#7411 - Statutory Disclosure Obligations Related Party Transactions - Business Associations I

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 191-195CA. 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 section6.1 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 section199A 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 section192 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.

Sections191 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...