Yesterday, the Consumer Credit and Corporations Legislation Amendment (Enhancement) Bill 2011 (Bill) was introduced into the House of Representatives.
If passed, the Bill will amend the Corporations Act 2001 to establish that the chair may lawfully vote undirected proxies on the resolution to adopt the remuneration report. But the proxy appointment must expressly authorise the chair to exercise the proxy, in accordance with a formula stated in the new provision.
The Corporations Legislation (Improving Accountability on Director and Executive Remuneration) Act 2011 (Executive Remuneration Act) introduced, among other things, the 'two strikes' rule and restrictions on voting by key management personnel (KMP) and their closely related parties (CRP) on resolutions concerning remuneration. Those changes are outlined in more detail in our 22 June 2011 Alert.
The Executive Remuneration Act prevents KMP and their CRP from voting undirected proxies on resolutions connected directly or indirectly with the remuneration of members of KMP: section 250BD(1). However, a member of KMP may vote undirected proxies on such resolutions if they are the chair of the meeting and the proxy appointment expressly authorises the exercise of the proxy in those circumstances: section 250BD(2).
As we reported in our September Corporate HQ Advisory Newsletter, the poor drafting of the Executive Remuneration Act means that this exception is not available on the resolution to adopt the remuneration report under section 250R(2).
Sections 250R(4) and (5) prevent votes from being cast on the resolution to approve the remuneration report by or on behalf of the members of the KMP whose remuneration details are included in the remuneration report, or their CRP, unless the vote is under a directed proxy and is not cast on behalf of a KMP or CRP. Those provisions are expressed to apply despite anything else in the Corporations Act, and therefore they override section 250BD(2).
Typically the chairman of directors is a member of the KMP whose remuneration details are included in the remuneration report. It is usual for the chairman of directors to be the chair of the meeting, and for the proxy form to make provision for the chair to be appointed proxy holder of undirected proxies. In those circumstances the new law prohibits the chair from voting those undirected proxies on the remuneration resolution. Consequently the shareholders who appoint the chair as proxy holder of an undirected proxy on the remuneration resolution will be disenfranchised.
ASIC may give relief to permit the chair to vote on a specified resolution, but it does not have the power to grant class order relief. Further, ASIC may only provide relief if it is satisfied that it 'will not cause unfair prejudice to the interests of any member of the company'.
Widespread criticism led to the Government announcing in an 11 August 2011 media release that amendments would be introduced in the Spring sitting of Parliament to resolve the matter.
The proposed solution
The Bill will replace section 250R(5) with a new subsection that mirrors the wording of section 250BD, so that a voter (defined as a member of KMP, details of whose remuneration are included in the remuneration report, or their CRP) may cast a vote on the resolution to adopt the remuneration report if the vote is not cast on behalf any of those KMP or CRP, and:
- the voter has been appointed by a directed proxy in writing; or
- the voter is the chair of the meeting, and has been given an open proxy, and the proxy appointment expressly authorises the chair to exercise the proxy 'even if the resolution is connected directly or indirectly with the remuneration of a member of the KMP' for the company or entity.
The wording is strange. It is difficult to imagine any resolution more directly connected with the remuneration of the company's KMP, than the resolution to adopt the remuneration report. However, the curious drafting will permit the proxy form to have a single "express authority" governing the remuneration report resolution and any other remuneration-related resolutions.
What this means for you
The transitional provisions of the Executive Remuneration Act state that the voting prohibitions in sections 250BD and 250R apply to voting conducted on or after 1 August 2011, regardless of the date of the matter or report the subject of the resolution. If the Bill is passed, the amendments to section 250R will commence on the first day after Royal Assent.
Therefore if the commencement date is before the date of this year's AGM, chairs will be permitted to vote undirected proxies held by them on the remuneration resolution, provided that the express authority required by the new wording has been given.
The Bill does not interfere with the chair's power to vote directed proxies.
Minter Ellison can provide practical advice on the implementation of the Executive Remuneration Act for your company's annual general meeting, and on how best to deal with the anomaly currently in the legislation until the Bill's new provision becomes effective.
We note that the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, which if passed will amend section 250R of the Corporations Act 2001, has now been referred to the Senate Economics Committee for inquiry and report by 23 November 2011.
The effect of this reference is that it is doubtful whether amendments to section 250R will become law in time for the 2011 AGM season.
Submissions to the Senate Economics Committee are open until 21 October 2011. No public hearings will be held.
The Bill has also been referred to the Parliamentary Joint Committee on Corporations and Financial Services. No further information is available at the time of writing regarding the deadline for submissions to the Joint Committee.