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The rise of shareholder activism and the fall of the company board

By Michael Hansel / 10 June 2019

Key issues:

  • Shareholder activism has seen a sharp rise in recent months, with particular shareholders requesting that public companies convene meetings to remove the members of the board of directors.
  • Public company Boards must be aware of their obligations in responding to and, critically (where able) resisting, such requests to comply with the Corporations Act.

In recent months we’ve seen a sharp rise in shareholder activism and, in particular, shareholders requesting a public company convene meetings to remove members of the board of directors. 

Public company boards must be aware of their obligations in responding to and, critically (where able), resisting such requests to comply with the Corporations Act.

This process is multi-faceted. We will be outlining and discussing the process for you across a three-part  series to provide a practical guide to dealing with these requests, in the following parts: 

  • Part 1: Unexpected 203D Notices; 
  • Part 2: Shareholders requests to call meetings; and 
  • Part 3: How to avoid oppressive conduct by directors and potential applications to the Takeovers Panel. 

What is a 203D Notice?

Under section 203D of the Corporations Act, members have an avenue to remove directors of a public company.  

This section is not a replaceable rule and exists regardless of any:

  • provision in the company’s constitution; 
  • agreement between the director and the company; or 
  • agreement between any member of the company and the director. 

To do so, the notice of the intention to move the resolution must be given to the company at least two months before the meeting is held. 

This can be two months prior to a company meeting, including:

  • the company’s annual general meeting (AGM); 
  • an extraordinary general meeting (EGM) held by the Company; 
  • a meeting requested under section 249D (at the expense of the Company) (Meeting held by Shareholders); or
  • a meeting called under section 249F (at the expense of the requisitioning shareholders) (Meeting held by the Company). 

A 203D Notice is separate from a meeting requested under sections 249D or 249F and should be given at least one business day prior to the meeting requests, to ensure at least two months’ notice is given1.  

It is open to a company to waive the two month notice period required under section 203D and may pass the resolution even though the meeting is held less than two months after the notice of intention is given. However, under section 249H(3) of the Corporations Act, at least 21 days’ notice must be given to remove a director under section 203D or to appoint a director in place of a director removed under section 203D. 

The company must give the director a copy of the notice as soon as practicable after it is received. 

Director’s right to respond to a 203D Notice

Section 203D provides that the director who is the subject of the removal resolution is entitled to put their case to members by:

  • giving the company a written statement for circulation to members (Written Statement); and
  • speaking to the motion at the meeting, whether or not the director is a member of the company and regardless of whether the meeting was held by the Company or the shareholders (Oral Statement). 

What should appear in the Written Statement?

Where it is a Meeting held by Shareholders 

  • There is no requirement to circulate the Written Statement where the statement is more than 1,000 words long or is defamatory in nature. It is recommended that the Written Statement be provided to the requisitioning group as soon as possible. This will ensure that the Written Statement is provided contemporaneously with the documents sent out by the Requisitioning Shareholders.

Where the Meeting is held by the Company 

  • It is open to the director to include any material they consider appropriate; however, we would recommend avoiding any potentially defamatory material.

What should be said in the Oral Statement?

It is open to the director to speak to the resolution at the Meeting held by Shareholders or the Meeting held by the Company. 

While this will be discussed in more detail in part two, the constitution of the company generally provides for the procedure in holding a meeting and for dealing with:

  • a member’s right to speak and ask questions; and 
  • maintaining order at the meeting.

What if the director was appointed by a major shareholder or the interests of a particular group of shareholders?

Where a director was appointed to represent the interests of a particular shareholder (including a majority shareholder), the resolution to remove that particular director does not take effect until a replacement to represent their interests has been appointed. 

For more information on how to prepare, respond to, or defend a section 203D Notice, please contact HopgoodGanim Lawyers’ Corporate Advisory and Governance team.


1. Burnett-Smith v Boer Goat Breeders’ Association of Australia Limited ACN 067 659 081 [2008] FCA 1635. 

Authors
Michael Hansel
Partner
Michael is a Partner in our Corporate practice with expertise in mergers and acquisitions, capital raisings, due diligence, takeovers, joint ventures, corporate restructuring and private equity transactions. Michael is also the co-lead of our Asia...
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