the progress and operations of the company. Another role of the AGM involves transacting company business which incorporating ensuring that members exercise their rights with regard to electing members of the board. The election process ensures that members participate critically and fully in the overall creating of a board that represents their interests, as well as those of the company. Further, the New South Wales government indicates that an AGM is normally conducted to confirm the minutes of the last AGM, as well as any special general meeting that has been conducted since the previous AGM.15 On the same note, the AGM ensures the compliance with the legal requirements which involve presentation and approval of the company’s audited accounts, electing members of the board or directors, as well as appointment of auditors for an upcoming accounting term.16 Further compensation of officers is discussed, proposed divided confirmation, as well as discussing issues raised by shareholders among other items that may arise within an AGM. Further, an AGM may be convened to discuss the conduct of the board members and the directors,17 as well as elect new members to the board. For example, the ‘two strike rule’ gives the mandate to the shareholders to review the salaries of the executive and if the shareholders disapprove the amounts and 25% votes against it results to a call for re-election.18 Nevertheless, the second meeting is held and if shareholders vote 25% and above against the salaries, a second strike is achieved resulting to a call for re-electing all the board members expect the CEO who is left managing the company.19 The “Two-Strike” Rule and its Effectiveness The two-strike rule is very crucial in ensuring accountability as pertains to the remunerations of directors and their bonuses.20 The law brought about amendments to the Corporations Act and came into operation on the 1st of July 2011.21 Business operations and profits making aspects dominate every corporate meetings conducted. Annual general meetings in Australia have been dominated by remuneration issues due to the intricate nature of salaries and bonuses. However, the emergence of the two-strike law brought tremendous changes with regard to the executive pay trends experienced within the Australian corporate sector.22 The law has increasingly enhanced calls for accountability and effective planning among corporate executives to ensure financial sustainability and efficiency. The need for increased inclusion of shareholders within the business operations of any organisation is evident with their contributions during AGMs.23 In context, annual general meetings greatly influence overall operations and eventually increases inclusiveness and transparency within the operations as far as financial matters are concerned.24 Further, their inclusivity with regard to ensuring that directors are held accountable greatly increases the chance and opportunity to improve the quality of corporate operations and subsequently enhance the overall profitability of the company. Annual general meetings have for years been observed as the key steps towards effective resolution of issues affecting the general operations of the company.25 The Two-strike rule has effectively addressed remuneration issues pertaining to the directors and the executives of the company ensuring accountability and transparency.26 However, increased strategic management is necessary to the overall realisation of critical corporate achievements and subsequent improvement of the board and executives operations.27 The AGM is highly critical in the overall bringing up issues regarding to the company growth and development into operation and subsequently highlighting crucial improvement attributes within the corporate sector.28 Thus, critical considerations touching on the effectiveness of AGM and the agenda of the meeting convening are very critical. But of essence is the fact that shareholders have a greater prospect and say to the overall effectiveness and ensuring accountability of the board members29 which is a mandate accorded to them by the shareholders through elective process.30 Conclusion In conclusion, the role of the AGM entails overall management issues pertaining to the company and subsequent supervisory attributes to ensure accountability and transparency. The two-strike rule has critically been presented a critical law that gives the shareholders the mandate to keep the operations of the board of directors into check and ensure proper management of company funds. In context, the main agenda of annual general meetings as pertains to making clarifications, scrutinising financial accounts, and company spending has clearly been covered by the AGM proceedings.31 This brings to focus the fact that convening of AGMs critically results to realising the role and purpose of the meetings within corporate settings as per the legal entities entrenched within Australian legal structures. Task B: Impact of the Corporate Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth) Overview The Corporate Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth) was passed by Senate on March 15th 2015 and is awaiting Royal assent. The passing and subsequent signing into law will impact greatly on the corporate law pertaining to general meetings and other aspects of attached to corporate general meetings. The bill brings about great changes to the Corporations Act 2001 (Cth) (Act) that has guided the operations of corporate sectors with respect to the directors of companies, shareholders and practitioners.32 Impact of the Legislation Amendment The major impact brought by the rule involves the 100-member rule abolition. From analysis, it is evident that the mandate of convening the meeting upon the directors’ request is entrenched in Section 249D of the Corporations Act 2001. A minimum of 5% of the votes that are probably to be cats in a general meeting must make the request.33 Thus, the corporation Act 200134 currently has the provision of directors having the obligation to conduct a general meeting upon a 100 members with voting rights request. With the assent of the law, the new legal implications means that the 100-member rule will have no legal obligation and the consequence will be that only members having a 5% of the voting shares will have the mandate to make a formal request for a general meeting. The new legal dispensation results to the directors being vigilante not to act in deceptive or misinformed nature with the new amendments. 35 From a critical point, this new legal entity ensures that the convening of a general meeting is not entrenched in the numbers of shareholders (and in this context involves 100 members) but rather lies in the availability of the required proportion of voting percentage in respect to the necessary 5%.36 Nevertheless, the new legal dispensation will mean removal of crucial regulations but make clarifications to the Corporations Act 2001 in respect to AGM convening and the legal requirements. The major impact involves clarifying the existing regulatory obligations and instilling more emphasis on the efficiency of the operations with respect government operations and entities. The removal of the 100 member rule will ensure that an AGM will only be held upon the request of a 5% voting strength proportion requests.37 This indicates the power of requesting a general meeting basically falls unto the voting proportion of interest, but not on the prior number required. The new law will also introduce amendments to the circumstances whereby the companies have to pay dividends, as well as removal of the net assets test.38 Further, the law will ensure removal of the obligation on unlisted disclosing companies to come up with remunerations reports and exempts companies limited by guarantee not to necessarily appoint or maintain an auditor, or else in the circumstance when they are not having the will to create a financial report or have their accounts of finances audited. The 100 member rule has been persistently criticised with respect to the fact that it imposed unreasonable compliance costs on companies by giving powers to members having a substantially small voting shares of a company potentially to organize a general meeting even with the prospects of the resolution to be passed being minimal.39 Thus, the abolition of the 100-member rule will ensure that convening a general meeting meets a substantive proportion of voting shareholders, and subsequently ensures relevance within meeting convening and resolutions to be made. The change will ensure that no individuals or groups with anterior motives can persuade a few members to call for an AGM for selfish interests.40 The move not only ensures efficiency and transparency in general meetings convening, but also makes sure that costs of scheduling general meetings are managed effectively by conducting relevant and achievable meetings. Legal Implications and Outcomes There are various positive aspects attached to the passing of bill into with respect to ensuring balance between the minority shareholders and the participation, as well as enhancing the business efficiency of in the event of lack of excessive compliance cost.41 This means that considerations have to be put in place imposing a minimum economic threshold in respect to the rights of the 100 members of a company under the specific Act.42 In context, the shareholders calling for a meeting must have the minimum value, and hence minimising the probability of smaller groups of shareholders abusing the rights entrenched in the Corporations Act 2001 (Cth) s 249D by transferring their few shares to a number of individuals to meet the 100 member rule requirement.43 This to a greater extent enhances transparency within the corporate operations and subsequently ensures critical exercising of the legal rights to the intended purpose of the company without selfish interests of few members. Further, the new law will improve on efficiency and regulation aspects surrounding the corporate operations and subsequent inclusion of effectiveness in the audit process. Effective auditing is critical for ensuring and affirming transparency a corporate setting.44 This is a critical aspect within the operations of any given corporate sector. Summary of the Amendment Analysis In conclusion, with the passing of the bills and expected passing into law, increased improvements to the corporate operations are expected to improve to new insights. Transparent operations and efficient carrying out of the AGM is expected to improve with subsequent ensuring improve accountability of all stakeholders in the corporate operations. From the analysis, it is evident that the new law will ensure that the minority exercise their legal rights and at the same time do not misuse their shareholding capacity. Further, any quarters with anterior motives that in the past may have used the 100-member rule to derail or block effective implementation or questioning of company operations will be limited by the new regulations. In context, new regulations are expected to bring about efficiency,45 and once the Corporate Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth) is passed into law, greater prospects will be realised within the corporate sector. Bibliography A. Articles/Books/Reports A Practitioner’s Guide to Corporate Law: A Guide to Basic Procedures of Corporate Law For Young Lawyers. (2007) New South Wales Young Lawyers. Australian Institute of Company Directors (AICD). Annual General Meetings Results: A Guide for Directors. (Australian Institute of Company Directors. 2nd ed. 2013) Australian Institute of Company Directors (AICD). Annual General Meetings Results. (2 May 2015) Australian Institute of Company Directors. Australian Securities Exchange (ASX) 2010 Australian Share Ownership Study (ASX Ltd 2011). Australian Securities Exchange (ASX) Company Resolutions (ASX Ltd 2015). Chartered Secretaries Australia. Guide to Procedures at AGMs: A publication to Complement Chartered Secretaries Australia’s Publication Effective AGMs (2013) Chartered Secretaries Australia Ltd. Corporations and Markets Advisory Committee. Managed Investment Schemes, Report. (CAMAC July 2012) Australian Government. Corporations and Markets Advisory Committee. The AGM and Shareholder Engagement: Discussion Paper (CAMAC September 2012) Australian Government. Harris, Jason, Anil Hargovan and Michael Adams, Australian Corporate Law (Lexis Nexis, 3rd ed, 2011), 644. Kimbro, Marinilka and Danielle Xu. Shareholders Have a Say on executive Compensation from Say-on-Pay in the United States. Proceedings of 10th Global Business and Social Science Research Conference (23-24 June 2014, Radisson Blue Hotel, Beijing, China) ISBN: 978-1-922069-55-9. Macmillan, Claire. Impact of Regulatory Reforms on Executive Remuneration in Australia- AGMs in 2011 (Keeping Good Companies, March, 2012). Marcel, Kahan and Rock Edward. Hedge Funds in Corporate Governance and Corporate Control. (2007) 155 University of Pennsylvania L. Rev. 1021 NSW Government. Annual General Meetings: Incorporated Associations. (4 July 2014) Fair Trading. B. Case Laws ASIC v NRMA [2003] 21 ACLC 186 at 190. Bell Resources Ltd v Turnbridge Pty Ltd and Ors [1988] 6 ACLC 842. Grande Enterprise Ltd v Pramoko [2014] WASC 294. McPherson &Ors v Mansell & Ors [1995] 13 ACLC 767. MTQ holdings Pty Ltd v RCR Tomlinson Ltd [2006] WASC 96. Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd [2012] VSC 239. C. Legislation Australian Institute of Company Directors, Submission on the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (Cth), 20 January 2015, 2. Corporations Act 2001 (Cth) s 249D. Commonwealth Consolidated Acts. . Corporations Act 2001 (Cth) s 250N. Commonwealth Consolidated Acts. Accessed . Explanatory Memorandum, Corporations Legislation amendment (Deregulatory and Other Measures) Bill 2014, 1. Monem, Reza and Chew Ng. Australia’s Two-Strike Rule and the pay-Performance Link: Are Shareholders Judicious? (December 2013) Journal of Contemporary Accounting and Economics. Nehme, Marina. ‘Exposure draft corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014’, Submission to the Commonwealth Treasury. The Australian Financial Review, ‘Two strikes’ Rule Hits the Mark (12 December, 2012) Chartered Accountants. Corporate Law Amendments. (2013) Chartered Accountants Australia. . Read More