In recent years, we have seen a number of Chinese investors in Australian listed companies who have been disappointed with their management. Australia is remote so, despite the myriad of flight services now operating between Australia and China per day, we sometimes see Chinese investors frustrated trying to exert any influence or control over the running of these companies. It doesn’t have to be that way. Used intelligently, the law in Australia can enable these investors to effectively voice their concerns and influence the future direction of these companies. We explore how to achieve this below, starting with just a 1% stake in a listed Australian public company. For simplicity, we assume the company has only one class of fully-paid ordinary shares on issue, each carrying the right to one vote. HOW MUCH NOISE CAN YOU MAKE WITH 1%? More than you may have thought. As a minority shareholder, you still have rights, which will help you to rally support for your cause. Say you are a 1% shareholder in a mining services company. The company directors are blaming weak commodity prices and poor demand from the mining industry as the primary reasons for the company’s sharply declining revenue. But you know that there is value in the company that is not being realised due to ineffective capital deployment and board mismanagement. To help start your campaign to raise shareholder action on these issues and amass support for change, the Australian corporations law provides a useful tool.Regardless of the size of your shareholding, you have a right, protected by law, to: • access the company’s register of shareholders, option holders and debenture holders; and • use the information for purposes relevant to their interests and rights vis-à-vis the company. The names and addresses in those registers should assist you to find the right audience for your campaign. Don’t be surprised if you get an unfriendly call or letter from the company asking why you want the registers. They are entitled to ask for that information if you want a copy of the registers to keep. So it’s important that you know your rights at law and are prepared to defend your purpose. HOW MUCH NOISE CAN YOU MAKE WITH 5%? Once you have rallied up the support of another 4% (by number of votes) of shareholders, you can then really start to make a splash in company waters. Shareholders with at least 5% of total votes can require the directors to: • call a general meeting of the company within 21 days of request, and hold the meeting within two months of request, all at the company’s cost (the requisitioning shareholders could also do this at their own cost, if they wish to move more quickly); • put to shareholders any resolution that you put forward for consideration at the proposed meeting; and • distribute to shareholders, together with the notice of meeting, a 1,000 word statement by the requisitioning shareholders as to the proposed resolutions and any other matter that may be properly considered at the meeting. Until recently, the directors would also have needed to do the above at the demand of any group of 100 shareholders, regardless of how many votes they held. This obligation has now been removed from statute to strike a balance between protecting minority rights and preserving the business efficacy of the company. However, the right of a block of 100 shareholders to place matters on the agenda of any general meeting already scheduled—and to make 1,000 word statements—remains unaffected. Therefore, in a widely held company, you could still force important issues into the spotlight for consideration by the company if you have the support of 99 other shareholders. However, you will need to wait until the next scheduled meeting—usually the AGM. Take care though when adopting collective action with fellow shareholders. You may not want to become “associates” of one another as a result of those actions. This is because in Australia, if you, together with your associates, have a “relevant interest” (this is wider than just a legal or beneficial ownership) in: • 5% or more of the shares in a listed company, you will need to disclose yourself to the market as a substantial shareholder and will need to keep the market informed of any movement of 1% or more in your shareholding; or • 20% or more of the shares in a listed company, you will need to make a takeover bid for the whole of the company if you want to acquire any further interest in the shares of the company, unless you can rely on one of the various statutory exceptions to this rule. A breach of either of these rules could land you in hot water with the Australian Takeovers Panel which, whilst not a court, has broad statutory powers to deal with and make orders in respect of matters relating to the control of listed companies. As the concept of “association” is very broad and multifaceted under Australian law, it is not always easy to determine what your relevant interest is in a company. Shareholders that collectively requisition a general meeting of the company, or evince an intention to do so, are at risk of being perceived to be acting in concert with each other which, if true, will render them associates of one another. If, going a step further, shareholders enter into binding commitments as to how they will vote in relation to the company’s affairs, they will most certainly be associates. On the other hand, shareholders are generally free to exchange views as to how they wish to vote at a proposed meeting, make voting recommendations and discuss the problems they see in the company and suggested solutions. Provided that shareholders retain their discretion as to how to approach an issue in relation to the company’s affairs, the issue of association is unlikely to arise merely because the shareholders support the same course of action. HOW MUCH NOISE CAN YOU MAKE WITH 15% TO 25%? Much more than 1% or 5%. It is common in Australia for a holder with around 20% of a company to be given a seat on the board. However, if that is not what you desire or the offer is not forthcoming, it may nevertheless be time for shareholders to consider whether the incumbent board is right for the company or whether some changes need to be made. The company can, in a general meeting, resolve to remove a director from office despite anything in the company’s constitution or any other agreement. For this resolution to be carried, it will need to be approved by a majority of the votes cast. However, as this majority is calculated on the votes of shareholders present and voting at the meeting (in person or by proxy), the actual percentage of votes that you need on the resolution (in addition to your direct voting power of 15% to 25%) is likely to be much less. If you want to take a more subtle approach, the ‘two strike’ rule may provide you and your fellow shareholders with an opportunity to focus the attention of the company directors on live issues affecting the company. In a nutshell, the rule requires listed companies to put its remuneration report to a nonbinding shareholder vote at each AGM. If the remuneration report receives a “no” vote of 25% or more (the first ‘strike’), the company’s next remuneration report must explain: • how the board has addressed or proposes to address shareholders’ concerns on the last report; or • if the board does not propose any action, the board’s reasons for not taking any action. If the company receives a “no” vote of 25% or more on the next remuneration report (the second ‘strike’), the company is obliged, by operation of statute, to hold another general meeting within 90 days at which all directors (other than the managing director) will stand for re-election and shareholders can vote as to whether those directors should be replaced or re-elected. The effect of the ‘two strike’ regime is to put at risk the office of incumbent directors if they do not adequately respond to shareholder concerns, both on the remuneration report and more generally, over two consecutive years. The downside to this approach is that you may need to wait for more than two years before you see any real change being implemented by the company. You may be able to influence behaviour earlier than this by foreshadowing a negative vote. If however you want something done quickly, blunt instruments such as requisitioning meetings and spilling the board may be more appropriate. Be aware however that there are very technical rules around what you need to do in order to move for the removal of a director and, in particular, when to do it. In 2015, following receipt of a requisition for a general meeting from its then lender and substantial shareholder, the board of ASX-listed junior gold explorer KBL Mining Limited, on advice from this firm, rejected the lender’s motion to remove all incumbent members of the KBL board on the basis that the requisition was invalid and of no effect. Such a move could unnecessarily delay your campaign or weaken your message, particularly if the issue of concern is time critical. SO MAKE YOUR MARK The Australian legal landscape provides ample opportunity for minority shareholders, with the right approach, to get their voices heard. An analysis of the US experience by The Economist, published in February this year, found the 50 largest activist positions taken since 2009 saw a rise in company profit, capital investment and research and development in the majority of cases. In Australia, the law presents shareholders with the opportunity to take a combination of subtle and blunt measures to influence the decisions of the company’s board and management. Australian boards also have a statutory duty to act in the best interests of all shareholders as a whole. Failure to do so opens up an even broader range of remedies for shareholders. Even those with only 1%.