AGM remuneration report resolution problems acknowledged by ASIC

On 10 August 2011, the Australian Securities and Investments Commission (ASIC) acknowledged that the new two strikes law has problems, and is offering relief until the government can amend the law.

In a press release issued on 11 August 2011, the government confirmed that it will be introducing amendments to the Corporations Act 2001 in the Spring Parliamentary sittings to fix these problems.

The government’s new rules govern when chairpersons at annual general meetings (AGMs) can cast proxies on remuneration report resolutions. ASIC has received queries on compliance with the new obligations and the circumstances in which ASIC may provide relief.

Shareholders commonly appoint the chairperson as their proxy to vote on their behalf at the AGM. The chairperson may be directed how to vote on a resolution by ticking a box next to the resolution on the proxy appointment form (commonly known as a directed proxy) or the shareholder may not specify the way the chairperson must vote (commonly known as an undirected proxy).

One of the matters considered at an AGM for a listed company is a non-binding vote to approve the remuneration report. Under the new rules introduced by the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011, there is some uncertainty about the circumstances in which a shareholder can appoint a chairperson who is member of the company’s key management personnel (which includes a director) to vote as their proxy. Technically, section 250R(4) prohibits the chairperson from voting undirected proxies on the remuneration report resolutions. However, the government has clearly indicated its intention that the chairperson should be able to vote undirected proxies in certain circumstances, including on remuneration report resolutions.

During 2011, the government proposes to amend the provisions to make it clear that chairpersons are permitted to vote undirected proxies on remuneration report resolutions. Until the rules are amended to give effect to the government’s intention, ASICs information sheet provides options for companies to consider when complying with the current rules.

These options include:

  1. making no change to the company’s usual proxy form and ensuring that the chairperson will not vote any undirected proxies on the remuneration report resolution;

  2. changing the company’s proxy form so there are more directed proxies, which can be counted in the vote on the remuneration report;

  3. suggesting shareholders consider nominating a proxy other than a member of the companys key management personnel for the purposes of the remuneration report resolution; and,

  4. applying to ASIC for relief in relation to a specific resolution.

Obviously options a to c have problems. Options a and b deny shareholders their right to provide undirected proxies to the chairman who they trust to vote them in their best interests. Option c is not viable if the shareholder does not know of anyone who can attend the AGM to vote on their behalf, and whom they can trust to vote the shares in their best interests.

Option d has some urgent timing issues, as companies that wish to apply for relief must do so before dispatching documents to shareholders. Under the law, ASIC can only grant relief if it is satisfied that relief will not cause unfair prejudice to the interests of any member of the company.

ASIC’s advice is contained in Information Sheet 144 Annual general meetings: Voting on the remuneration report resolution on the new provisions on remuneration report resolutions. See HERE

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