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Statutory Disclosure Obligations Related Party Transactions Notes

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Class 15

Statutory disclosure obligations; related party transactions

Corporations Act: Disclosure of board not GM. Applies to proprietary and public companies. Material personal interest? McGellin v Mt King Mining- something that would have the capacity to influence a director on a decision to be made. Disclosure must be detailed, and sufficient to allow board to understand the scope of the benefit or potential benefit that the director or officer is going to take- Camelot resources v McDonald. Does it include conflicting directorships? Contravention does not invalidate transactions but is an offence. But what do the articles say?
Related party transactions with public companies and their controlled entities- s208 and 217-227 of CA. Public co or controlled entitity- 228 and s50AA. Giving financial benefit- 229. To a related party s228. Get GM approval 217-227. Unless an exempt transaction s210-216. Related parties and associates cannot vote on the resolution

224. Consequences of contravention. Not invalid but will be an offence under 208 and 209(2). Don't have to have a related party transaction meeting to pay a director fee but if outside the company you need authorisation from GM. Related parties cannot vote. 1317E is a civil provision section. S199 prohibits the giving of certain indemnities to officers and directors where it requires to put directors in a position as if the liability for directors breach of duties had never occurred. It extends to a related body corporate of a public company extending that indemnity as well. A company may not indemnify a person by making a payment against liabilities incurred like a liability owed to the company or a compensation order or pecuniary payment or a liability owed to someone out of conduct not in good faith but you can seek indemnity for legal costs of defending yourself but cannot be indemnified for liabilities for breach of duties. But 199(3) says you must win in order to get this indemnity. A mirror image limit of a company paying of insurance premiums for paying off breaches of duty. Companies can pay insurance premiums for negligence liability and for breach of the duty to act in the best interests of the company and for proper purpose they cant pay insurance premiums for wilful breach of duty or breach of 182 or 183. You can insure officers in regards to negligence and breach of duty to act in best interest of company and proper purpose but not for criminal conduct, breach of 182 or 183. The insurance premium that a company can pay for negligence defence or breach of duty to act in proper interest is available if you win or lose for defence costs. Insurance is not as limited as direct indemnity is. S 300(8) requires to disclose all indemnities and insurances in directors report. Exempt from disclosure under 191195CA. Exempt from GM approval under s208. ss 191-195 (disclosure obligations). CORPORATIONS ACT 2001 - SECT 191 Material personal interest--director's duty to disclose Director's duty to notify other directors of material personal interest when conflict arises (1) A director of a company who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of the interest unless subsection (2) says otherwise. (1A) For an offence based on subsection (1), strict liability applies to the circumstance, that the director of a company has a material personal interest in a matter that relates to the affairs of the company. Note: For strict liability , see section 6.1 of the Criminal Code . (2) The director does not need to give notice of an interest under subsection (1) if: (a) the interest: (i) arises because the director is a member of the company and is held in common with the other members of the company; or (ii) arises in relation to the director's remuneration as a director of the company; or (iii) relates to a contract the company is proposing to enter into that is subject to approval by the members and will not impose any obligation on the company if it is not approved by the members; or (iv) arises merely because the director is a guarantor or has given an indemnity or security for all or part of a loan (or proposed loan) to the company; or (v) arises merely because the director has a right of subrogation in relation to a guarantee or indemnity referred to in subparagraph (iv); or (vi) relates to a contract that insures, or would insure, the director against liabilities the director incurs as an officer of the company (but only if the contract does not make the company or a related body corporate the insurer); or

(vii) relates to any payment by the company or a related body corporate in respect of an indemnity permitted under section 199A or any contract relating to such an indemnity; or (viii) is in a contract, or proposed contract, with, or for the benefit of, or on behalf of, a related body corporate and arises merely because the director is a director of the related body corporate; or (b) the company is a proprietary company and the other directors are aware of the nature and extent of the interest and its relation to the affairs of the company; or (c) all the following conditions are satisfied: (i) the director has already given notice of the nature and extent of the interest and its relation to the affairs of the company under subsection (1); (ii) if a person who was not a director of the company at the time when the notice under subsection (1) was given is appointed as a director of the company--the notice is given to that person; (iii) the nature or extent of the interest has not materially increased above that disclosed in the notice; or (d) the director has given a standing notice of the nature and extent of the interest under section 192 and the notice is still effective in relation to the interest. Note: Subparagraph (c)(ii)--the notice may be given to the person referred to in this subparagraph by someone other than the director to whose interests it relates (for example, by the secretary). (3) The notice required by subsection (1) must: (a) give details of: (i) the nature and extent of the interest; and (ii) the relation of the interest to the affairs of the company; and (b) be given at a directors' meeting as soon as practicable after the director becomes aware of their interest in the matter. The details must be recorded in the minutes of the meeting. Effect of contravention by director (4) A contravention of this section by a director does not affect the validity of any act, transaction, agreement, instrument, resolution or other thing. Section does not apply to single director proprietary company (5) This section does not apply to a proprietary company that has only 1 director. CORPORATIONS ACT 2001 - SECT 192 Director may give other directors standing notice about an interest Power to give notice (1) A director of a company who has an interest in a matter may give the other directors standing notice of the nature and extent of the interest in the matter in accordance with subsection (2). The notice may be given at any time and whether or not the matter relates to the affairs of the company at the time the notice is given. Note: The standing notice may be given to the other directors before the interest becomes a material personal interest. (2) The notice under subsection (1) must: (a) give details of the nature and extent of the interest; and (b) be given: (i) at a directors' meeting (either orally or in writing); or (ii) to the other directors individually in writing. The standing notice is given under subparagraph (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 other directors individually in writing, it must be tabled at the next directors' meeting after it is given. Nature and extent of interest must be recorded in minutes (4) The director must ensure that the nature and extent of the interest disclosed in the standing notice is recorded in the minutes of the meeting at which the standing notice is given or tabled. Dates of effect and expiry of standing notice (5) The standing notice: (a) takes effect as soon as it is given; and (b) ceases to have effect if a person who was not a director of the company at the time when the notice was given is appointed as a director of the company. A standing notice that ceases to have effect under paragraph (b) commences to have effect again if it is given to the person referred to in that paragraph. Note: The notice may be given to the person referred to in paragraph (b) by someone other than the director to whose interests it relates (for example, by the secretary). Effect of material increase in nature or extent of interest (6) The standing notice ceases to have effect in relation to a particular interest if the nature or extent of the interest materially increases above that disclosed in the notice. Effect of contravention by director (7) A contravention of this section by a director does not affect the validity of any act, transaction, agreement, instrument, resolution or other thing.

CORPORATIONS ACT 2001 - SECT 193 Interaction of sections 191 and 192 with other laws etc. Sections 191 and 192 have effect in addition to, and not in derogation of: (a) any general law rule about conflicts of interest; and (b) any provision in a company's constitution (if any) that restricts a director from: (i) having a material personal interest in a matter; or (ii) holding an office or possessing property; involving duties or interests that conflict with their duties or interests as a director. CORPORATIONS ACT 2001 - SECT 194 Voting and completion of transactions--directors of proprietary companies (replaceable rule--see section 135) If a director of a proprietary company has a material personal interest in a matter that relates to the affairs of the company and: (a) under section 191 the director discloses the nature and extent of the interest and its relation to the affairs of the company at a meeting of the directors; or (b) the interest is one that does not need to be disclosed under section 191; then: (c) the director may vote on matters that relate to the interest; and (d) any transactions that relate to the interest may proceed; and (e) the director may retain benefits under the transaction even though the director has the interest; and (f) the company cannot avoid the transaction merely because of the existence of the interest. If disclosure is required under section 191, paragraphs (e) and (f) apply only if the disclosure is made before the transaction is entered into. Note: A director may need to give notice to the other directors if the director has a material personal interest in a matter relating to the affairs of the company (see section 191). CORPORATIONS ACT 2001 - SECT 195 Restrictions on voting--directors of public companies only Restrictions on voting and being present (1) A director of a public company who has a material personal interest in a matter that is being considered at a directors' meeting must not: (a) be present while the matter is being considered at the meeting; or (b) vote on the matter. (1A) Subsection (1) does not apply if: (a) subsection (2) or (3) allows the director to be present; or (b) the interest does not need to be disclosed under section 191. Note: A defendant bears an evidential burden in relation to the matter in subsection (1A), see subsection 13.3(3) of the Criminal Code . (1B) An offence based on subsection (1) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code . Participation with approval of other directors (2) The director may be present and vote if directors who do not have a material personal interest in the matter have passed a resolution that: (a) identifies the director, the nature and extent of the director's interest in the matter and its relation to the affairs of the company; and (b) 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 section 196. Director may consider or vote on resolution to deal with matter at general meeting (4) If there are not enough directors to form a quorum for a directors' meeting because of subsection (1), 1 or more of the directors (including those who have a material personal interest in that matter) may call a general meeting and the general meeting may pass a resolution to deal with the matter. Effect of contravention by director (5) A contravention by a director of: (a) this section; or (b) a condition attached to a declaration or order made by ASIC under section 196; does not affect the validity of any resolution.

ss 199A-199C (restrictions on indemnities). CORPORATIONS ACT 2001 - SECT 199A Indemnification and exemption of officer or auditor Exemptions not allowed

(1) A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company. When indemnity for liability (other than for legal costs) not allowed (2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company: (a) a liability owed to the company or a related body corporate; (b) a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H, 1317HA or 1317HB; (c) a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith. This subsection does not apply to a liability for legal costs. When indemnity for legal costs not allowed (3) A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred: (a) in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2); or (b) in defending or resisting criminal proceedings in which the person is found guilty; or (c) in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established; or (d) in connection with proceedings for relief to the person under this Act in which the Court denies the relief. Paragraph (c) does not apply to costs incurred in responding to actions taken by ASIC or a liquidator as part of an investigation before commencing proceedings for the court order. Note 1: Paragraph (c)--This includes proceedings by ASIC for an order under section 206C, 206D, 206E or 206EAA (disqualification), section 232 (oppression), section 1317E, 1317G, 1317H, 1317HA or 1317HB (civil penalties) or section 1324 (injunction). Note 2: The company may be able to give the person a loan or advance in respect of the legal costs (see section 212). (4) For the purposes of subsection (3), the outcome of proceedings is the outcome of the proceedings and any appeal in relation to the proceedings. CORPORATIONS ACT 2001 - SECT 199B Insurance premiums for certain liabilities of director, secretary, other officer or auditor (1) A company or a related body corporate must not pay, or agree to pay, a premium for a contract insuring a person who is or has been an officer or auditor of the company against a liability (other than one for legal costs) arising out of: (a) conduct involving a wilful breach of duty in relation to the company; or (b) a contravention of section 182 or 183. This section applies to a premium whether it is paid directly or through an interposed entity. (2) An offence based on subsection (1) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code . CORPORATIONS ACT 2001 - SECT 199C Certain indemnities, exemptions, payments and agreements not authorised and certain documents void (1) Sections 199A and 199B do not authorise anything that would otherwise be unlawful. (2) Anything that purports to indemnify or insure a person against a liability, or exempt them from a liability, is void to the extent that it contravenes section 199A or 199B.

Chapter 2E (related party transactions). CORPORATIONS ACT 2001 - SECT 207 Purpose The rules in this Chapter are designed to protect the interests of a public company's members as a whole, by requiring member approval for giving financial benefits to related parties that could endanger those interests. CORPORATIONS ACT 2001 - SECT 208 Need for member approval for financial benefit (1) For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company: (a) the public company or entity must: (i) obtain the approval of the public company's members in the way set out in sections 217 to 227; and (ii) give the benefit within 15 months after the approval; or (b) the giving of the benefit must fall within an exception set out in sections 210 to 216. Note: Section 228 defines related party , section 9 defines entity , section 50AA defines control and section 229 affects the meaning of giving a financial benefit .

(2) If: (a) the giving of the benefit is required by a contract; and (b) the making of the contract was approved in accordance with subparagraph (1)(a)(i) as a financial benefit given to the related party; and (c) the contract was made: (i) within 15 months after that approval; or (ii) before that approval, if the contract was conditional on the approval being obtained; member approval for the giving of the benefit is taken to have been given and the benefit need not be given within the 15 months. CORPORATIONS ACT 2001 - SECT 209 Consequences of breach (1) If the public company or entity contravenes section 208: (a) the contravention does not affect the validity of any contract or transaction connected with the giving of the benefit; and (b) the public company or entity is not guilty of an offence. Note: A Court may order an injunction to stop the company or entity giving the benefit to the related party (see section 1324). (2) A person contravenes this subsection if they are involved in a contravention of section 208 by a public company or entity. Note 1: This subsection is a civil penalty provision. Note 2: Section 79 defines involved . (3) A person commits an offence if they are involved in a contravention of section 208 by a public company or entity and the involvement is dishonest. CORPORATIONS ACT 2001 - SECT 210 Arm's length terms Member approval is not needed to give a financial benefit on terms that: (a) would be reasonable in the circumstances if the public company or entity and the related party were dealing at arm's length; or (b) are less favourable to the related party than the terms referred to in paragraph (a). CORPORATIONS ACT 2001 - SECT 211 Remuneration and reimbursement for officer or employee Benefits that are reasonable remuneration (1) Member approval is not needed to give a financial benefit if: (a) the benefit is remuneration to a related party as an officer or employee of the following: (i) the public company; (ii) an entity that the public company controls; (iii) an entity that controls the public company; (iv) an entity that is controlled by an entity that controls the public company; and (b) to give the remuneration would be reasonable given: (i) the circumstances of the public company or entity giving the remuneration; and (ii) the related party's circumstances (including the responsibilities involved in the office or employment). Benefits that are payments of expenses incurred (2) Member approval is not needed to give a financial benefit if: (a) the benefit is payment of expenses incurred or to be incurred, or reimbursement for expenses incurred, by a related party in performing duties as an officer or employee of the following: (i) the public company; (ii) an entity that the public company controls; (iii) an entity that controls the public company; (iv) an entity that is controlled by an entity that controls the public company; and (b) to give the benefit would be reasonable in the circumstances of the public company or entity giving the remuneration. (3) For the purposes of this section: (a) a contribution made by a body corporate to a fund for the purpose of making provision for, or obtaining, superannuation benefits for an officer of the body, or for dependants of an officer of the body, is remuneration provided by the body to the officer of the body; and (b) a financial benefit given to a person because of the person ceasing to hold an office or employment as an officer or employee of a body corporate is remuneration paid or provided to the person in a capacity as an officer of the body. CORPORATIONS ACT 2001 - SECT 212 Indemnities, exemptions, insurance premiums and payment for legal costs for officers Indemnities, exemptions and insurance premiums (1) Member approval is not needed to give a financial benefit if: (a) the benefit is for a related party who is an officer of the public company or entity; and (b) the benefit is:

(i) an indemnity, exemption or insurance premium in respect of a liability incurred as an officer of the public company or entity; or (ii) an agreement to give an indemnity or exemption, or to pay an insurance premium, of that kind; and (c) to give the benefit would be reasonable in the circumstances of the public company or entity giving the benefit. Note: Sections 199A to 199C may prohibit giving an indemnity or exemption or paying an insurance premium for an officer. Payments in respect of legal costs (2) Member approval is not needed to give a financial benefit if: (a) the benefit is for a related party who is an officer of the public company or entity; and (b) the benefit is the making of, or an agreement to make, a payment (whether by way of advance, loan or otherwise) in respect of legal costs incurred by the officer in defending an action for a liability incurred as an officer of the public company or entity; and (c) either: (i) section 199A does not apply to the costs; or (ii) if section 199A applies to the costs--the officer must repay the amount paid if the costs become costs for which the company must not give the officer an indemnity under that section; and (d) to give the benefit would be reasonable in the circumstances of the public company or entity giving the benefit. (3) In working out for the purposes of subsection (1) or (2) whether giving the benefit is reasonable in the circumstances: (a) assess whether it would be reasonable on the basis of the circumstances existing: (i) if the benefit is given under an agreement--at the time when the agreement is or was made; or (ii) if the benefit is not given under an agreement--at the time when the benefit is or was given; and (b) disregard any other financial benefit given or payable to the officer by the public company or entity. CORPORATIONS ACT 2001 - SECT 213 Small amounts given to related entity (1) Member approval is not needed to give a financial benefit to a related party in a financial year if the total of the following amounts or values is less than or equal to the amount prescribed by the regulations for the purposes of this section: (a) the amount or value of the financial benefit; (b) the total of all other amounts or values of financial benefits given to the related party, in the financial year, for which member approval was not needed because of this section. (2) In working out the total of the amounts or values referred to in paragraphs (1)(a) and (b): (a) add in all amounts or values of financial benefits given to the related party in the financial year by: (i) the public company or entity; and (ii) any entities controlled by the public company or entity; and (b) disregard: (i) amounts that have been repaid; and (ii) amounts that fall under any other exception in this Part. For the purposes of this subsection, the time at which the entity must be controlled by the public company is the time at which the financial benefit is given. CORPORATIONS ACT 2001 - SECT 214 Benefit to or by closely-held subsidiary (1) Member approval is not needed to give a financial benefit if the benefit is given: (a) by a body corporate to a closely-held subsidiary of the body; or (b) by a closely-held subsidiary of a body corporate to the body or an entity it controls. (2) For the purposes of this section, a body corporate is a closely-held subsidiary of another body corporate if, and only if, no member of the first-mentioned body is a person other than: (a) the other body; or (b) a nominee of the other body; or (c) a body corporate that is a closely-held subsidiary of the other body because of any other application or applications of this subsection; or (d) a nominee of a body referred to in paragraph (c). (3) For the purposes of subsection (2), disregard shares that are not voting shares. CORPORATIONS ACT 2001 - SECT 215 Benefits to members that do not discriminate unfairly Member approval is not needed to give a financial benefit if: (a) the benefit is given to the related party in their capacity as a member of the public company; and

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