CHAPTER 1
SIMPLIFYING CORPORATE LAW
1.1 In October 1993, the Commonwealth Attorney-General established a
Corporations Law Simplification Program. The aim of the Program was to
rewrite the Corporations Law (the Law) to make it easier to understand,
and to remove unnecessary business regulation.
1.2 The Program is carried out by the Corporations Law Simplification
Task Force, working closely with a private-sector Consultative Group.
This Group includes representatives of small and large business, private
and institutional investors, and the legal and accounting professions.
The Task Force also consults directly with all relevant parties, including
the Australian Securities Commission (ASC) and the Australian Stock Exchange
(ASX). [1]
1.3 The first stage of the Program was completed in December 1995 with
the commencement of the First Corporate Law Simplification Act 1995. This
Act, which was considered by this Committee in March and August 1995,
sought to improve a number of aspects of the Law including company share
buy-backs, the accounting and audit requirements imposed on proprietary
companies, and company registers. [2]
1.4 The Second Corporate Law Simplification Bill 1996 (the Bill), which
has not yet been introduced into Parliament, represents the Program's
second stage. In general terms, it seeks to improve those provisions of
the Law which deal with company formation, company meetings, share capital,
financial statements, annual returns, the deregistration of defunct companies
and company names. [3]
1.5 In June 1995, an Exposure Draft of the Bill was released for public
comment. The Bill in its current form represents, in essence, a second
Exposure Draft, incorporating the comments and submissions made on the
June 1995 Draft.
1.6 This Committee's consideration of the Bill was requested by the then
Parliamentary Secretary to the Treasurer, Senator the Hon Brian Gibson
AM, on 26 June 1996.
1.7 On 5 July 1996, the Committee advertised its inquiry in The Australian
and the Australian Financial Review. Twenty-six written submissions were
received in response to these advertisements.
1.8 The Committee also held public hearings in Canberra on 13 September
1996, and in Sydney on 2 October 1996. A list of those organisations and
individuals who provided written submissions is included at Appendix 1
to this Report. A list of those who gave verbal evidence is included at
Appendix 2.
1.9 The remainder of this Chapter outlines some of the major provisions
of the Bill, based on the discussion in the Explanatory Memorandum accompanying
the Bill.
1.10 Chapter 2 discusses and analyses the major
issues which arose out of the Committee's inquiry. Chapter
3 refers to a number of additional matters which arose during the
inquiry but which are outside the scope of the Bill.
1.11 The Bill seeks to streamline the process for setting up a company.
It abolishes the memorandum of association, and removes the need for companies
to have articles of association. It places the basic rules of internal
management normally found in a company's articles in the Law itself, as
`replaceable rules' - companies will be able to adopt a constitution which
displaces some or all of them. These rules are based on Table A, which
currently provides model articles, and will operate in essentially the
same way.
1.12 Companies limited by guarantee will be able to convert into companies
limited by shares, provided that the rights of creditors are not materially
prejudiced. Future registrations of companies limited by both guarantee
and by shares will not be permitted, nor (with the abolition of the concept
of par value of shares) will it be possible to register no liability companies.
The Explanatory Memorandum observes that all companies will now be able
to take advantage of the main benefit of no liability companies, namely
the capacity to issue shares without the price constraint of an arbitrary
par value. [4]
1.13 Proprietary companies will no longer be required to keep their registered
offices open to the public, and companies will no longer need to have
a common seal.
1.14 The Bill facilitates the use of electronic technology to hold meetings,
whether of directors or members. For directors' meetings, it will be possible
to use any form of technology agreed to by the directors. For members'
meetings, it will be possible to use any form of technology that gives
members a reasonable opportunity to participate in the meeting.
1.15 All general meetings will require the giving of at least 21 days
notice to all members, although members may agree to shorter notice for
most matters. A general meeting will have to be held at a reasonable time
and place.
1.16 Members holding at least 5% of the votes, or 100 members entitled
to vote at a general meeting, will be able to require:
- the directors to call and arrange for the holding of a general meeting;
- a proposed resolution to be put on the agenda of a general meeting;
or
- a statement about a proposed resolution to be distributed to members.
1.17 The Bill also recognises the right of the members as a whole to
ask questions about, or comment on, company management at an annual general
meeting (AGM) of a public company. It also recognises the right of members
to question auditors about their audit report at an AGM.
1.18 The process for appointing a proxy is to be streamlined, and members
will have the flexibility to appoint 1 or 2 proxies. They will also be
able to specify the proportion or number of votes that the proxy may exercise.Proxy
documents may be faxed to a company, and electronic lodgment will be valid
if it is permitted by, and complies with, certain requirements in the
company's constitution or the notice of meeting.A proxy will be able to
vote on a show of hands, unless the company's constitution provides otherwise.
If an appointment specifies the way the proxy is to vote on a particular
resolution:
- the proxy is not required to vote on a show of hands, but if they
do, they must vote that way;
- if the proxy has 2 or more appointments that specify different ways
to vote on the resolution, the proxy must not vote on a show of hands;
- if the proxy is chairing the meeting, he or she must vote on a poll
and must vote that way; and
- if the proxy is not chairing the meeting, he or she need not vote
on a poll, but if they do, they must vote that way.
1.21 The quorum for any general meeting will be 2 members. A body corporate
will be able to make a standing appointment of an individual to represent
it at company meetings.The minimum number of members for both public and
proprietary companies will now be 1, however single member companies will
not be able to hold meetings and any decisions required to be made by
a general meeting can be made by the member recording the decision and
signing the record.
1.22 As noted above, the Bill abolishes the par value [5]
of shares. This abolition will cover all shares, whether issued before
or after the commencement of the new provisions. However, transitional
provisions will preserve the effect of existing contractual arrangements
that refer to par value. Streamlined provisions will be introduced to
deal with the issue of shares (including bonus shares), the conversion
of shares, the redemption of redeemable preference shares, [6]
partly paid shares and dividends.
1.23 Capital reductions will no longer require court confirmation, but
rather must be fair and reasonable to all shareholders, must not materially
prejudice the company's ability to pay its creditors, and must be approved
by the company's shareholders.
1.24 The rules against companies acquiring their own shares will now
focus on the company's actual control over those shares. The meaning of
'control' will be clarified to accord with the use of the concept in the
accounting standards.
1.25 Where a company provides financial assistance for the acquisition
of its own shares, shareholder approval will only be required if the assistance
would materially prejudice the company's or shareholders' interests, or
the company's ability to pay its creditors.
1.26 The Bill provides for more comprehensive financial disclosure by
including a requirement that companies prepare a cash flow statement in
addition to a profit and loss statement and a balance sheet.
1.27 Directors' reports to members will now have to include a general
discussion and analysis of the business performance of the company, and
of the factors underlying the company's results and financial position.
1.28 A company will be able send its members a concise version of its
annual report. However, members will be entitled to request a copy of
the full report from the company without charge.
1.29 The Bill removes more than half of the items currently required
to be included in annual returns. It also facilitates the electronic lodgment
of returns with the ASC.
1.30 The Bill seeks to streamline the process for deregistering defunct
companies. Newspaper advertisement of a proposed deregistration is no
longer required, and ASC deregistration procedures are to be streamlined.
The Bill also proposes to rewrite the rules for obtaining and using company
names and Australian Company Numbers.
Footnotes
[1] Corporations Law Simplification Task Force,
Second Corporate Law Simplification Bill 1996: Explanatory Memorandum,
July 1996, para 2.5.
[2] Explanatory Memorandum, para 2.2.
[3] Explanatory Memorandum, para 2.7.
[4] Explanatory Memorandum, para 3.4.
[5] A company limited by shares has its nominal
capital divided into shares of a fixed pecuniary amount. Thus a share
is a fractional part of the capital. Each share has a par or nominal
value (ie the fractional part into which the capital is divided): Burnett
B, Australian Corporations Law Guide, 5th edition, CCH, Sydney
(1995) para 540.
[6] A preference share usually confers on its
holder some form of preferential right (eg, to be paid a dividend, or
to have priority when a company is wound up). Redeemable preference shares
either give their holders the right to be repaid their capital at a specified
date, or give the company the right to repay the capital after a specified
time or within a specified period: Burnett B, Australian Corporations
Law Guide, 5th edition, CCH, Sydney (1995) para 543.
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