The AGM season is upon us again. Given recent developments in the law and the ASX Listing Rules (LR), some of which have been mentioned in our ECM Bulletins, it might be timely for ASX listed companies to consider whether their constitutions require updating.
The following are some constitutional provisions which may need to be reviewed for updating.
Restricted securities
If a company is looking to issue restricted securities in the near future, the provisions in its constitution relating to restricted securities (as prescribed by LR 15.12) will need to be updated to reflect the amendments to LR 15.12 that were made in December 2019.
Any company that is looking to list on the ASX should also ensure that its proposed constitution as a listed company reflects LR 15.12.
Further details: LR 15.12 requires a listed entity’s constitution to include certain provisions dealing with restricted securities. As part of ASX’s efforts to streamline the escrow regime in Chapter 9 and Appendices 9A and 9B of the ASX Listing Rules, amendments were made to LR 15.12 which apply to all entities that were admitted to ASX’s official list, or issue restricted securities, on or after 1 December 2019. Listed entities that have issued restricted securities before 1 December 2019 must continue to comply with LR 15.12 in force immediately prior to that date.
Fees for registering paper-based transfers
If a company, or its external share registry, currently charges shareholders a fee for registering paper-based transfers, it is important to check the company’s constitution to make sure that it actually contains a provision that permits such a fee being charged.
Further details: Older company constitutions often contain an express prohibition on charging fees for the registration of share transfers (which reflect former restrictions in the ASX Listing Rules). While LR 8.14.1 now permits “a reasonable fee” to be charged for registering a paper-based transfer, such a fee can only be charged if it does not infringe the entity’s constitution. In a recent Federal Court decision, a listed entity refused to register a share transfer where the fee for doing so was not paid. However, its constitution contained a prohibition on charging such fees. The Federal Court found that by refusing to register the share transfer, the company breached its statutory contract (in the form of the constitution) with the relevant shareholder.
Direct voting
Companies should check that its constitution contains a provision that enables shareholders to exercise their voting rights through direct voting, in addition to exercising their existing right to appoint a proxy.
Further details: Direct voting helps to facilitate shareholder engagement by enabling shareholders to directly vote at general or class meetings without having to attend those meetings in person by proxy. It is particularly relevant in the current circumstances where COVID-19 is impacting on companies’ ability to hold physical meetings.
A direct voting provision typically allows votes to be delivered by email, electronically or other means approved by the board. The direct voting provision should also give the board the power to prescribe rules for the delivery of direct votes, including the form, method and timing of giving a direct vote in order for the vote to be valid.
Updates to facilitate use of technology
Companies should also check whether its constitution needs to be “modernised” to allow for the use of technology, e.g. in terms of how board and shareholder meetings are held, how resolutions are passed and decisions made, and how notices and shareholder communication are delivered under the constitution.
Further details: Some common “modernisation” provisions include:
- Provisions which allow and facilitate the holding of hybrid or online general meetings.
In response to the COVID-19 pandemic, temporary modifications have been made to the Corporations Act 2001 (Cth) (Corporations Act) by the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 to overcome any legal impediments to holding general meetings by virtual technology. However, companies should nevertheless check that there is nothing in its constitution which would prevent holding of general meetings in this way.
The relevant provisions should also make it clear that, if holding general meetings using technology, all members so participating in the meeting are taken for all purposes (for example, a quorum requirement) to be present at the meeting while so participating. - Allowing proxy forms to be delivered by way of email. The company may wish to require some form of authentication to be provided when proxy forms are delivered in this manner.
- Allowing flexibility in how circulating resolutions are “signed” by directors, for example by the director giving their consent to the resolution by email notice or phone message to the chair of the board or the company secretary. Such flexibility is useful in situations where urgent decisions need to be made by the board by way of a circular, and one or more of the directors does not have readily access to a printer and cannot physically “sign” a hardcopy of the resolution.
- Expressly allowing for any signatures on notices or documents that are given by the company to be affixed by mechanical or electronic means.
Renewal of proportional takeover provisions
Checking whether the proportional takeover provisions in the constitution are required to be renewed.
Further details: While this item does not involve a modification to the constitution, it is relevant to ensure that the relevant constitutional provisions are actually enforceable. Under section 648G of the Corporations Act, proportional takeovers provisions only have effect for 3 years after their adoption (or last renewal), and will need to be renewed by approval of shareholders in order for those provisions to continue to apply.
This article is part of the October 2020 Equity Capital Markets Bulletin, click here to download.
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