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Thursday, 16 June 2005
Page: 105

Senator CHAPMAN (3:34 PM) —I present the report of the Parliamentary Joint Committee on Corporations and Financial Services on the exposure draft of the Corporations Amendment Bill (No. 2) 2005, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

Senator CHAPMAN —I seek leave to move a motion in relation to the report.

Leave granted.

Senator CHAPMAN —I move:

That the Senate take note of the report.

The Corporations Amendment Bill (No. 2) 2005, which has been released in exposure draft form but not yet introduced, is the latest step in the Howard government’s long process of reforming Australia’s corporations laws so that we continue to lead the world in this sphere. The bill also represents a significant success for the Joint Committee on Corporations and Financial Services. A number of the reforms implemented in this proposed legislation arise from the recommendations of previous reports by our committee. It is clear that the committee continues to make a significant contribution to the development of Corporations Law, and it is pleasing that the government takes our recommendations seriously. In this case, the committee has chosen to examine an exposure draft, rather than waiting for legislation to be introduced into parliament. This allows for our contribution to be reflected in the final bill when introduced and may minimise the need for further inquiries that would delay the bill’s progress.

This proposed legislation is all about redressing the balance of power between minority special interest shareholder groups and the great majority of shareholders. It is about using shareholder resources responsibly and in a way that reflects the wishes of the majority. The draft bill proposes to abolish the rule whereby any 100 shareholders of a public company can call an extraordinary general meeting. This is intended to prevent frivolous or vexatious efforts by minority special interest groups to call such meetings without having any chance whatsoever of passing their resolutions. Such meetings cost companies, and therefore the great majority of shareholders, a great deal of money and ultimately achieve nothing.

Instead, the alternative current threshold will apply. The threshold allows members holding five per cent of shares in a company to call a general meeting. It is a more appropriate threshold for shareholders to meet, as it poses a better balance between the interests of minority shareholder groups and the interests of the bulk of shareholders. Indeed, this was what was asked of the committee by the vast majority of submitters to the inquiry. In practice, it means that, for such a meeting to be held, at least one major or institutional investor must agree.

The bill, as initially released, would remove the 100-member rule for companies but not for managed investment funds. That would be contrary to earlier efforts to introduce almost identical provisions for both types of organisations. Government members on the committee suggested that the arguments in favour of abolishing the 100-member rule are just as sound for managed investment funds as they are for companies. We have therefore recommended abolishing the 100-member rule for managed investment funds as well.

However, in the case of mutuals, a five per cent rule would be almost unachievable. In mutual companies, each shareholder has the same number of votes. There are no institutional or large investors holding large parcels of shares. So, in the case of mutuals, government members on the committee suggested a one per cent threshold, which will make it reasonably possible to call an extraordinary general meeting when necessary but will prevent the abuse of the power to call an extraordinary general meeting. That is a recommendation that is contrary to the draft legislation, which proposed that the five per cent rule would also apply to mutuals. So, in that respect, our recommendation departs from the exposure draft.

The exposure draft bill proposed a new measure allowing any 20 members to place resolutions on the agenda for annual general meetings. The evidence before the committee was overwhelmingly against that proposal, which may see an explosion in the number of resolutions. The committee was told that this new measure was introduced to offset the loss of the 100-member threshold for calling a special meeting. However, the removal of the 100-member threshold is a sensible idea in its own right which does not require any offsetting measures. The committee suggested that the final bill should not include the measure regarding the listing of resolutions on the agenda of annual general meetings, having 20 members as a sufficient requirement for that listing.

The bill also included measures to allow any 20 shareholders to have a member statement distributed by the company. The distribution of member statements can be an important mechanism to allow members to influence one another and the company management. However, again there is potential for this lower threshold to result in a deluge of member statements. We have, therefore, recommended that if the threshold is lowered, each member statement must be limited to one page and must be forwarded to the company in a timely manner so that it can be distributed with the package of materials to shareholders, prior to the annual general meeting.

The exposure draft bill also includes measures to reduce the cherry picking of proxies, whereby proxyholders decide whether or not to exercise proxies which have been given to them. When a shareholder issues a directed proxy to a proxyholder, it would be reasonable for them to do so knowing that their vote will be exercised as directed. Similarly, when a person takes a proxy, they should only do so if they are willing to exercise it as directed. The proposed bill includes provisions to increase the responsibility of proxyholders to exercise their proxies as directed. However, that also raises the question of whether future corporate governance can find better ways for shareholder voting than the use of proxies. It should be possible to remove proxies from the process altogether by allowing shareholders to cast a pre-poll vote either on paper or electronically. The committee has recommended that the government look into this option further.

Finally, the bill removes the legislative requirement for companies to file in Australia information filed in overseas stock exchanges. That is important, as the information filed overseas may not be considered material by the Australian market. In addition, there is an anomaly in having most market reporting requirements in the Australian Stock Exchange listing rules and yet having this requirement in the act.

Yet again, the committee received excellent public submissions to this inquiry which allowed us to make what we believe is a sensible contribution to the government’s legislative development process. I trust that the Treasurer will find the report useful and that our recommendations will be considered as the final bill is developed. I thank the members of the committee. I also thank the committee staff—and especially the committee secretary, Dr Anthony Marinac—for their work in considering the draft legislation and in supporting the committee in handing down the report.