Jan McLucas (Queensland, Australian Labor Party, Shadow Minister for Mental Health) Share this | Hansard source

On behalf of the Labor Party, I make a contribution to the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014. This bill amends the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001. Labor supports the bill and will not be proposing any amendments. I note that the bill has been the subject of an inquiry by the Senate Economics Legislation Committee, which recommended that the bill be passed. There are a number of measures contained within this bill and I will speak to each of them separately.

Firstly, on the 100-member rule, the changes in items 1, 2 and 10 of schedule 1 to the bill amend the Corporations Act 2001. These changes are designed to better balance the rights of shareholders to raise issues with a company with the cost to companies of being required to call and hold a general meeting. It repeals 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. As cited in the Bills Digest from the Parliamentary Library, this provision is not a new one, having been introduced into the Companies Act 1981 by Attorney-General Gareth Evans in 1983. However, since that time there has been significant change in the composition of shareholders as well as the number of large listed companies in Australia, a result of economic reforms undertaken by both sides of politics. Today, the growth in retail shareholders means the specific number of 100 is often a very small proportion of the overall membership of a company. I note that amongst major countries Australia is the only one that applies a numerical test for convening an extraordinary general meeting regardless of share capital held.

The removal of this element of the 100-member rule was of particular concern to Senator Xenophon, who submitted a dissenting report to the Senate Economics Legislation Committee's inquiry. Importantly—and I want to make this point very clear—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, as exists under the current act, without the often significant cost to shareholders of scheduling extraordinary meetings. The changes we are dealing with today do not affect the right of 100 shareholders to put a resolution to be considered at a general meeting or to distribute a shareholder statement with the notice convening that meeting. The changes do not affect the ability of 100 or more shareholders to engage to raise points of particular interest and to hold companies to account. That is as it should be.

Shareholder activism is an important component of corporate governance and that needs to be accepted. Small shareholders have a legitimate right to put up questions to boards of public companies and to raise issues of concern. Shareholders should be able to put issues on the annual general meeting agenda and to instigate a debate at that meeting. This right is of particular importance to retail shareholders, who have limited opportunities to meet with the company prior to the annual general meeting. These rights will not change with the proposed legislation.

Labor recognises that the 100-member rule, though, can impose significant costs on business and that these can be, to some people's minds, unreasonable. For example, in the two years from late 1999 to late 2001, NRMA was forced to call 12 EGMs to consider resolutions removing directors, each of which incurred several million dollars in costs and resulted in none of the relevant resolutions being passed. In 2012, Woolworths was compelled to call an extraordinary general meeting in relation to one-dollar limits on poker machines. The cost of notifying its shareholders alone was $500,000. The hosting of the meeting meant that Woolworths incurred further costs. The resolution received just 2.5 per cent support.

In another example, a company based in South Australia, Santos, was compelled to hold an extraordinary general meeting following a call from more than 100 individual shareholders to abandon its Narrabri coal-seam gas project in New South Wales. A resolution not to abandon this project subsequently passed, with approval from 99 per cent of the shareholders.

No-one objects to the fact that people might have different views. Shareholders should be able to raise concerns legitimately through a number of mechanisms, but not at significant cost to other shareholders. As I mentioned previously, Australia is currently alone in providing for a shareholder test that applies regardless of how much capital the requisitionists hold. It is more common 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. So Labor will support this change.

The second issue goes to remuneration reporting requirements. Items 3 to 5 and 10 of schedule 1 to this bill amend the Corporations Act to improve and streamline remuneration reporting requirements. Currently, disclosing entities that are companies must disclose for each member of the key management personnel the value of options that lapse during a financial year. Disclosing entities that are companies must also disclose for each member of the key management personnel the percentage value of the remuneration that consists of options. This bill makes changes so that listed disclosing entities that are companies must disclose for each member of the key management personnel only the number of options that lapse during a financial year and the financial year in which those options were granted. There will no longer be an obligation to disclose the value of options that lapse or the percentage value of remuneration that consists of options for each member of the key management personnel.

Currently, all disclosing entities that are companies are also required to prepare a remuneration report, regardless of whether they are listed or unlisted. This bill changes that, so that 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 has a proud record of reforming executive remuneration by introducing the two-strikes test, that allows shareholders concerned with the executive remuneration to vote to spill the board under certain circumstances. 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 which 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.

The third issue goes to clarifying the financial year. Item 6 of schedule 1 to this bill amends the Corporations Act 2001 to clarify the circumstances in which a financial year may be fewer 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, for example, an entity needs to modify its financial year by up to seven days to accommodate week-based internal reporting frameworks or where an entity needs to synchronise its financial year in order to prepare consolidated financial reports.

However, section 323D(2A) allows entities to determine that their financial year is fewer than 12 months if none of their previous five financial years have been fewer 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 unless determined by the directors to be a period that is shorter or longer 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 assessing the benefits offered by section 323D(2A). Similarly, subsection 323D(3) requires an entity to synchronise its financial year end with 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 measures in this bill that clarify the circumstances and conditions under which directors can alter and determine the financial year is shorter than 12 months by more than seven days. This remove the unintended confusion arising from changes in 2010 that were intended to make it easier for directors to alter financial year end dates.

The next issue is streamlining auditor appointments for companies limited by guarantee. Items 7 to 9 of schedule 1 to this bill amend the Corporations Act 2001 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 supporting the requirement for companies to appoint and retain an auditor even if they are not required to conduct an audit. This change is expected to provide the greatest benefit to not-for-profit community organisations, allowing them to better service our communities.

The next issue is the Takeovers Panel. Part 1, items 1 and 2 of schedule 2 to the bill amends 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.

Now I turn to the Remuneration Tribunal. Part 1, items 3 to 8 and part 2, item 9 of schedule 2 to this bill amend the Australian Securities and Investments Commission Act 2001 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 Chair of the Australian Accounting Standards Board; and the Chair of the Auditing and Assurance Standards Board. The ASIC Act also provides that the Financial Reporting Council is responsible for determining the terms and conditions, including remuneration, of the offices held by the members of the Australian Accounting Standards Board and the Auditing and Assurance Standards Board.

This bill brings responsibility for determining the remuneration and full-time member recreation leave entitlements of the chair and member positions of the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board 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 Financial Reporting Council is responsible for determining the terms and conditions and the offices held by the members of the Australian Accounting Standards Board and the Auditing and Assurance Standards Board.

Labor supports the provisions in this bill that brings 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 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 for the bill as a whole.