AGL’s proprietors were finally given the chance to give the nod to changes to the company’s constitution, including lifting the archaic 5% shareholder limit.

AGL held their special general meeting on 3 July 2002 for the long overdue vote of proprietors (we’re not “shareholders”, remember) to change the company’s constitution and remove the 5% shareholder limit.

Chairman John Phillips described it as “quite a momentous occasion” in the 164 year history of the company and mentioned several times the power of work that many in the company, from the board down, had done to keep this process moving.

He also thanked the NSW, Commonwealth and New Zealand governments for their co-operation in the project.

The chairman noted that in looking at removing the 5% shareholder limit and revising its four-inch thick constituent documents (comprising various articles of association and Acts of Parliament), it became clear that the easiest way was to corporatise the company.

Hence the resolution put to Proprietors was:

“To consider, and if thought fit, to pass the following resolution as an ordinary resolution:

‘That, [subject to various conditions being satisfied]…:

a) the Company be constituted as a body corporate…;

b) the clauses contained in the document titled ‘Constitution of the Australian Gas Light Company’ … be approved as the Constitution of the Company…;

c) after conversion … the company be registered as a public company limited by shares under the Corporations Act 2001.'”

The chairman pointed out from the top that “this is not the Annual General Meeting” and that “there is only one item on the agenda… Any comments or questions you have during question time should be on that topic”.

Incredibly, every shareholder took heed of that request! That could well be a first in the conduct of company meetings in this country.

To its credit, the company sent all proprietors a detailed explained of the changes, setting out quite clearly the need for the change, what will change and what will remain the same, the benefits of the change and potential risks.

It wasn’t a contentious issue as far as any of the stakeholders were concerned – only one proprietor voted against the resolution (Lord knows why), and it has been clear for some time that the board, proprietors and concerned governments have all thought the change was long overdue.

The main issue of concern for proprietors at the meeting arose from this explanatory note:

“…There is still a risk that the Commonwealth legislation will not be passed, or that such legislation will not be passed in a suitable form or a timely manner. If the Commonwealth legislation is not passed, it is possible that (among other tax consequences), as a result of the conversion, AGL will be taken to have disposed of all its assets and reacquired them after conversion (potentially giving rise to significant capital gains tax consequences for AGL), proprietors will be taken to have disposed of their shares in AGL and acquired shares in AGL after conversion (potentially giving rise to significant capital gains tax consequences for Proprietors), AGL will forfeit the balance of franking credits in its franking account and the benefit of accumulated losses may be lost to AGL and its subsidiaries and related entities. Goods and Services Tax (GST) consequences may also flow from the conversion, if the Commonwealth legislation is not passed.”

The chairman was at pains to point out several times that these risks were small and they were only advising Proprietors because it was important for them to lay out all the relevant possible outcomes, no matter how improbable.

And if this occurred, it would be a nonsense – particularly for proprietors.

Ask anyone who owns shares in AGL, and do they reckon they’ve sold then bought back shares by voting to corporatise AGL? Absolutely not. Nothing changes as far as the proprietors are concerned when the company changes its constitution – they own shares in AGL before the change, they continue to own shares in AGL after the change as far as they would be concerned.

I suspect this is a case of the company’s tax advisors (who might still be Crullers’ old mob at Arthur Andersen) covering all bases and being ultra-conservative in their advice. Logic would suggest that these outcomes would indeed prove that the law is an ass.

But “logic” and “tax laws” have not always been the closest of chums.

Most of the meeting was devoted to dissecting this issue. Questioning went on for a little under an hour, dragged on by pretty repetitive questions on this issue.

I wasn’t planning to speak as I was (and have been since before becoming a proprietor) firmly in favour of the proposal and didn’t see anything untoward in the explanatory materials. But when discussion on CGT arced up I did have to ask what I thought was the obvious question – whether it was possible for the company to get a binding ruling from the ATO to protect it and shareholders from the potential adverse tax consequences.

The chairman’s answer was interesting, as he said the company had in fact approached the tax office, but the Commissioner’s response was that the best way to protect the company and shareholders was to have legislation changed, not to get a ruling.

Obviously the tax office has gone gun-shy on rulings after scandals involving former deputy commissioner Nick Petroulias handing out contentious rulings to his mates and problems with flawed rulings on mass-marketed tax schemes in recent times.

I was quite chuffed when the chairman complimented me on my question. But in writing up this account of the meeting, I remembered that he also said to a nutty rambling granny (who pushed her shopping jeep into the meeting) “there is nothing you have said that we would disagree with”. John Phillips considerably devalued the worth of his compliments at that point!

As an interesting aside, the chairman noted that all state governments had agreed to stamp duty exemptions on the conversion, except WA, who will slap the company with a $1.9 million bill. Phillips said they would argue against it vigourously.

Why is the WA State Revenue Department making the grab for the cash when all others aren’t?

Are the WA finances that bad when they have to make this debatable (albeit probably technically correct) application of the law?

A bit of Pauline Hansonism shone through, with some concern about foreign takeovers of the company. The chairman patiently explained the foreign takeover laws and FIRB approvals process a couple of times to allay any concerns.

As with any of Pauline’s policies, this old chestnut defies logic. As a shareholder, why would you be concerned about foreign companies coming in and bumping up the price of your company in a takeover bidding war? There might be a bit of parochial sentimentalism about not selling the farm, but again, that’s no rational argument.

It’s been a long process – kick-started back in April 2001. Plenty, like Crikey and the ASA, have been agitating that this has been too long coming. But one shareholder complained that it was being done in haste – it seemed to him to be a case of “rush, rush, rush” before issues like legislative change were settled.

Because an election has just been called for New Zealand, one part of the resolution was stuffed up so a minor change had to be agreed to. Despite the amendment being on every punter’s seat, being mentioned a million times by the chairman, and being placed on the overhead display, the shopping jeep lady yelled out “what amendment?” when the show of hands had just completed.

So the chairman explained it (again) for her benefit and had to call for the show of hands again!

The resolution itself was carried with only one dissenting vote, so now the ball is in AGL’s court to keep it moving.

Peter Fray

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