A proposed amendment to the Corporations Act 2001 (Cth) will require companies to include members’ email addresses on the register of members. The Corporations Amendment (Modernisation of Members Registration) Bill 2017 (Bill) is aimed at simplifying communications with members of a company and making them more cost effective.
The amendments themselves are straightforward and their obvious impact will be to increase the ease with which members can communicate with each other. However, the amendments also:
- Raise compliance questions for companies.
- Raise concerns about misuse of member email addresses.
- May contribute to the emerging trend of shareholder activism in Australia.
This update considers the likely practical implications of the Bill and suggests practical steps companies can take if the Bill becomes law.
Proposed amendments to registers of members
Senator Nick Xenophon introduced a private members bill into the Senate on 15 June 2017 in an attempt to modernise communications between companies and their members. The Corporations Amendment (Modernisation of Members Registration) Bill 2017 (Bill) proposes to amend section 169 of the Corporations Act 2001 (Cth) (CA 2001) to include an email address as information that must be contained in the register of members of a company or a registered scheme. Currently, section 169 of the CA 2001 only requires the inclusion of a member’s name and postal address.
In stating the case for this reform in his second reading speech, Senator Xenophon made reference to the difficulties encountered by a member of CPA Australia in his recent attempts to communicate with other members. The member in question was agitating for greater transparency and openness, but faced a difficult and expensive task in communicating with CPA Australia’s 155,000 members without access to their email addresses.
The Bill has been referred to the Senate Economics Legislation Committee, which is due to report on it on 11 September 2017. Submissions close on Friday, 21 July 2017.
While the Bill may streamline communications between companies and their members, and will undoubtedly streamline communications between members and other members, the Bill poses practical difficulties for companies and registered schemes seeking to comply with the new and old requirements of the CA 2001. These include:
- How companies and registered schemes can ensure they comply with the new law when it comes into force. The Bill is unclear on the time that companies have to undertake the administrative task of adding members’ email addresses to the registers. If no transitional period is permitted, companies risk being in technical breach of the CA 2001 when the amendments in the Bill take effect (see Day one compliance concerns below).
- Whether having a member’s email address on the register means the company can use it for all purposes. The Bill does not amend section 249J of the CA 2001, so it is not clear whether a member who has provided their email for the register has also opted to receive notices of meeting by email for the purposes of that section (see Electronic communications with members below).
The availability of shareholder email addresses also raises questions as to:
- The sufficiency of the existing protections in the CA 2001 against misuse of information obtained from the register (see Existing protections not adapted to prevent nuisance below).
- What the Bill means for shareholder activism and communication (see A boost for shareholder activism).
The simplicity of the Bill in its current form raises a number of questions for companies seeking to comply with the CA 2001.
Day one compliance concerns
Once the amendments proposed by the Bill take effect, companies whose register does not include members’ email addresses will be in technical breach of the CA 2001. It is proposed that the amendment will come into effect on a date to be proclaimed, or six months after the Bill receives assent. Therefore while companies may receive some notice of the commencement date, they will still need to undertake the administrative task of obtaining members’ email addresses before the commencement date to avoid breach.
While section 169 is not a civil penalty provision, companies may want to begin obtaining members’ email addresses as soon as possible, so that they can update their registers to avoid being in technical breach of the CA 2001 when the amendment takes effect.
Electronic communications with members
The Bill requires that the register includes an email address for each member, but this does not necessarily mean that companies are entitled to use that email address for all communications with that member. For example, under section 249J of the CA 2001, to hold a valid general meeting a company must give written notice of a meeting individually to all of the company’s members who are entitled to vote at the meeting. Section 249J(3) sets out the various means by which that notice can be given. Two relevant categories are by sending the notice to the:
- Fax number or electronic address (if any) nominated by the member (section 249J(3)(c)).
- Member by other electronic means (if any) nominated by the member (section 249J(3)(ca)).
The Bill does not specify whether the inclusion of a members’ email address on the register for the purposes of section 169 of the CA 2001 constitutes a nomination by that member to receive notices electronically for the purposes of section 249J of the CA 2001 or for any other purposes. It is possible that in providing their email address, members will be taken to nominate that electronic address. However, this is not clear on the face of the Bill, which makes no reference to section 249J of the CA 2001.
To avoid confusion, if a company intends to write to its members requesting that they each provide an email address, the company could include in that communication a statement to the effect that by providing their email address for the purpose of the register, the member consents to receive all notices required by the CA 2001 (including notices of meeting) electronically by delivery to that nominated email address unless otherwise notified to the company.
Legislating an existing arrangement?
Many listed companies have in place a member communication strategy that allows members to sign up for regular email communication from the company. This often includes notices of meeting, where members have nominated to receive such notices electronically. Companies with such a scheme in place may be able to harness their existing database to include members’ email addresses on their formal register in advance of the Bill becoming law. Those companies would only then need to write to those members for whom they do not have an email address on file.
Another way to skin the compliance cat?
Companies and registered schemes with a large, dispersed membership may face considerable difficulty in complying with the amended section 169 of the CA 2001. They can write to all members for whom they do not have email addresses on file, but there is no guarantee that those members will write back to provide email addresses.
To mitigate this risk, companies may choose, either directly or via their share registry (if any), to create member email addresses specifically for the purpose of complying with section 169 of the CA 2001. Having created a unique email address for each member on the register, the company could then provide log in details to each member and notify them that this email address will be taken to be the member’s nominated address for receiving company communications unless the member opts out of receiving electronic communications or nominates an alternative email address or other means of electronic delivery.
This type of solution:
- May be effective for the purposes of section 169, but may fall short of effective nomination for the purposes of section 249J.
- Could be viewed as compliance with the letter of the Bill rather than its spirit, which is to ensure that the register includes email addresses that members will check actively.
Nuisance communications and shareholder activism
Aside from compliance issues for companies and registered schemes, widespread availability of members’ email addresses raises questions as to the adequacy of existing prohibitions on the misuse of member information and can be expected to contribute to a rise in shareholder activism.
Existing protections not adapted to prevent nuisance
Senator Xenophon’s second reading speech makes it clear that the Bill is intended to increase the ease by which members will be able to communicate with other members by obtaining information from the register. The Explanatory Memorandum and second reading speech together convey the message that the Bill:
- Does not affect the operation of the existing protections that apply to the inspection and use of information on registers, set out in section 177 of the CA 2001.
- Does not give members free reign to simply access the register to get in contact with other members and send them unsolicited material.
This however does not necessarily prevent nuisance behaviour in its entirety. Under section 173 of the CA 2001, anyone may make an application to inspect the register of a company or registered scheme, and the company or registered scheme must allow that inspection. Where the applicant wishes to apply for a copy of the register, the applicant must state each purpose for which the person is accessing the copy. If those purposes are not prescribed purposes and the application is accompanied by the required fee, the company or registered scheme must provide the copy within seven days of the application.
Section 177 of the CA 2001 prohibits:
- The use, or disclosure for use, of information about a person obtained from a register to contact or send material to the person, except where the use of that information is:
– relevant to the holding of the interests recorded in the register or the exercise of rights attaching to them; or
– approved by the company or registered scheme.
- The use or disclosure of information about a person obtained from a register for an improper purpose.
Contraventions of these prohibitions is an offence, and can also give rise to civil liability to any person who suffers loss because of the contravention and to the company or scheme where a person makes a profit from the contravention.
These sanctions are intended to deter improper use, and their deterrent effect is enhanced by the costs associated with undertaking a physical mail out to members. However, just as communication by email is a fact of modern life, so is misuse of email addresses. This issue is addressed by the Spam Act 2003 (Cth) and other legislation. However, the nature of electronic communication is such that contravening parties are not always easily identified or easily sanctioned, for example if based overseas.
The Bill in its current form does not propose enhancements to the protections in section 177 of the CA 2001 to combat nuisance behaviour. In these circumstances, it may be that companies and schemes become the guardians of their members’ email addresses by refusing applications under section 173 where there are concerns as to the purposes for which members’ email addresses will be used, on the assumption that nuisance applicants will not challenge such a refusal.
A boost for shareholder activism
The new ease and reduced cost of member-to-member communication can be expected to facilitate the growth of shareholder activism, which is beginning to gain some traction in the Australian market. Ease of access to members’ email addresses could incentivise offshore and local professional activist shareholders and hedge funds to take minority positions in Australian listed companies, knowing that they will be able to communicate directly with other shareholders quickly and at a negligible cost, to, for example, lobby for members to vote on key resolutions to be put to a general meeting.
From a practical perspective, listed companies and schemes will need to be prepared for the impact of increased shareholder activism so that they can respond quickly and appropriately to member-to-member communications initiated by activist shareholders.
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