Special general meetings: abolition of 100 member rule

The draft Corporations Amendment Bill (No2) 2005 has now passed through the parliamentary joint committee on corporations and financial services inquiry. The Committee has released its report on the exposure draft  and recommended the
abolition of the 100-member rule in favour of the 5 percent requirement.

The key majority quote:

The Committee remains of the view that the 100 member rule should be abolished. While there is little history of the rule being abused, its potential for abuse remains clear. In the Committee’s view, it is not necessary for parliament to wait until some quota of abuses is observed, before reforming the provision. The Committee considers that sufficient other mechanisms exist for smaller shareholders to question company directors and influence company policy. Furthermore, the Committee is aware that any vexatious use of the 100 member rule will result in substantial costs to the company, and that these must be reflected in poorer investment returns for shareholders.

The Committee notes the proposals for reforming the rule rather than repealing it. However, the Committee considers that the 5% rule alone is sufficient to ensure that, in the extraordinary circumstances which would justify an extraordinary meeting, shareholders could requisition a meeting. This would probably (for practical purposes) require the recruitment of at least one institutional shareholder – and this in itself provides a safeguard against frivolous use of s. 249D.

If adopted by the Government, it will mean that anyone wanting a special general meeting must have at least 5 percent of the total voting shares of the company.

For mutuals the committee recommends the number of members required to call a meeting be 1% not 5%.(Para 2.23)

The committee also considered the number of members required to list a resolution at a general meeting. The draft Bill reduces the number to 20. The Committee thought the number was too low but proposed that if the number was enacted that it be reviewed after one year.

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