#7395 - Board Of Directors And General Meetings - Corporations Law

Topic 6 Summary: The Board of Directors and the General Meeting of Members

1. Directors:

   1. Is X a director? If so, what time of director? According to section 9, a director of a company means

      1. (a) a person who:

         • (i) is appointed to the position of a director; or

           • Appointment by resolution of members passed in general meeting – s 201G (RR); s 201E)

           • Appointment by other directors subject to confirmation by members – s 201H (RR)

         • is appointed to the position of an alternate director and is acting in that capacity; regardless of the name that is given to their position; and

           • Appointment by a director of a person to exercise all or some of his/her powers for a specified period – s 201K (RR)

      2. (b) unless the contrary intention appears, a person who is not validly appointed as a director if:

         • (i) they act in the position of a director; or

           • “De facto director”

             1. Two situations:

                1. One, where somebody might actually think they have been validly appointed but there was a flaw in the process.

                2. Two, where somebody has retired/resigned but is still acting as director

                3. A necessary condition of acting as a director is that the person exercised top level management functions

                4. A person may be regarded as a de facto director if the person is the driving force behind the company business despite not being appointed, or continues as director after leaving Corporate Affairs Commission v Drysdale

      3. (c) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

         • “Shadow director”

           • Can be a company Standard Chartered Bank v Antico (1995)

           • Can be a creditor where the directors of the company are accustomed to act in accordance with the creditor’s instructions or wishes Buzzle Operations Pty Ltd v Apple Computers Aust Pty Ltd (2010)

           • Can’t be a professional advisor r.e. accountant

           • Shadow directors have all the responsibilities of a normal director

           • A holding company may be a shadow director if the directors of the subsidiary are nominee directors who customarily follow the holding company’s directions.

   2. What type of director?

      1. Executive directors

         • directors who are also senior employees/executives of the company

         • e.g., Managing Director / Chief Executive Officer (s 201J (RR); s 203F (RR))

         • RRs allow the directors to appoint one or more of themselves to the office of managing directors s 201J

      2. Non-executive directors

         • Directors who are not employees/executives of the company

         • Crucial aspect of best practice corporate governance is that boards of listed companies comprise a majority of non-executive directors who are independent of management.

      3. Nominee directors

         • represent a designated party (e.g., major creditor or shareholder)

         • large public companies generally have more non-executive than executive.

         • Independent director: never been an employee (type of non-executive)

         • Might be on a board to protect shareholders of another company

      4. Chair

         • Essence of chairmanship is exercising procedural control over a meeting Woonda Nominees

         • In exercising this control they must act honestly and bona fide.

         • elected by directors (s 248E (RR))

      5. Who is an officer – s 9

         • "officer" of a corporation means:

           • (a) a director or secretary of the corporation; or

           • (b) a person:

             1. (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

             2. (ii)who has the capacity to affect significantly the corporation 's financial standing; or

             3. (iii)in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person 's professional capacity or their business relationship with the directors or the corporation ); or

   3. Appointment, Compositions and Eligibility:

      1. Eligibility:

         • Must be a natural person (not a company) and at least 18 years of age (s 201B(1))

         • Residency (s 201A)

           • Pty company: at least one director must reside in Australia 201A(1)

           • Ltd company: three directors of which two must reside in Australia 201A(2)

         • Directors are not required to hold academic or business qualifications or a minimum amount of business experience

         • Must not be disqualified 201B(2) unless permitted by ASIC or the Court

         • Must consent 120 & 201D

      2. Resolution requirements

         • Appointment is usually by ordinary resolution s 201G RR OR

           • Director may be appointed by other directors, subject to confirmation at a general meeting 201H(1)

           • Separate election required for each director.

   4. Remuneration

      1. 202A (RR):

         • (1)The directors of a company are to be paid the remuneration that the company determines by resolution.

           • Company refers to the members

         • (2) The company may also pay the directors' travelling and other expenses that they properly incur:

           • in attending directors' meetings or any meetings of committees of directors ; and

           • in attending any general meetings of the company; and

           • in connection with the company's business.’

      2. Disclosure of remuneration

         • The company must disclose the remuneration paid to each “key management personnel” if requested by members with at least 5% of votes that can be cast at a general meeting, or at least 100 members entitled to vote at a general meeting 202(1)(a)/(b)

           • “Key management personnel”: those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise.” AASB 18

           • Merely being a director is not sufficient for becoming a key management person unless they satisfy the definition. Can also include head of marketing, IT, CFO, CEO

      3. Members to be given opportunity to ask questions about the remuneration report – s 250SA

      4. Members to be given non-binding vote on remuneration report – s 250R(2) & (3)

         • 2 strikes rule – ss 250U, V & W

           • Earlier AGM – at least 25% of members votes against adopting remuneration report

           • Later AGM – again, at least 25% of members votes against adopting remuneration report

           • At later AGM a spill resolution must be put to the vote calling for another general meeting within 90 days at which all directors will cease to hold office and new directors elected.

   5. Irregularities

      1. ‘A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.’ (s 1322(2))

      2. Procedural irregularity includes absence of a quorum; defect in notice or time (s 1322(1))

      3. Any interested person can apply to the court for a order correcting the irregularity (s 1322(4)). See also s 1322(6)

   6. Resignation and Disqualification and Removal

      1. Resignation

         • By written notice to the company at its registered office (s 203A (RR))

         • D then may advise ASIC (should do if near insolvent and want to avoid 588G issues)

         • If D continues to act in the same capacity even after purporting to resign they may be a de facto director

      2. Removal by members:

         • Proprietary company per the constitution (s 203C (RR)) – may be by ordinary resolution to remove D from office (203C(a) RR) and appoint a replacement director (203C(b) RR)

         • Public company (s 203D)

           • Ordinary resolution of the member present and voting at the meeting required

           • Director has right to be informed and make a statement to members

           • Cannot be removed by other directors (s 203E)

           • Procedural requirements listed in 203D(1) and (2)

      3. Disqualification of directors

         • Automatically if:

           • convicted of a serious offence (s 206B(1))

           • an undischarged bankrupt, or fails to pay creditors (s 206B(3) & (4))

         • By court if:

           • has contravened a civil penalty provision of the Act (e.g. breached directors duties) (s 206C)

           • has mismanaged corporations in the past (ss 206D & E)

         • By ASIC if:

           • has a history of managing failed companies (s 206F)

         • Consequences of disqualification

           • For the individual (s206A):

             1. Participating in the management of a company, or exercising influence over directors of a company, is an offence (s206A)

             2. Court may give permission to disqualified persons to manage (s 206G)

           • Penalties:

             1. 50 penalty units and/or imprisonment for 12 months (s1311 and Schedule 3)

             2. Personally liable for debts of company if wound up within 4 years (s 588Z)

           • For decisions / transactions made while disqualified person managed:

             1. If a person acts as director in contravention of s 206A(1)(a), and the board of directors makes a decision in relation to a particular matter - decision is not invalid merely because person was acting in breach

   7. Powers of the board of directors

      1. According to 198A RR: (1) the business of the company is to be managed by or under the direction of the directors. (2) The directors may exercise all the powers of the company except any powers that this Act or the CC requires the company to exercise in general meeting

      2. The company has the legal capacity and powers of an individual and powers of a body corporate 124(1), reflecting the separate legal entity doctrine Salomon. However the CC may expressly restrict or prohibit exercise of its powers 125(1)

         • Power of a natural person include: contract in own name, sue and be sued in own name, perpetual succession, acquire, hold and dispose of assets in own name

         • Corporate powers include 124(1): issue/cancel shares, grant...