Australian Company Law Reforms: A Summary

Foreign investors in Australia should be aware of recent amendments to the Australian Corporations Law, which is the main legislation governing the formation, management and liquidation of Australian companies. The Company Law Review Act, which came into force on 1 July 1998, is intended to improve the efficiency of corporate regulation and reduce regulatory burdens on business and other users of the Corporations Law, both by removing and streamlining the regulatory obligations imposed by the Corporations Law and by simplifying its language and layout.

Substantial amendments have been made to a wide range of Corporations Law provisions, including provisions relating to meetings, forming companies, share capital, financial statements, annual returns and company names. This memorandum contains a brief outline of the changes effected by the Act which are directly relevant to the ownership and management of proprietary and public companies in Australia.

A set of 'replaceable rules' relating to the internal management of companies has been inserted into the Corporations Law. The replaceable rules are intended to perform the same function as the present articles of association. The rules cover issues including directors' meetings, shareholders' meetings, share transfers and the declaration and payment of dividends. The rules are based on Table A of the Corporations Law, the previous standard form articles of association adopted by many companies, which has now been abolished.

The replaceable rules apply to all new companies formed after 1 July 1998 (other than single member/director proprietary companies, which will be governed by special rules). If a new company does not elect to adopt its own constitution, the replaceable rules will apply automatically. Even if a new company does elect to adopt its own constitution, the replaceable rules will still apply to the company to the extent that they are not excluded or modified by provisions in the adopted constitution.

The replaceable rules can also be adopted by an existing company which repeals its existing articles of association in full. However, unless repealed, the articles of existing companies are not affected, even where they consist of the old Table A rules.

Certain replaceable rules apply to public companies as mandatory legislative provisions. These rules can, however, be excluded by proprietary companies.

Common seals are now optional, provided that the company's articles of association do not require the company to have a common seal. Existing companies may amend their articles of association to remove any requirement for a common seal.

Documents (including deeds) can be executed by a company without using a common seal by having two directors, or a director and a secretary sign the document. In the case of a proprietary company with a sole director/secretary, documents may be executed by the sole director/secretary.

The Corporations Law now specifically provides that a person dealing with a company is entitled to assume that documents signed in such a manner have been properly executed, unless the person knew or suspected at the time of dealing that this was not the case.

Proprietary companies are no longer required to keep their registered offices open to the public, but registers and books must be made available for inspection within seven days of the request.

While companies are still obliged to display their names prominently at every place at which they carry on business and which are open to the public:

(a) proprietary companies are no longer required to display their name and the words 'Registered Office' outside their registered offices; and

(b) public companies no longer need to display their name and the words 'Registered Office' outside their registered office, but these must be visible at their registered office. The objective of this change is to overcome the difficulty associated with displaying signs outside multi-storey buildings.

Service of documents on companies has been simplified. Documents may now be served by being delivered personally to one director of the company, rather than two. As previously, documents may also be served by being left at, or posted to, a company's registered office.

The law has been relaxed in relation to the use of ACNs on public documents and negotiable instruments.

Previously, a company was required to set out its ACN immediately after the first occurrence of its name on all such documents. Now the company's ACN may be set out at any place on the page of any such document on which its name first appears.

The rules relating to meetings have been consolidated with the Corporations Law to make them more accessible, and have been updated in line with current corporate practices.

Many of these rules now take the form of replaceable rules that are capable of being overridden by a company's constitution.

Companies are now required to give at least 21 days' notice of all shareholders' meetings (28 days' in the case of listed companies), regardless of whether a meeting is to consider any special resolutions. Shareholders holding at least 95% (or in the case of an AGM, 100%) of the votes that may be cast at the meeting may agree to shorter notice. However, short notice cannot be used by listed companies or at any meeting to remove or appoint a director or to remove an auditor.

Notice of a shareholders' meeting must now be given individually to every member entitled to vote, to each director and to the company's auditor. This rule cannot be excluded. Notice of a shareholders' meeting must include certain information regarding when, where and how the meeting is to be held and, for listed companies, must now also specify both a place and facsimile number (and may specify an electronic address) for the purposes of receipt of proxy appointments.

As previously, notice of a shareholders' meeting may be given personally or by post. It may now also be given by facsimile or electronically, or by any other means permitted by a company's constitution. The Corporations Law now also specifically provides that shareholders' meetings must be held at a reasonable time and place, and for a proper purpose.

The Corporations Law now includes a replaceable rule providing for a quorum of two shareholders at shareholders' meetings of both proprietary and public companies. Previously, a quorum of three shareholders was required for meetings of public companies.

Proprietary companies may now pass both ordinary and special resolutions (other than a resolution to remove an auditor) by means of a circular resolution signed by all the shareholders that are entitled to vote on the resolution. Previously, only ordinary resolutions could be passed using this procedure. A circular resolution may be distributed using any means that allows shareholders to sign the resolution and receive any accompanying documents. The resolution is deemed passed when the last person signs the document.

The Corporations Law now also allows shareholders' meetings to be held at more than one venue using technology such as video links, without the need for specific authorisation in the company's constitution, provided that the shareholders as a whole have a reasonable opportunity to participate in the meeting. What constitutes a 'reasonable opportunity' will depend on the circumstances of each meeting. This change is likely to be of benefit to foreign investors in Australian companies.

One of the new replaceable rules requires that directors be given reasonable notice of any directors' meeting. This does not necessarily require the notice to be given in writing, depending on the circumstances. There is also a replaceable rule requiring a quorum of two directors present throughout any directors' meeting.

Directors' meetings may now be called or held using any technology consented to by all the directors. This provides flexibility, as a company's constitution no longer need specify that particular technology can be used. Directors may withhold consent to the use of particular technology provided this is done within a reasonable time before a meeting. A company may elect to adopt a constitution that restricts the use of particular technology to hold meetings, or specifies acceptable technologies.

A new replaceable rule allows circulating resolutions to be used by the directors of a company to pass resolutions.

Companies with one member may pass a resolution by recording it and signing the record. This procedure may be used to pass both ordinary and special resolutions. Similarly, a single director of a proprietary company may pass a resolution by recording the resolution and signing the record.

Proprietary companies are no longer required to hold AGMs.

The Corporations Law now specifically requires the chairman of the AGM of a public company to allow the shareholders, as a whole, a reasonable opportunity to ask questions about, or comment on, the management of the company and to ask the auditor questions regarding the auditor's report.

A shareholder of a proprietary company may now appoint a proxy. Previously proxies could only be appointed by the shareholders of a public company.

The process for appointing proxies has been streamlined and simplified. It is now possible to make standing appointments and to appoint as proxy any person who holds a particular office. Similar amendments have been made to provide corporate shareholders with greater flexibility in appointing representatives.

Shares, whether issued before or after 1 July 1998, will no longer have any par value. Consequently, companies are no longer bound by any authorised share capital limit.

Any provision in a company's constitution specifying the company's authorised share capital (and dividing that share capital into shares of a fixed par value) is automatically repealed. Transitional provisions preserve the effect of existing contractual arrangements that refer to par value.

Shares will now be issued at a price determined by the directors. Consequently, rather than referring, for example, to '100 fully paid ordinary 20" shares issued at 30"', one would refer simply to '100 fully paid ordinary shares issued at 30"'.

The restriction upon a company giving financial assistance for the purchase of its own shares has been relaxed.

It is no longer necessary to hold a general meeting to seek approval for the giving of such financial assistance, unless the financial assistance would materially prejudice the interests of the company or its shareholders, or the company's ability to pay its creditors. Most of the exceptions to the general restriction previously contained in the Corporations Law have been preserved.

Public companies may now issue options to subscribe for shares which have no expiry date. Previously, an option with an exercise period of greater than five years was void. However, it should be noted that under the Listing Rules of Australian Stock Exchange Limited, all quoted options with no expiry date issued by a listed public company must have the same terms.

The procedure for setting up a company has been simplified and streamlined. The First Corporate Law Simplification Act 1995 introduced the one member proprietary company. The Act goes further by allowing public companies to consist of only one member. Dealings in relation to defunct companies are now simpler. Companies may now return capital to their shareholders without having the transactions confirmed by the Court and their shareholders.

In conclusion, the Act will benefit companies by streamlining the format of the Corporations Law and making simpler and more flexible the regulatory obligations it imposes. Foreign investors involved in the management of any company should ensure that they are aware of the recent amendments and carefully consider whether the company should amend its articles of association, in order to best take advantage of the reforms effected by the Act, while at the same time retaining control over the company's internal governance.