AGM laws are finally on the horizon. Whether they arrive in time for the fast-approaching peak AGM season is another matter, writes Megan Motto.
With the peak AGM season only months away, many companies currently find themselves in a very challenging period as they decide between physical, hybrid and virtual formats. Adding an extra element of complexity, many organisations are drafting their notices of meetings against a backdrop of COVID flare-ups and an unclear regulatory situation.
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In an attempt to provide some certainty, the Treasury has released exposure draft legislation that proposes permanent reforms on virtual AGMs. It has been a long road on this issue, ever since the pandemic struck and exposed the constraints of a Corporations Act that does not allow for the use of technology.
The plan is for the exposure draft to become a bill that is submitted to the Parliament, and hopefully passed, in late August. This doesn’t give companies much time to prepare.
The proposed laws
In its current state, the exposure draft legislation would:
- Permanently allow for hybrid AGMs (simultaneous physical and virtual meetings) without the need for any constitutional amendments.
- Permanently allow virtual AGMs if the constitution permits.
- Permanently allow for electronic execution of company documents.
- Create show of hands as the default method for voting at both physical and hybrid meetings.
- Allow members who hold at least 5 per cent of voting capital to request polls be independently scrutinised.
Room for improvement
While overall supportive of the bill, Governance Institute of Australia has some key concerns.
These include:
- The new laws would require entities to amend their constitutions before they could hold virtual-only AGMs. Practically, this may mean that once ASIC’s no action position ends where companies have not amended their constitutions, virtual-only AGMs would not be available in late 2021. This is not an ideal outcome given the current COVID-19 environment and ongoing requirements to maintain physical distancing.
- There is a lack of clarity in the drafting as to whether entities holding virtual or hybrid meetings must provide for both written questions and comments from shareholders and members and oral questions (such as a telephone line or live online microphone). Governance Institute is advocating for flexibility to suit the individual circumstances of each organisation, so that telephone lines or live microphones would not be mandatory where shareholders and members rarely or never use them, where the technology is not sufficiently advanced, or where it impedes the meeting experience.
- Through interaction with another bill currently before the Parliament, entities would need to give written notice to shareholders and members of their ability to opt in to hard-copy notices of meeting. Governance Institute would prefer that entities be allowed to mention this in their electronic notices of meeting, rather than sending separate communications.
Governance Institute is also advocating for ASIC to extend its “no action” position on virtual AGMs to at least the end of 2021 to give the business and charitable sectors certainty during the continuing pandemic.
A new sense of urgency
The lockdowns currently underway in several states are a reminder about the urgency of finding a resolution on this very ongoing issue. The issue of AGMs, and what format they can legally be held in, is at risk of becoming the never-ending story.
We know many organisations are clamouring for some certainty in these uncertain times, especially with the peak AGM season fast approaching. Clarity on this issue will also benefit shareholders. We welcome the proposed permanent laws but hope our concerns are taken on board.
Preparing for your AGM in the current environment
While organisations await some further certainty on this issue and for the new laws to be debated in the Parliament, there is still plenty that can be done to best prepare for the upcoming AGM season.
Here are some steps that can be taken now:
- Seek legal advice on how best to prepare for various scenarios, including the risk that the Parliament does not provide regulatory certainty in August and that ASIC does not extend its “no action” position.
- Discuss contingency plans with your registry and technology provider.
- Establish a dedicated AGM area on your company website.
- Encourage proxy voting.
- Establish an online shareholder Q&A for the AGM.
- Encourage shareholders to provide email addresses and mobile phone numbers as part of pre-registration to facilitate smooth shareholder updates in the event of public health announcements.
- Ensure you have a COVID-safe check-in at the meeting and check whether COVID marshals are required.
- Consider live streaming the AGM.
Megan Motto is the CEO for Governance Institute of Australia.
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Megan Motto
