Publications / Corporate Advisory
- This article outlines important practical issues facing ASX listed companies.
- Recent changes mean that the time period for regulatory reviews will be even more protracted.
- ASIC ‘final version’ requirements will create logistical difficulties.
- The lead time for review of some resolutions will be up to eight weeks before the AGM.
ASIC has recently restated its policy concerning processing Notices of Meeting (NOM), with the goal being to facilitate document imaging immediately following lodgement. This is designed to ensure that ASIC complies with its obligation to maintain the public register of documents and, to ensure that all NOM materials are to be made available on the public register without delay.
The result of this change is that ASIC will only accept documents for lodgement that:
- have an original (not digital) signature of a director or company secretary, and
- are the final version, incorporating any changes required by the ASX.
New indicative timing
ASIC has indicated it is currently in the process of settling its policy and will be communicating it nationally when finalised.
It has also been reinforced by ASIC that ‘lodged’ means physically lodged and not just submitted by email. We understand this has been clarified as a result of some ‘last ditch’ attempts to satisfy timing requirements.
Particular relevance to related party benefit approvals
On 30 March 2011, ASIC released Regulatory Guide 76 ‘related party transactions’ (RG 76). RG 76 clarifies ASIC’s view on related party transactions and in particular, emphasises the requirement that under Chapter 2E Corporations Act 2001 (Cth) (Corporations Act) companies must not give a benefit to a related party of a director without shareholder approval.
RG 76 illustrates ASIC’s broad interpretation of the relevant provisions, particularly as they relate to director equity incentives, which are seen as falling outside the ‘reasonable remuneration’ exception frequently applied by companies in the past.
ASIC’s guide also details the expected level of disclosure in NOMs where such approvals are sought. In the case of a proposed issue of options to a director, this will include for instance, the value of the benefits, the basis of valuation and why the methodology is appropriate, the reason why they are being given the benefit instead of a cash payment, as well as other remuneration to be received.
There is a subtle change in focus with some requirements, including the previous disclosure of ‘emoluments’ which was typically a reflection of the remuneration received in the most recent financial year as stated in the Annual Report. ASIC’s guide indicates the requirement is now to illustrate how the benefits sit alongside current remuneration and entitlements.
Any NOMs requiring approval for related party transactions are subject to ASIC review. Under section 218 of the Corporations Act, the NOM must be given to ASIC at least 14 days before the NOM convening the relevant meeting is given. ASIC typically issues a ‘no objection’ letter to confirm it has reviewed the relevant materials. The 14 day period is potentially subject to ASIC’s discretion to grant an abridgement of time, however an application for abridgment must be made in writing and set out the reasons why an abridgement should be granted.
Previously, companies have been able to lodge the NOM and associated documents contemporaneously with both ASX and ASIC and practically manage minor changes. The new requirement is for ASX to have finalised its review first and in calculating lodgement timelines, companies must now take into account the sequential process and timeline.
The additional requirement to lodge the final version of documents means that if ASIC requires material changes to the NOM themselves this may require the lodgement of a new NOM. Whilst ASIC endeavours to manage the process expeditiously and may take a practical view on minor changes, the result in the case of material amendments is that technically the clock will restart on the ‘14 days’ requirement, unless an abridgement is granted. There will likely be a heightened number of abridgement applications, however, the nature and extent of changes to a NOM may have an impact on the willingness to grant an abridgment.
Many companies also hold their Annual General Meetings late in November, so there is limited leeway. This may lead to resolutions having to be dropped if compliance cannot be achieved in time to issue the NOM.
Another criticism is that the ‘final version’ requirement means that information must be ‘locked in’ significantly in advance of the date when the meeting will be held. Anecdotally, difficulties can be experienced in balancing ASX and ASIC’s expectation about including current information. For example, data such as relative share prices or valuation of benefits, will inherently be at least eight weeks old by the time the relevant meeting is held. The data may in fact be older still given the actual work involved in preparing the NOM before lodgement. In some cases the difficulties may be compounded as preparation of the Annual Report may still be in progress, in which case some details or the achievement of relevant KPIs may not be capable of being finalised.
These changes are very important at a practical level and all Boards and Company Secretaries must ensure they are factored into AGM processes and timelines.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.