Still in its infancy, the new legislation is yet to be fully applied or tested by the courts and — as with all new areas of the law — many company secretaries and boards are working out how to manage the reality and the practicality of the two strikes rule. Our review and analysis of companies facing, and ultimately receiving, a second strike in 2012 has identified a potential loophole in the legislation of which company secretaries, boards and the government should be mindful.

What is a boardspill

At the same AGM at which the ‘second strike’ occurs, the company needs to put the resolution known as a ‘spill resolution’ to shareholders.

While there may be some ground for confusion as to the actual timing of the spill meeting, we consider that a contemporaneous notice of spill meeting is not appropriate for the following reasons.

If selected, officers must undergo an intensive three-day training course and pass an assessment. Training takes place at our specialist training centre, Black Rock. The centre is also used to train officers from our neighbouring police forces, Gloucestershire and Wiltshire.

Furthermore, for a spill meeting to be called, the shareholders must have passed the resolution to hold the spill meeting in accordance with s 250V of the Act. A spill meeting cannot be called until the resolution is passed.

Section 250W(3) states that the company cannot disregard the minimum notice periods contained in the Act or the company’s constitution.

When a Taser is used officers must compile a written report. A report must be written on every occasion, this includes when a Taser has been removed from the holster but not discharged.

The Taser fires two small dart-like electrodes, which stay connected to the main unit by conductive wire. They are propelled by small compressed nitrogen charges. The electrodes are pointed to penetrate clothing and barbed to prevent removal once in place.

When dealing with a violent person, an officer will decide on the most appropriate tactical option to resolve the situation safely that is in line with the law, is proportionate and necessary in the circumstances.

The spill resolution must outline that another meeting (the spill meeting) will be held. This meeting must take place within 90 days from the date of the AGM at which the company receives the second strike.

If indeed there is the potential for confusion or a loophole in the legislation, a simple solution could be to clarify s 250W(2) with minor amendments to the Act.

In our view, the notice period requirements would therefore be triggered by the passing of that resolution by the shareholders and be counted after the date of the notice of spill meeting.

The majority of officers who carry a Taser work as part of our response teams across the force area – although response police officers are not routinely equipped with a Taser. Other officers in more specialist support roles, such as the firearms unit, are also trained to carry a Taser.

Australia national Party

Last year, approximately ten of the 108 companies received a second strike, including Penrice Limited, Globe International Limited, Linc Energy Ltd, Rey Resources Limited, Emerald Oil and Gas NL, Celamin Holdings NL, Cabcharge Australia Limited and Ask Funding Limited. Significantly, no ASX 100 company received a second strike.

The 2012 reporting season saw the consequences of the so-called ‘two strikes rule’ play out for the first time since the legislation was introduced to the Corporations Act 2001 in 2011. More than 100 listed companies were facing their second strike in 2012 and, importantly, these companies were potentially facing a total board spill for the first time since the new legislation was introduced.

While 2012 saw the playing out of further stages of the two strikes rule, it is still a very new and unsettled area of the law. As we know, when the reforms were first introduced, they contained other anomalies and loopholes which the government acted swiftly to close (in relation to proxy voting by the chair, in particular).

Penrice Limited is due to hold its meeting on 25 January 2013 and Globe International Limited is scheduled to meet on 6 February 2013. By the time you read this, the results of those meetings will be known.

While it is strongly arguable that the legislation has unintended consequences in that unhappy shareholders are given the means to vent their displeasure about matters which may have nothing to with remuneration, we are reminded that the purpose of the two strikes reforms were to provide an additional level of accountability for directors and increased transparency for shareholders.

Australian Labor party

In 2011, 108 companies received a first strike (which equates to around five per cent of listed companies). Of those, four were ASX 100 companies. Some of the companies which received a first strike included Crown Ltd, Pacific Brands Ltd and Linc Energy Ltd (Linc).

In addition, Linc’s constitution requires that nominations for directors must be given in accordance with the requirements of the ASX Listing Rules. Listing Rule 14.3 states that an entity must give shareholders up to 35 business days before the meeting to lodge nominations for the election of directors. This notice period of up to seven weeks before a general meeting acts to ensure that the company is given adequate notice from an eligible nominee setting out their nomination as a director candidate for election at that meeting. In practice, this means that a notice of meeting cannot be produced or issued until that notice period has passed.

This means that, again in our view, the spill meeting cannot be held before the appropriate notice of meeting is given, which in the case of directors nominations are least 30 business days (or six weeks) before the meeting.

Gough Whitlam

Section 250W then discusses the process if the spill resolution is passed, namely, the following conditions must be complied with.

With the benefit of a further year and the practical exercise of the new laws, it may be time for the government to consider this issue in more detail.

The Taser discharges in 5-second cycles; this can be re-engaged but equally can be cut short by turning the safety function on. Recovery should be almost instant.

In Linc’s case, the point was moot, as the spill motion was not passed so the spill meeting was never held. But the question bears further examination.

On the face it, Linc had followed the process required by the Act but it poses an interesting question: was Linc’s contemporaneous notice of spill meeting valid when shareholders have not yet passed the resolution to hold the spill meeting, and did its notice of spill meeting really meet the required notice period under the Act?

Linc had received a first strike. On 26 October 2012, it issued its notice of meeting for the AGM to be held on 29 November 2012 at which it could receive a second strike. On the same day, it issued a separate notice of meeting for a spill meeting that would occur if the second strike was received. The notice of meeting for the spill meeting stated that the spill meeting would be held immediately following the company’s AGM and included a resolution for the re-election of all current directors other than the Managing Director.

No use of force is risk-free but the alternatives to Taser when an individual poses a serious threat include – physical restraint, batons, police dog and, in some rare situations, a firearm. These alternatives can have a much more long-term impact on someone compared with a Taser, the effects of which last only for the duration of the discharge.

Liberal Party of Australia

Section 250W(2) states that the spill meeting must be held within 90 days after the spill resolution is passed (our emphasis). The question therefore is whether the proposed meeting date (being the same day as the AGM) is 90 days ‘after’ the spill resolution.

To be considered, officers must have an established history and up-to-date training in the use of force, decision making, officer safety training and first aid.

The use of Taser in the UK is intended to provide police officers with a differentiated use of force option at incidents where there is a danger posed to the public or themselves and officers may need to use force to safely resolve the situation.

Officers also use the National Decision Model (NDM) when arriving at a decision to use force. The National Decision Model is a framework taught to all officers to enable police to make considered and consistent decisions.

A Taser is a less-lethal, single-shot self-defence weapon used by trained police officers to temporarily incapacitate a violent or potentially violent person, who poses a danger to themselves or other people nearby.

Under s 249HA of the Act, a listed company must provide at least 28 days’ notice of a general meeting. These must be ‘clear days’ and as such do not include the date of the notice or the date which the notice is posted. It also generally does not include the date of the actual meeting. In practice, we suggest that companies generally allow at least 31 days from the notice date to the AGM date to ensure compliance with the Act. Failure to provide a clear 28 days notice can render the meeting invalid.

Such amendments would provide clarity in relation to time frames of providing the notice of meeting for the spill meeting as well as ensuring the appropriate level of shareholder participation and corporate transparency is ensured.

Hand-held, a Taser is bright yellow in colour and produces an electrical current. Officers issued with Taser should work as part of a ‘unit’, that is, at least two officers.

Of those who received the second strike, three then received a vote to move to a spill meeting (Penrice Limited, Globe International Limited and Rey Resources Limited). However, as the entire board of Rey Resources resigned after the meeting there was no need for a spill meeting to be held.

This means that companies which have received a first strike need to plan for a second strike and a spill resolution, when setting the agenda for the AGM. The agenda must include the usual resolution to approve the remuneration report and a spill resolution.

A decision to use a Taser against someone is never taken lightly. Before being used other options are considered. Often simply drawing the Taser or placing a red dot to indicate it may be used, is enough to subdue a violent person without having to fire the weapon.

The Explanatory Memorandum, which accompanied the reform legislation, states that a company will need to comply with any minimum notice period so as to ensure that shareholder nominated candidates can seek endorsement at the spill meeting.

In the Linc example, the proposed spill meeting was to be held on the same day as the AGM. Section 250V outlines the requirements for the spill meeting resolution. The resolution contained within the notice of meeting complies with these requirements.

Of course, even if a second strike is received, it does not always follow that shareholders will vote to spill the board.

When the Taser pulse is applied to the body, either through clothing or directly on the skin, electrical current flows. This current activates nerves under the skin which then cause muscles to contract. When this happens, the contractions produced by the Taser override a person’s ability to make voluntary movements – the person will not be able to run away or physically attack someone. This muscular incapacitation only continues for as long as the Taser discharge is applied.

Any police officer who applies to become Taser trained must undergo a thorough selection process and not every officer who applies will be successful.

Listed companies are now operating in an era of greater shareholder activism and board accountability and the two strikes rule, in the words of the chair of one affected company, is ‘a lightning rod for disaffected shareholders’, with direct and potentially serious consequences.

The potential ‘loophole’ in the legislation flows from the requirement to hold the spill meeting. This is illustrated in the case of Linc.

The spill resolution will be conditional upon receipt of the second strike and only needs to be put to the shareholders if a company receives the second strike. Unlike the resolutions in relation to the first and second strikes, the spill resolution requires a simple majority (that is more than 50 per cent) of those eligible to vote to succeed.

The normal reaction of a person exposed to Taser is the loss of some voluntary muscle control resulting in the subject falling to the ground or ‘freezing’ on the spot.