#10844 - Statutory Disclosure Obligations And Related Party Transactions - Business Associations 1

S 191 – Material personal interest – director’s duty to disclose

Director’s duty to notify other directors of material personal interest (MPI) when conflict arises

1. A director of a company with an MPI in a matter relating to affairs of the company must give other directors notice of the interest unless (2) says otherwise

(1A) Offence based on (1) is SL as applying to the circumstance that he has an MPI

2. The director does not need to give notice under (1) if

   1. The interest

      1. Arises because they are a member of the company and is held in common with other members

      2. Arises in relation to their remuneration as director of the company

      3. Relates to a contract the company proposes to enter into that is subject to approval by members and won’t impose obligations unless approved by the members

      4. Arises because the director is a guarantor or gives an indemnity/security for a (/proposed) loan to the co.

      5. Arises because the director has a right of subrogation in relation to a iv. Guarantee/indemnity

      6. Relates to a contract that insures/would insure the director against liabilities the director incurs as an officer of the company (IFF the contract doesn’t make the company/related body a corporate insurer)

      7. Relates to any payment by the company/related body corporate in respect of an indemnity permitted under s 199A or any contract relating to such an indemnity

      8. Is in a contract or proposed contract with/for the benefit of/on behalf of a related body corporate and arises merely because the director is a director of the related body corporate; or

   2. The company is a proprietary company and the other directors are aware of the nature/extent of the interest IRT the affairs of the company; or

      1. The director already gave notice of the nature and extent of the interest and its relation to the affairs of the company under (1)

      2. If a person who wasn’t a director at the time the notice was given under (1) was given appointment – the notice is given to that person

      3. The nature or extent hasn’t materially increased above that disclosure; or

   3. The director gave standing notice of the nature and extent under s 192 and that notice is still effective

3. Content of notice; Notice required must

   1. Give details of

      1. The nature and extent of the interest; and

      2. The relation of the interest to the affairs of the company; and

   2. Be given at a directors meeting ASARP after the director becomes aware of their interest in the matters

And these details must be recorded in the meeting minutes

Effect of contravention

4. A contravention of this section by a director doesn’t affect the validity of any act/transaction/agreement/instrument etc.

5. The section doesn’t apply to a proprietary company with only one member

S 192 – The director may give other directors standing notice about an interest

The power to give notice

1. A director of a company who has an interest in a matter can give the others standing notice of the nature/extent of the interest in the matter in accordance with (2) at any time w/o/n it relates to affairs of the company when given

2. [Content] The notice under (1) must

   1. Give details of the nature/extent of the interest and

   2. Be given

      1. At a directors’ meeting (either orally or in writing); or

      2. To the others individually or in writing

The standing notice is given under (b)(ii) when it has been given to every director

Standing notice must be tabled at meeting if given to directors individually

3. If the standing notice is given to the others individually in writing, it must be tabled at the next meeting after given

Nature and extent of interest must be recorded in the minutes

4. The director must ensure that the nature/extent of the disclosed interest in the standing notice be recorded in the minutes at which it is given or tabled

Dates of effect and expiry of standing notice

5. The standing notice:

   1. Takes effect as soon as it is given; and

   2. Ceases to have effect if a person who was not a director at the time given is appointed as director

As standing notice that ceases to have effect under (b) commences again if given to that person

Effect of material increase in nature or extent of interest

6. The standing notice ceases to have effect IRT a particular interest if the nature/extent materially increases above that disclosed

7. Effect of contravention - Doesn’t affect the validity of any act/transaction….

S 193 – Interact6ion of sections 191 and 192 with other laws etc.

Sections 191-2 have effect in addition to and not in derogation of:

1. Any general law rule about conflicts of interest

2. Any provision in a company’s constitution (if any) restricting [can’t make it laxer] a director from

   1. Having a material personal interest in a matter or

   2. Holding an office or possessing property

Involving duties or interests conflicting with their duties or interests as directors

**S 194 – Voting and completion of transactions – directors of proprietary companies

If a director of a prop company has an MPI in a matter relating to the affairs of the company and:

1. Under s 191 the director discloses the nature/extent and relation to the company at a meeting of the directors; or

2. The interest is one that doesn’t need to be disclosed under s 191

Then:

3. The director may vote on matters that relate to the interest; and

4. Any transactions that relate to the interest may proceed; and

5. The director may retain benefits under the transaction even though the director has the interest; and

6. The company cannot avoid the transaction merely because of the existence of the interest

If disclosure is required under s 191, (e) and (f) apply only if the disclosure is made before the transaction is entered into-

S 195 – Restrictions on voting- directors of public companies only

Restrictions on voting and being present

1. A director of a public company who has an MPI in a matter being considered at a meeting must not:

   1. Be present while it is being considered

   2. Vote on it

(1A) (1) does not apply if

1. Subs. (2) or (3) allows the director to be present or;

2. The interest doesn’t need to be disclosed under s 191

(1B) SL for 195(1) - An offence based on (1) is SL

Participation with approval of other directors

2. Director may be present and vote if directors without an MPI pass a resolution that:

   1. Identifies the director, nature, extent of their interest and its relation to the affairs of the company

   2. States that those directors are satisfied that the interest should not disqualify the director from voting or being present

Participation with ASIC approval

3. The director may be present and vote if they are so entitled under a declaration or order made by ASIC under s 196

Director may consider or vote on resolution to deal with a matter at a GM

4. If there are not enough directors to form quorum because of (1); (1) or more of the directors (incl. those with an MPI) can call a GM and the GM may pass a resolution to deal with it

Effect of contravention by a director

5. A contravention by a director of

   1. This section

   2. A condition attached to a declaration or order made by ASIC under 196

Doesn’t affect the validity of any resolution

Pt 2D.2 Div 1; Indemnities and Insurance for officers and auditors

S 199A – Indemnification and exemption of officer or auditor

Exemptions not allowed

1. A company or a related body corporate mustn’t exempt a person from a liability (directly or through an interposed entity) to the company incurred as an officer/auditor

When indemnity for liability (other than legal costs) not allowed

2. A company or related body corporate mustn’t indemnify a person (by agreement, payment, directly or through an IE) against any of the following liabilities incurred an officer

   1. A liability owed to the company or related body corporate

   2. A liability for a PPO under s 1317G or a compensation order under s 1317H, 1317HA/B

   3. A liability owed to someone other than the company or related BC and did not arise out of good faith conduct

(Doesn’t apply to legal costs)

When indemnity for legal costs not allowed

3. A company or related BC must not indemnify (by agreement….) against legal costs incurred in defending an action or liability incurred as an officer or auditor if the costs are incurred:

   1. Defending or resisting proceedings in which the person is found to have a liability for which they couldn’t be indemnified under (2)

   2. In defending or resisting criminal proceedings in which they are found guilty

   3. In defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found to have been established

   4. In connection with proceedings for relief to the person under this Act in which the Court denies relief

(c. does not apply to costs incurred in responding to actions taken by ASIC/liquidator as part of an investigation before commencing proceedings for the court order)

4. Outcome – for the purpose of (3) the outcome of proceedings it he outcome in respect of any appeal to them

S 199B – Insurance premiums for certain liabilities of director, secretary, other officer or auditor

1. (Where premium is prohibited) A Company or related BC must not pay, agree to pay, a premium for a contract insuring a person who is/has been an officer/auditor of the company against a liability (other than legal costs) arising out of:

   1. Conduct involving a wilful breach of duty IRT the company; or

   2. A contravention of s 182-183

This section applies to a premium whether it is paid directly...