New Zealand companies now have increased flexibility to communicate with shareholders electronically and conduct virtual shareholder meetings as a result of amendments to the Companies Act 1993 under the Companies Amendment Act (No 2) 2012. The amendments came into force on 31 August 2012.
We welcome these new amendments to the Companies Act which bring New Zealand legislation in line with foreign jurisdictions such as Australia and the UK, where electronic shareholder participation is widely utilised.
In this update we highlight the effect of these amendments on company practices, including:
new options for shareholder meetings and communications;
new obligations on companies to communicate with shareholders and creditors electronically if requested;
clarification of how the amendments apply to the distribution of annual reports; and
a checklist of the board and shareholder approvals required, and some of the key documents which may need to be updated, as a result of the amendments.
Many New Zealand companies already have a well established practice of communicating with shareholders and other security holders electronically, in reliance on the provisions of the Electronic Transactions Act 2002 (ETA). The ETA applies to every enactment1 that is part of the laws of New Zealand (including the Companies Act). It enables appropriate electronic methods and systems to be used to satisfy legal requirements and clarifies the legal effect of sending information electronically.
However, the application of the ETA to the Companies Act is not clear in all respects. Therefore, to date, some companies have been reluctant to transition to electronic methods for procedures such as shareholder voting and appointment of proxies. Furthermore, the ETA does not address electronic participation in meetings.
The recent amendments to the Companies Act both clarify and extend the permitted scope of electronic practices by New Zealand companies.
Key amendments at a glance
A summary of the key amendments to the Companies Act and some of the options now available as a result of those amendments are outlined below:
Shareholder meetings: In addition to attending a physical meeting, a shareholder (or their proxy or representative) may participate in a shareholder meeting by means of "audio, audio and visual, or electronic communication" with the approval of the board of the company (and those participants will be counted as part of the quorum for the meeting). This provides companies with more flexibility to use technology for shareholder meetings. For example, it is now permissible to hold shareholder meetings which involve an interactive broadcast between remote shareholders participating online as well as, if applicable, a physical meeting.
Shareholder voting: Voting may take place at shareholder meetings by "any method permitted by the chairperson" and approved by the board. This will allow companies to determine how votes may be cast at a shareholder meeting. It will also allow a company to take advantage of technological developments as they occur. In today's technological environment, it could allow electronic real-time voting during a shareholder meeting by remote shareholders participating in the meeting online.
Electronic postal votes: Postal votes may be cast using electronic means permitted by the board. For example, a shareholder may exercise their voting rights online prior to a shareholder meeting without the need to attend the meeting or to appoint a proxy or representative.
Electronic proxies: Proxies may be appointed electronically. For example, proxy instructions may be submitted to share registrars via the internet.
Proxy appointments by common bare trust nominee shareholders: A shareholder may appoint more than one proxy for a particular meeting, provided that more than one proxy is not appointed to exercise the rights attached to a particular share held by the shareholder. This amendment clarifies that nominee shareholders (such as New Zealand Central Securities Depository Limited) can appoint different persons as a proxy to vote at a meeting (whether by traditional vote at the meeting or through electronic means) in relation to shares held by the underlying beneficial owner.
Shareholder communication: Documents must be sent to a shareholder or creditor electronically upon request (whether or not the documents are also sent by traditional methods). Sending documents to shareholders electronically is already reasonably well established in New Zealand under the ETA. The amendments to the Companies Act do not remove the requirement to obtain the consent of a shareholder. However, companies will be required to send documents electronically if requested by a shareholder or creditor. A shareholder will be entitled to make a request to receive all documents or only a particular notice, report or other document electronically.
Annual reports: The amendments do not alter section 209 of the Companies Act, which requires a company to send a notice to all shareholders that the annual report is available and that they may request a copy. Companies must continue to send these notices. However, if a shareholder has agreed to receive electronic communications, the section 209 notice must be sent electronically.
What governs the default rules for dispatch and receipt of electronic communications?
The amendments to the Companies Act do not include default rules for the dispatch and receipt of electronic communications. This means the ETA default rules will apply unless a company has provided for specific electronic dispatch and receipt provisions either as part of its contractual terms with the recipient or in its constitution.
Companies intending to take advantage of the new flexibility these changes offer will need to consider a number of governance and procedural matters. Some of the key matters to consider are outlined in the table below.
|Amending the constitution||A company will be able to utilise the new measures for holding shareholders' meetings (subject to the approval of its board) without first amending its constitution by virtue of section 124 of the Companies Act. Nevertheless, companies may wish to propose amendments to their constitution if they decide to incorporate the new provisions in the constitution.|
|Setting up an electronic communications strategy||Although under the ETA a person's consent to receive electronic communications may be inferred from their conduct, the general practice is that a shareholder's express consent is obtained. |
Obtaining the requisite consent and electronic address information from shareholders can take time and may not be satisfied by a first or one-off request, so companies which wish to take advantage of the ability to send electronic communications may need to develop an on-going strategy to encourage shareholders' participation.
Before requesting shareholders' consent, consideration should be given to whether the company wants to encourage electronic communication generally or just for specific communications. Companies may wish to prepare a 'tick list' so that shareholders can choose which documents they would like to receive electronically and which in hard copy. It does not have to be an all or nothing approach.
Consideration will also need to be given to how a company manages the process of obtaining consent. For example, one option may be to explain the company's electronic communication policy with the notice of general meeting and include a consent form with the meeting material.
|General meeting materials||A number of company documents will need to be updated if the new meeting options are adopted, including:
|Matters requiring board approval||Before a number of the new methods can be put in place, the board will need to consider and, if applicable, approve matters relating to:
Based on overseas experience, it is unlikely that these changes will result in a shift to wholly virtual shareholder meetings in the short term. However, we anticipate that New Zealand listed companies will embrace these new options. The changes offer the potential to enable more efficient communication with shareholders, increase participation in shareholder meetings and reduce costs of printing and delivering shareholder materials.
For further information, please contact your usual Bell Gully adviser or:
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.