Recent claims from an activist investor and proxy advisor suggesting Australian listed company law fails shareholders are overstated and illogical, potentially stifling economic activity and distorting the foundations of company law. The claims have led to movements for change, including proposed amendments to ASX listing rules and company constitutions to favour shareholders.
The core issue stems from James Hardie Industries, which is listed on the ASX, acquiring Azek in a scrip-for-scrip deal. James Hardie agreed to pay a cash amount and also issue a certain number of ordinary shares so that, on completion of the transaction, James Hardie and Azek shareholders would own about 74 per cent and 26 per cent of James Hardie respectively. This triggered ASX listing rule 7.1, which generally restricts a company from issuing more than 15 per cent of its equity in a 12-month period without shareholder approval. However, exceptions exist for scrip-for-scrip takeovers, and James Hardie obtained a waiver, leading to criticism that shareholders should have had a vote.
Critics argue that the transaction overvalued Azek and exposed James Hardie to excessive leverage. In response, packaging group Orora, encouraged by shareholder Allan Gray, is proposing constitutional amendments to require shareholder approval for non-pro rata share issuances exceeding 25 per cent within 12 months. Allan Gray stated: “This is something all companies should adopt. It’s about shareholder rights and good corporate governance.” James Hardie is a global building materials company. Orora is a packaging company that offers a variety of solutions, from glass bottles to corrugated boxes.
While proponents claim these changes enhance shareholder protection, concerns remain about potential unintended consequences. Strict statutory duties already bind Australian directors and officers to act in good faith and with reasonable care, and shareholders have robust voting rights. Imposing further restrictions may disadvantage listed companies in competitive bidding scenarios and could allow short-term investors to unduly influence outcomes, ultimately undermining the interests of long-term shareholders.
