A recent case has held that shareholder activists cannot requisition advisory votes in general meetings.
This means that the meeting will not be required to consider resolutions put forward by activists which seek the meeting to express a view on company or board activities.
In Australian Centre for Corporate Responsibility v Commonwealth Bank of Australia1, the Federal Court found that shareholders were not entitled to requisition or put to a meeting proposed resolutions which expressed the opinion of the shareholders in respect of certain environmental matters.
These proposed resolutions2 included:
- “That, in the opinion of the shareholders it is in the best interests of the company that the Directors provide to the shareholders” a report on certain environmental matters and approaches adopted by the bank; and
- “That, in consideration of the annual directors’ report the shareholders express their concern at the absence in the report”of assessments and discussion of certain environmental matters and strategies adopted by the bank.
The requisitioning shareholders asserted that they were not trying to exercise the power of directors in management of the company and therefore were not precluded from requisitioning a meeting to consider those resolutions.
The Court found that the shareholders were not entitled to have resolutions of this type put to the meeting.
This can be contrasted with the following types of resolutions:
- where the shareholders are exercising a power of ratification of the acts of directors;
- where shareholders are granted a statutory right to comment i.e. an advisory vote on the remuneration report; or
- where shareholders are exercising a power to amend a company’s constitution in order to place a requirement upon directors.
A constitutional amendment resolution was also included in the requisition, was put to CBA’s meeting and was defeated.
The limited right of shareholders at meetings to comment on management
As part of its reasoning, the Court referred to Section 250S of the Corporations Act 2001, which provides that “The chair of an AGM must allow a reasonable opportunity for the members as a whole at the meeting to ask questions about or make comments on the management of the company.” The Court referred to this right as the avenue for shareholders to express their opinion.
The Court noted that the reference to “as a whole” in section 250S did not refer to a resolution but was intended to clarify that each individual does not have the right to ask a question.
Further, the Court discussed prior case law for resolutions with expressions of opinion on management activities were permitted when shareholders were ratifying acts of the board. In the circumstances of that prior case, the board had sought the shareholders’ advice on a course of action the directors wished to take but the board was not bound to take that advice.