Treasury has released an exposure draft of the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 for comment.
If passed the Bill will amend the Corporations Act 2001 including:
- removing the obligation of a company to hold a general meeting on the request of 100 shareholders;
- removing the requirement to disclose the value of options granted to key management personnel, replacing it with a requirement to disclose the number of lapsed options and the year in which they were granted;
- relieving unlisted disclosing entities from the obligation to prepare a remuneration report;
- amendments to the test for the ability to pay dividends (the dividends test);
- exempting companies limited by guarantee from the need to appoint or maintain an auditor when they either do not need to prepare a financial report or have their financial report audited.
The Bill is expected to be introduced in the 2014 Winter Sittings of Parliament.
Removal of the 100 Member Rule (section 249D)
Under section 249D directors of a company must arrange a general meeting, paid for by the company, at the request of members with a total of 5 per cent of voting shares, or 100 members entitled to vote at the annual general meeting (the 100 member rule).
The proposed amendment removes the 100 member rule from section 249D of the Corporations Act. Groups of small shareholders will continue to be able to require directors to hold a general meeting if they hold at least 5 per cent of voting shares, and groups of 100 shareholders will continue to be able to place matters on the agenda of general meetings under section 249N.
The test for payment of dividends (section 254T)
Section 254T currently provides that dividends may not be paid unless certain conditions are met, including that a company has positive net assets following the payment of a dividend, that the payment is fair and reasonable, and that the payment does not materially prejudice the company’s ability to pay its creditors. The net assets test was introduced to address concerns that changes to the accounting standards impacted upon the calculation of profits, limiting the company’s ability to pay dividends under the previous, profits-based dividends test.
The proposed amendments replace the net assets test with a pure solvency test, and exempts dividend payments from the capital maintenance provisions to the extent that they are ‘equal reductions’ in capital.
The proposed amendments further require directors to include details about the source of dividends paid and the company’s dividend policy in the Annual Director’s Report when paid out of sources other than profits.
Disclosure requirements in Remuneration Reports for disclosing entities (section 300A)
The current requirement to produce remuneration reports under Section 300A also extends to unlisted disclosing entities that are companies. The preparation of a remuneration report is less relevant for unlisted disclosing entities because they are not required to hold an annual general meeting, put their remuneration report to a non-binding resolution to shareholders for adoption of the remuneration report or be subject to the ‘two-strikes’ test.
Given its limited use by stakeholders, the proposed amendment will reduce compliance burdens for businesses by removing the requirement that unlisted disclosing entities prepare a remuneration report.
