The Government recently announced the proposed removal of the “100 member rule” from the Corporations Act as a part of its “red-tape slash”. If the proposed amendment proceeds, it will (hopefully) be the end of a long campaign for its removal. Like a slinky feline this strange little rule seems to have escaped numerous life-threatening situations. Too many times it has fallen only to land on its feet.
The 100 member rule has proven to be surprisingly resilient despite being little more than an expensive distraction. Over the course of the last two decades Governments (Minister Hockey and Parliamentary SecretariesCampbell and Pearce), CAMAC and the AICD to name but a few, have all pressed to reform or abolish the 100 member rule. The rule was even removed once by the passage of a regulation to the Act in April of 2000, but the rule rose like Lazarus (not Senator Glen) when the regulation was disallowed only a few months later by the Senate.
Who would have thought, back in December 1982 when it was first mooted, that this unremarkable little provision would cause so much angst? Indeed, the then Minister for Trade Lionel Bowen referred to it as simply rationalising the requirements for convening meetings upon requisition of members. You might think it unremarkable to provide that 100 members holding shares on which there has been paid an average of at least $200 could requisition such a meeting, but you’d be wrong.
Australia is alone in providing for a shareholder numerical test that applies regardless of how much share capital the requisitionists hold. More usual is an analogue of the issued capital rule, where requisitionists must hold at least 5% or 10% of the shares before they can call a general meeting, something which is done at a substantial cost to a company and all of its shareholders.
In the wake of demutualisations and the growth of large listed companies, whose membership often reaches six or seven figures, the rule places an extraordinary amount of power in the hands of a very small group of people.
The reality is that the 100 member rule has most often been abused by activists who seek to compel companies to consider resolutions that further their own agenda, with little regard for the collective benefit of shareholders.
An example of this occurred in 2012, when 210 Woolworths shareholders, backed by GetUp!, compelled Woolworths to hold an EGM to consider resolutions in relation to $1 limits on poker machines. Woolworths sought relief from the Federal Court in respect of the $500,000 cost of notifying its 432,000 shareholders of the EGM, but to no avail. Unsurprisingly, the resolution received just 2.5% support.
This is not a recent trend. 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 in costs and resulted in none of the relevant resolutions being passed.
It is something of a wonder that the 100 member rule has received such championing over the years, especially given that the support has been given in the name of shareholder democracy. Democracy provides for equal rights of participation. Contrarily, use of the 100 member rule in the last two decades has frequently served to allow a cabal of a few vexatious shareholders to generate costs far out of proportion to their shareholding.
The death of the 100 member rule is by no means the end of statutory protection of shareholder rights. The proposed amendment will not affect the right of 100 shareholders to put a resolution to be considered at a general meeting or to distribute a shareholders’ statement with the notice convening that meeting.
Shareholder activism is a component of corporate governance. Shareholders should be able to put issues on the AGM agenda and to instigate a debate at the meeting. This right is of particular importance to retail shareholders who have limited opportunities to meet with the company prior to the AGM. That does not mean that 100 shareholders, who may hold just a tiny fraction of the capital of the company, should be able to put the company to the cost of holding a meeting of their choosing.
The removal of the 100 member rule is long overdue. It’s had more lives than it should. It is time for it to become a footnote to history.