The Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 amends the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001. Items 1, 2 and 10 of the schedule to this bill amend the Corporations Act 2001, and their intent is to better balance the rights of shareholders to raise issues with a company and the costs of companies that have been required to call and hold a general meeting. It would repeal the so-called 100-member rule which creates an obligation on a corporation to hold a general meeting at the request of 100 or more shareholders.
These meetings are often called for protest purposes and almost always, particularly in the case of larger corporations, create a very significant cost to business. For example, Woolworths was compelled to call an extraordinary general meeting in relation to $1 limits on poker machines. Whatever one's views about the worth or otherwise of imposing a $1 limit on poker machines, it can be seen that this was very much a political action using corporate rules. What it did was to impose on Woolworths, as a very direct cost, about $500,000, which was the cost of notifying its shareholders for that extraordinary general meeting. The resolution when put to the extraordinary general meeting, despite the political action behind it, received just 2.5 per cent support of those attending the meeting.
No-one objects to the fact that people might have different views. No-one objects in any way to the expression of those views. Indeed, shareholders should be able to legitimately raise concerns about the affairs of companies in which they hold shares, through a number of mechanisms, but they should not be permitted to do it at a significant cost to other shareholders. It is not appropriate that a very small number of shareholders be able to impose costs at that level simply for the purpose of making a political point. You could cite as another example that in the two years from late 1999 to late 2001 the NRMA in New South Wales was forced to call 12 extraordinary general meetings to consider resolutions removing directors, each of which incurred several million dollars in costs, and in no case were any of the relevant regulations that were the supposed purpose of those extraordinary general meeting passed by the members of the NRMA.
The proposed changes do not remove the ability of 100 or more shareholders to add items to scheduled annual general meetings and to instigate debate as an agenda item at these meetings. This retains the right for 100 or more members to raise issues of concern, without the often significant cost to shareholders of scheduling extraordinary meetings under the current acts. Shareholder activism is a component of corporate governance. Shareholders should be able to put issues on the AGM agenda and should be able to instigate debate at the meeting. The right is of particular importance to retail shareholders, who have limited opportunities to meet with the company prior to the AGM. These rights will not change with this proposed legislation.
Australia is currently alone in providing for a shareholder test that applies regardless of how much capital the requisitionists hold. It is more common to require that requisitionists must hold at least five to 10 per cent of the shares before they can call a general meeting. Again, no-one disputes the fact that shareholders have a right to question directors and decisions made by a company, but it should not be at a cost to other shareholders. Labor supports this change.
Items 3 to 5 and 10 of schedule 1 to this bill amend the Corporations Act 2001 to improve and streamline remuneration reporting requirements. Currently, disclosing entities that are companies must disclose the value of options that lapse during a financial year for each member of the key management personnel. Disclosing entities that are companies must also disclose the percentage value of remuneration that consists of options for each member of the key management personnel. This bill makes changes so that listed disclosing entities that are companies must disclose the number of options that lapse during a financial year and the financial year in which those options were granted for each member of the key management personnel. There will be no obligation to disclose the value of options that lapse. Under this bill there is no obligation to disclose the percentage value of remuneration that consists of options for each member of the key management personnel.
Also currently, all disclosing entities that are companies are required to prepare a remuneration report, regardless of whether they are listed or unlisted. This bill changes that so unlisted disclosing entities that are companies are no longer required to prepare a remuneration report. Listed disclosing entities continue to be required to prepare a remuneration report.
Labor supports improving the disclosure of executive remuneration information in Australia. There have been concerns raised by shareholders and users of remuneration reports that currently the reports contain some information that was of limited benefit or can be found at other places in the annual report. Labor also supports removing the unnecessary requirement for unlisted disclosing entities that are companies to prepare a remuneration report. Unlike listed entities, they are not required to have their remuneration report adopted by shareholders through a non-binding resolution and are not subject to the two-strikes test.
Item 6 of schedule 1 to this bill amends the Corporations Act 2001 to clarify the circumstances under which a financial year may be less than 12 months. There is confusion about the conditions under which directors may determine that a financial year is shorter than 12 months. Currently, section 323D sets out how companies, registered schemes and disclosing entities may determine the length of their financial year. While an entity's financial year is expected to be approximately 12 months long, entities can determine otherwise in cases where an entity needs to modify its financial year by up to seven days to accommodate week based internal reporting frameworks or an entity needs to synchronise its financial year in order to prepare consolidated financial reports.
However, subsection 323D(2A) allows entities to determine that their financial year is less than 12 months if none of their previous five financial years have been less than 12 months, the shorter financial year commences at the end of the previous financial year and the decision is in the best interests of the entity. Stakeholders have raised concerns about the interaction between this provision and the operation of subsection 323D(2), which requires that a financial year is 12 months long, unless determined by the directors to be a period that is longer or shorter than 12 months by up to seven days.
There is confusion surrounding whether taking advantage of the flexibility in section 323D(2) would trigger the five-year period in which an entity is precluded from accessing the benefits offered by section 323D(2A). Similarly, subsection 323D(3) requires an entity to synchronise its financial year end with that of its parent entity when it becomes a controlled entity. Again, stakeholders have raised concerns that this provision may trigger the five-year period in which an entity is precluded from accessing the benefits offered by section 323D(2A).
The bill seeks to clarify that directors may determine that a financial year is shorter than 12 months by more than seven days irrespective of whether during an entity's previous five financial years the directors have determined that the financial year is shorter than 12 months by up to seven days or determined to synchronise the financial year to prepare consolidated financial statements. Labor supports the amendments in this bill that clarify the circumstances and conditions under which directors can determine the financial year is shorter than 12 months by more than seven days. This removes the unintended confusion arising from changes made in 2010 intended to make it easier for directors to alter financial year end dates.
Items 7 to 9 of schedule 1 to this bill amend the Corporations Act to exempt certain companies limited by guarantee from the need to appoint or retain an auditor. Currently, all public companies, including companies limited by guarantee, are required to appoint and retain an auditor. This bill changes this so that small companies limited by guarantee and those companies limited by guarantee that have their financial reports reviewed are not required to appoint or retain an auditor. This means that companies that are not required to undertake an audit are no longer required to appoint and retain an auditor. All other public companies are required to appoint and retain an auditor, as is current practice. Labor supports these changes that remove unnecessary costs on business by removing the requirement for companies to appoint and retain an auditor, even if they are not required to conduct an audit. The change is expected to provide the greatest benefit to not-for-profit community organisations, allowing them to better service the community.
Part 1, items 1 and 2 of schedule 2 to this bill amend the Australian Securities and Investments Commission Act 2001 to improve the operation of the Takeovers Panel by allowing takeover matters to be dealt with more efficiently. Currently, the president and members of the Takeovers Panel may only participate in proceedings if they are within Australia. These changes mean the President of the Takeovers Panel may give a direction in respect of members who are to constitute the panel whether or not the president is in Australia. Further, members of the Takeovers Panel may participate in proceedings whether or not the members are in Australia. As technology improves and the world becomes ever more connected, it is sensible to alter legislation to reflect that change. This bill will allow members of the Takeovers Panel to participate in proceedings if they are physically located outside of Australia at the time. Labor supports this sensible change to allow the more efficient resolution of disputes.
Part 1, items 3 to 8, and part 2, item 9 of schedule 2 to this bill amend the ASIC Act to extend the Remuneration Tribunal's remuneration-setting responsibility to include certain Corporations Act bodies. Currently, the ASIC Act provides that the responsible Treasury portfolio minister determines the terms and conditions—including remuneration—of the chairs and members of the Financial Reporting Council, the FRC; the Chair of the Australian Accounting Standards Board, the AASB; and the Chair of the Auditing and Assurance Standards Board, the AUASB. The ASIC Act also provides that the FRC is responsible for determining the terms and conditions, including remuneration, of the offices held by the members of the AASB and the AUASB.
This bill brings responsibility for determining the remuneration and full-time member recreation leave entitlements of the chair and member positions of the FRC, the AASB and the AUASB within the Remuneration Tribunal's jurisdiction. The Remuneration Tribunal has specialist skills in reviewing and determining remuneration and is therefore better placed to determine the remuneration of these offices. Moreover, it will ensure consistency in the remuneration setting arrangements between the three bodies and other statutory office holders.
Currently, the responsible Treasury portfolio minister determines the terms and conditions—including remuneration—of the chairs and members of the Financial Reporting Council, the chair of the Australian Accounting Standards Board and the chair of the Auditing and Assurance Standards Board. The ASIC Act also provides that the FRC is responsible for determining the terms and conditions held by the members of the AASB and the AUASB.
Labor supports the provisions in this bill that bring responsibility for determining the remuneration and full-time-member recreation leave entitlements of the chair and members within the Remuneration Tribunal's jurisdiction. There is no question that that is the best place for them and where they ought to be. The changes that are contained in this bill are supported by Labor. They were changes that Labor was progressing through in government and matters that had been worked on with bipartisan support across both sides of this chamber, and within the industry and the sector itself. It is good, sensible policy. I offer Labor's support for these measures and commend the bill to the House.