The need to implement contingency plans for the hosting of AGMs has exposed “key failings” in the Corporations Act.
The May annual general meeting (AGM) season is fast-approaching, and the coronavirus pandemic has drawn attention to “some key failings of the laws governing AGMs” as organisations figure out how best to hold their meetings while upholding their legal requirements, says the Governance Institute of Australia.
Many organisations are turning to alternatives to the traditional AGM, it said in a statement, swiftly preparing contingency hybrid style meetings “but at the same time are facing hurdles such as restrictions on their ability to use technology to hold meetings or communicate with their shareholders or use electronic signatures on documents”, as required under the now nearly 20-year-old Corporations Act.
Governance Institute CEO Megan Motto said that the current difficult situation for companies of all sizes has put a spotlight on the need for an overhaul of the laws.
“It is time to bring the Corporations Act into the 21st century,” she proclaimed.
“Business currently finds itself exposed to many of the shortcomings of our existing legislation – and this has sped up the need for an overhaul.”
Organisations need to be putting in place contingency plans, Law Council of Australia CEO Pauline Wright said.
Companies will need, Ms Wright outlined, to make sure that arrangements for an AGM provide a reasonable opportunity for shareholders to participate in the meeting, including having a reasonable opportunity for shareholders to ask questions, make comments and to vote.
“While noting that each company’s situation will be different, having plans in place is imperative,” she said.
“This includes checking relevant provisions of the company’s constitution and coordinating with share registries, making sure shareholders are kept regularly updated and are given the maximum opportunity to have their say.”
To navigate the turbulence, LCA and the Governance Institute – in conjunction with the Australasian Investor Relations Association (AIRA) – have issued a guidance note intended to assist companies currently planning their AGMs or other crucial meetings.
“In the current environment shareholder engagement is more important than ever. Every effort should be made to facilitate that in the most cost-effective way. Hybrid and virtual meetings are a great way to do so and should become commonplace in Australia on a permanent basis,” AIRA CEO Ian Matheson said.
Among the suggestions made in the jointly issued guidance are: adapting the basis on which organisations hold AGMs, delaying the convening of the AGM if notice has not yet been issued, postponing or adjourning (if permitted by the organisation’s constitution), applying to ASIC for an extension of time, or conducting a “hybrid AGM”.
The guidance comes as the federal government announces that it will lessen the threats of actions that could push businesses into insolvency, including through providing temporary flexibility in the Corporations Act to give targeted relief for companies from provisions of the act to deal with unforeseen events that arise as a result of COVID-19.
“It is important that businesses have a safety net to make sure that once the crisis has passed, they can resume normal business operations,” Ms Wright said.
“We welcome these measures to assist otherwise profitable businesses that may find themselves facing financial distress during this time. These changes will make sure that companies have the confidence to continue to trade and keep the economy going.”
Elsewhere, ASIC has provided breathing room to companies struggling to organise their AGM in light of the changed circumstances, issuing a statement saying that it will take no action against companies for a delay of up to two months in holding their AGM or holding meetings using technology.