The Corporations Amendment (Proxy Voting) Bill 2012 (Bill) passed the Senate on 18 June 2012 and is now awaiting Royal Assent. The Bill is intended to correct an anomaly in the voting restrictions introduced by the Corporations Amendment (Improving Accountability on Executive Remuneration) Act 2011 (Cth) (Executive Remuneration Act).
Section 250R of the Corporations Act 2001 imposes voting restrictions for the resolution to adopt the remuneration report. Those restrictions also apply to voting on the resolution for a spill meeting (section 250V(2)). In short, the effect of the Executive Remuneration Act was to prohibit the chair from voting undirected proxies on the resolution to adopt the remuneration report.
The Bill allows the chair of the meeting to vote undirected proxies on the remuneration report adoption resolution, and the spill meeting resolution, if:
- the vote is not cast on behalf of a member of the key management personnel (KMP) details of whose remuneration are included in the remuneration report (or a closely related party (CRP) of such a member); and
- the appointment of the chair as proxy 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 relevant entity.
In our opinion, the new law should overcome the anomaly. However, the drafting is odd and great care will need to be taken to ensure that proxy appointments are brought within it.
For a recap of the Executive Remuneration Act, and the 'two strikes' rule generally, please read our previous Alert.
Voting restrictions introduced by the Executive Remuneration Act
The Bill was made necessary by a drafting inconsistency in the voting restrictions introduced by the Executive Remuneration Act. Section 250R(4) prohibits a vote being cast (in any capacity) on the resolution to adopt the remuneration report by, or on behalf of, a member of the KMP, details of whose remuneration are included in the remuneration report (or their CRP). However, a member of the KMP or their CRP may cast a vote on the resolution if they do so as the holder of a directed proxy, and are not voting on behalf of another relevant KMP member or their CRP(section 250R(5)).
Section 250BD(2) provides a broader exemption, which allows undirected proxies to be voted on resolutions connected directly or indirectly with KMP remuneration, if:
- the person casting the vote is the chair of the meeting at which the resolution is voted on; and
- the 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 relevant entity.
Section 250R(10) provides that sections 250R(4) and (5) have effect despite anything else in the Corporations Act, the law (including general law) of a State or Territory, or anything in the company’s constitution. This meant that section 250R(5) prevailed over section 250BD(2). The exception in section 250BD(2) to allow the chair, as proxyholder, to vote undirected proxies in certain circumstances was therefore not available on the resolution to adopt the remuneration report.
This was contrary to the Government's express intention, articulated in the Explanatory Memorandum and the second reading speech to the Executive Remuneration Act. Section 250R(6) allows ASIC to grant relief on a case-by-case basis from the voting prohibitions in section 250R(4), but does not permit general relief by class order.
On 15 August 2011, after the defective drafting of the Executive Remuneration Act had been brought to public attention, ASIC released Information Sheet 144 Annual meetings: voting on the remuneration report resolution to guide companies about the requirements of the Act and for ASIC relief.
ASIC contemplated that companies could:
(i) provide that the chair would not vote any undirected proxies on the remuneration report resolution
(ii) alter the proxy form so that it would expressly be a directed proxy in favour of approval of the remuneration report unless the shareholder indicated a contrary intention by ticking an ‘against’ or ‘abstain’ box
(iii) nominate as proxy for the remuneration report resolution someone who is not a member of the company's KMP; or
(iv) apply to ASIC for relief under s 250R(6).
According to the Information Sheet, relief could only be granted if ASIC was satisfied that the declaration would not cause unfair prejudice to the interests of any member of the company – a high threshold.
The 2011 AGM season
In fact, in the 2011 AGM season most companies opted for some version of either (i) or (ii). Those opting for (i) were effectively disenfranchising the substantial number of shareholders who give undirected proxies to the chair.
Apparently some companies were advised that implementation of option (ii) nevertheless required shareholders to tick a box on the form in order to give the Chairman a directed proxy to vote in favour of the remuneration report resolution. This approach was based on what we consider to have been an unnecessarily cautious construction of the provisions. The advice evidently was that an instrument of proxy:
- does not 'specify' how the proxy is to vote on the remuneration report resolution (for the purposes of section 250R(5)), and
- does not 'expressly authorise' the chair to vote as proxy holder although the resolution deals with the remuneration of KMP (for the purposes of section 250BD(2)),
if the printed form of proxy simply declares that the proxy will be a directed proxy in favour of the resolution unless the shareholder ticks the ‘against’ or ‘abstain’ box. On this view, it is necessary to include in the proxy form a box that must be ticked before the proxy form can be regarded as 'specifying' how the chair is to vote and ‘expressly authorising’ the chair to vote.
However, a form of proxy can ‘specify’ and ‘expressly authorise’ just as effectively by printed word as by manual ticking of a box, and an unfortunate consequence of the over-cautious construction is that the votes of shareholders who intend to give the chair an undirected proxy but fail to tick the box are disregarded.
The remuneration report resolution is not a resolution requiring a voting exclusion statement under the Listing Rules. However, some other remuneration-related resolutions can fall within both section 250BD and Listing Rule 14.2.3B. If the overly cautious approach described above is taken, then in the case of such a resolution, there will need to be provision on the proxy form for a box to be ticked for the purpose of providing the 'express authority' required by section 250BD(2) in order to allow the chair to vote on the resolution. Also, a provision on the form for a box to be ticked to satisfy the Listing Rule, which is to similar but not identical effect will be required. The potential for confusion is obvious.
On 11 August 2011, the then Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP, issued a media release flagging that the Government intended to introduce amendments to the Corporations Act to clarify that the chair of the meeting would be able to ‘vote undirected proxies in the non-binding vote where the shareholder provides their explicit consent for the chair to exercise the proxy’.
In September 2011, the Government introduced the omnibus Consumer Credit and Corporations Legislation (Enhancements) Bill 2011 into Parliament. Schedule 7 to that Bill was in relevantly identical terms to the Corporations Amendment (Proxy Voting) Bill 2012. However, the majority of the omnibus Bill's amendments related to complex changes to the consumer credit legislation. As a result, the Bill was subject to extensive parliamentary committee review and remains before the House of Representatives at the date of publication of this Alert.
On 24 May 2012, the current Parliamentary Secretary to the Treasurer, the Hon Bernie Ripoll MP, announced that the amendment to voting on the remuneration report resolution would be taken out of the bill to amend the consumer credit legislation and put forward as a separate Bill. The separate Bill became the Corporations Amendment (Proxy Voting) Bill 2012.
Effect of the Bill
The Bill replaces subsection 250R(5) with a new subsection, which provides that a person who is a member of the KMP (details of whose remuneration are included in the remuneration report) or their CRP (the voter) may vote on the resolution to adopt the remuneration report as a proxy if the vote is not cast on behalf of a person described in section 250R(4) and either:
- the voter is appointed a proxy by writing that directs the way the proxy is to vote on the resolution; or
- the voter is the chair of the meeting and the proxy appointment does not direct the way the proxy is to vote on the resolution, and 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 relevant entity.
Those who took the overly cautious approach to the 2011 legislation will presumably have difficulty with the wording of the new provision. The logic of the idea that the printed proxy form cannot ‘expressly authorise’ the chair to vote on a resolution that is connected with remuneration of the KMP, means that the proxy form will not comply with the new section 250R(5) unless there is a manually completed box conferring that authority. Shareholders who do not complete the box will be effectively disenfranchised, just as they have been under the pre-existing law.
Those of us who accept that the printed form of proxy can ‘expressly authorise’ the chair to exercise the proxy will still have to grapple with the poor drafting of the new provision. To permit the chair to vote, the proxy form must give express authority to the chair ‘even if the resolution is connected directly or indirectly with remuneration of a member of the key management personnel ...’. But the resolution to which the new provision will apply is the remuneration report resolution, which necessarily is directly connected with the remuneration of all members of the KMP (usually including the chair), so the word 'if' is misplaced and confusing.
The challenge for the proxy form drafter will be to communicate with shareholders effectively while nevertheless complying with the new provision. We would be happy to assist.
The amendments commence on the day after the Bill receives the Royal Assent.