Law Notes > Business Associations I Notes
This is an extract of our Statutory Disclosure Obligations Related Party Transactions document, which we sell as part of our Business Associations I Notes collection written by the top tier of University Of New South Wales students.
The following is a more accessble plain text extract of the PDF sample above, taken from our Business Associations I Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
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 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 section191 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 section191;
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 section191, 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 section191).
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 section191.
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 section6.1 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 section196.
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 section196;
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 section1317G or a compensation order under section1317H, 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 section206C, 206D, 206E or 206EAA (disqualification), section232 (oppression), section1317E, 1317G, 1317H, 1317HA or 1317HB (civil penalties) or section1324 (injunction).
Note 2: The company may be able to give the person a loan or advance in respect of the legal costs (see section212).
(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 section182 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 section6.1 of the Criminal Code .
CORPORATIONS ACT 2001 - SECT 199C
Certain indemnities, exemptions, payments and agreements not authorised and certain documents void
(1) Sections199A 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 section199A 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 sections217 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 sections210 to 216.
Note: Section228 defines related party , section9 defines entity , section50AA defines control and section229 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 section208:
(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 section1324).
(2) A person contravenes this subsection if they are involved in a contravention of section208 by a public company or entity.
Note 1: This subsection is a civil penalty provision.
Note 2: Section79 defines involved .
(3) A person commits an offence if they are involved in a contravention of section208 by a public company or entity and the involvement is dishonest.
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: Sections199A 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) section199A does not apply to the costs; or
(ii) if section199A 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
(b) giving the benefit does not discriminate unfairly against the other members of the public company.
CORPORATIONS ACT 2001 - SECT 216
Court order
Member approval is not needed to give a financial benefit under an order of a court.
CORPORATIONS ACT 2001 - SECT 217
Resolution may specify matters by class or kind
A resolution under this Division may specify anything either in particular or by reference to class or kind.
CORPORATIONS ACT 2001 - SECT 218
Company must lodge material that will be put to members with ASIC
(1) At least 14 days before the notice convening the relevant meeting is given, the public company must lodge:
(a) a proposed notice of meeting setting out the text of the proposed resolution; and
(b) a proposed explanatory statement satisfying section219; and
(c) any other document that is proposed to accompany the notice convening the meeting and that relates to the proposed resolution; and
(d) any other document that any of the following proposes to give to members of the public company before or at the meeting:
(i) the company;
(ii) a related party of the company to whom the proposed resolution would permit a financial benefit to be given;
(iii) an associate of the company or of such a related party;
and can reasonably be expected to be material to a member in deciding how to vote on the proposed resolution.
(2) If, when the notice convening the meeting is given, ASIC:
(a) has approved in writing a period of less than 14 days for the purposes of subsection(1); and
(b) has not revoked the approval by written notice to the public company;
subsection(1) applies as if the reference to 14 days were a reference to the approved period.
(3) ASIC may give and revoke approvals for the purposes of subsection(2).
CORPORATIONS ACT 2001 - SECT 219
Requirements for explanatory statement to members
(1) The proposed explanatory statement lodged under section218 must be in writing and set out:
(a) the related parties to whom the proposed resolution would permit financial benefits to be given; and
(b) the nature of the financial benefits; and
(c) in relation to each director of the company:
(i) if the director wanted to make a recommendation to members about the proposed resolution--the recommendation and his or her reasons for it; or
(ii) if not--why not; or
(iii) if the director was not available to consider the proposed resolution--why not; and
(d) in relation to each such director:
(i) whether the director had an interest in the outcome of the proposed resolution; and
(ii) if so--what it was; and
(e) all other information that:
(i) is reasonably required by members in order to decide whether or not it is in the company's interests to pass the proposed resolution; and
(ii) is known to the company or to any of its directors.
(2) An example of the kind of information referred to in paragraph(1)(e) is information about what, from an economic and commercial point of view, are the true potential costs and detriments of, or resulting from, giving financial benefits as permitted by the proposed resolution, including (without limitation):
(a) opportunity costs; and
(b) taxation consequences (such as liability to fringe benefits tax); and
(c) benefits forgone by whoever would give the benefits.
Note: Sections180 and 181 require an officer of a corporation to act honestly and to exercise care and diligence. These duties extend to preparing an explanatory statement under this section. Section1309 creates offences where false and misleading material relating to a corporation's affairs is made available or furnished to members.
CORPORATIONS ACT 2001 - SECT 220
ASIC may comment on proposed resolution
(1) Within 14 days after a public company lodges documents under section218, ASIC may give to the company written comments on those documents (other than comments about whether the proposed resolution is in the company's best interests).
(2) If the company is listed, ASIC may consult with the relevant market operator for the purposes of giving comments to the company.
(3) Subsection(2) does not limit the persons with whom ASIC may consult.
(4) ASIC must keep a copy of the written comments it gives to a company under subsection(1), and subsections 1274(2) and (5) apply to the copy as if it were a document lodged with ASIC.
(5) The fact that ASIC has given particular comments, or has declined to give comments, under subsection(1) does not in any way affect the performance or exercise of any of ASIC's functions and powers.
CORPORATIONS ACT 2001 - SECT 221
Requirements for notice of meeting
The notice convening the meeting:
(a) must be the same, in all material respects, as the proposed notice lodged under section218; and
(b) must be accompanied by an explanatory statement that is the same, in all material respects, as the proposed explanatory statement lodged under that section; and
(c) must be accompanied by a document that is, or documents that are, the same, in all material respects, as the document or documents (if any) lodged under paragraph 218(1)(c); and
(d) if ASIC has given to the public company, under section220, comments on the documents lodged under section218--must be accompanied by a copy of those comments; and
(e) must not be accompanied by any other documents.
CORPORATIONS ACT 2001 - SECT 222
Other material put to members
Each document (if any) that:
(a) did not accompany the notice convening the meeting; and
(b) was given to members of the public company before or at the meeting by:
(i) the public company; or
(ii) a related party of the public company to whom the proposed resolution would permit a financial benefit to be given; or
(iii) an associate of the public company or of such a related party; and
(c) can reasonably be expected to have been material to a member in deciding how to vote on the proposed resolution;
must be the same, in all material respects, as a document lodged under paragraph 218(1)(d).
CORPORATIONS ACT 2001 - SECT 223
Proposed resolution cannot be varied
The resolution must be the same as the proposed resolution set out in the proposed notice lodged under section218.
CORPORATIONS ACT 2001 - SECT 224
Voting by or on behalf of related party interested in proposed resolution
(1) At a general meeting, a vote on a proposed resolution under this Division must not be cast (in any capacity) by or on behalf of:
(a) a related party of the public company to whom the resolution would permit a financial benefit to be given; or
(b) an associate of such a related party.
(2) Subsection(1) does not prevent the casting of a vote if:
(a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the proposed resolution; and
(b) it is not cast on behalf of a related party or associate of a kind referred to in subsection(1).
(3) The regulations may prescribe cases where subsection(1) does not apply.
(4) ASIC may by writing declare that:
(a) subsection(1) does not apply to a specified proposed resolution; or
(b) subsection(1) does not prevent the casting of a vote, on a specified proposed resolution, by a specified entity, or on behalf of a specified entity;
but may only do so if satisfied that the declaration will not cause unfair prejudice to the interests of any member of the public company.
(5) A declaration in force under subsection(4) has effect accordingly.
(6) If a vote is cast in contravention of subsection(1), the related party or associate, as the case may be, contravenes this subsection, whether or not the proposed resolution is passed.
(7) For the purposes of this section, a vote is cast on behalf of an entity if, and only if, it is cast:
(a) as proxy for the entity; or
(b) otherwise on behalf of the entity; or
(c) in respect of a share in respect of which the entity has:
(i) power to vote; or
(ii) power to exercise, or control the exercise of, a right to vote.
(8) Subject to subsection 225(1), a contravention of this section does not affect the validity of a resolution.
(9) Subject to Part1.1A, this section has effect despite:
(a) anything else in:
(i) this Act; or
(ii) any other law (including the general law) of a State or Territory; or
(b) anything in a body corporate's constitution.
CORPORATIONS ACT 2001 - SECT 225
Voting on the resolution
(1) If any votes on the resolution are cast in contravention of subsection 224(1), it must be the case that the resolution would still be passed even if those votes were disregarded.
(2) If a poll was duly demanded on the question that the resolution be passed, subsections(3) and (4) apply in relation to voting on the poll.
(3) In relation to each member of the public company who voted on the resolution in person, the public company must record in writing:
(a) the member's name; and
(b) how many votes the member cast for the resolution and how many against.
(4) In relation to each member of the public company who voted on the resolution by proxy, or by a representative authorised under section250D, the public company must record in writing:
(a) the member's name; and
(b) in relation to each person who voted as proxy, or as such a representative, for the member:
(i) the person's name; and
(ii) how many votes the person cast on the resolution as proxy, or as such a representative, for the member; and
(iii) how many of those votes the person cast for the resolution and how many against.
(5) For 7 years after the day when a resolution under this Division is passed, the public company must retain the records it made under this section in relation to the resolution.
(6) An offence based on subsection(3), (4) or (5) is an offence of strict liability.
Note: For strict liability , see section6.1 of the Criminal Code .
CORPORATIONS ACT 2001 - SECT 226
Notice of resolution to be lodged
The public company must lodge a notice setting out the text of the resolution within 14 days after the resolution is passed.
CORPORATIONS ACT 2001 - SECT 227
Declaration by court of substantial compliance
(1) The Court may declare that the conditions prescribed by this Division have been satisfied if it finds that they have been substantially satisfied.
(2) A declaration may be made only on the application of an interested person.
CORPORATIONS ACT 2001 - SECT 228
Related parties
Controlling entities
(1) An entity that controls a public company is a related party of the public company.
Directors and their spouses
(2) The following persons are related parties of a public company:
(a) directors of the public company;
(b) directors (if any) of an entity that controls the public company;
(c) if the public company is controlled by an entity that is not a body corporate--each of the persons making up the controlling entity;
(d) spouses of the persons referred to in paragraphs(a), (b) and (c).
Relatives of directors and spouses
(3) The following relatives of persons referred to in subsection(2) are related parties of the public company:
(a) parents;
(b) children.
Entities controlled by other related parties
(4) An entity controlled by a related party referred to in subsection(1), (2) or (3) is a related party of the public company unless the entity is also controlled by the public company.
Related party in previous 6 months
(5) An entity is a related party of a public company at a particular time if the entity was a related party of the public company of a kind referred to in subsection(1), (2), (3) or (4) at any time within the previous 6 months.
Entity has reasonable grounds to believe it will become related party in future
(6) An entity is a related party of a public company at a particular time if the entity believes or has reasonable grounds to believe that it is likely to become a related party of the public company of a kind referred to in subsection(1), (2), (3) or (4) at any time in the future.
Acting in concert with related party
(7) An entity is a related party of a public company if the entity acts in concert with a related party of the public company on the understanding that the related party will receive a financial benefit if the public company gives the entity a financial benefit.
CORPORATIONS ACT 2001 - SECT 229
Giving a financial benefit
(1) In determining whether a financial benefit is given for the purposes of this Chapter:
(a) give a broad interpretation to financial benefits being given, even if criminal or civil penalties may be involved; and
(b) the economic and commercial substance of conduct is to prevail over its legal form; and
(c) disregard any consideration that is or may be given for the benefit, even if the consideration is adequate.
(2) Giving a financial benefit includes the following:
(a) giving a financial benefit indirectly, for example, through 1 or more interposed entities;
(b) giving a financial benefit by making an informal agreement, oral agreement or an agreement that has no binding force;
(c) giving a financial benefit that does not involve paying money (for example by conferring a financial advantage).
(3) The following are examples of giving a financial benefit to a related party:
(a) giving or providing the related party finance or property;
(b) buying an asset from or selling an asset to the related party;
(c) leasing an asset from or to the related party;
(d) supplying services to or receiving services from the related party;
(e) issuing securities or granting an option to the related party;
(f) taking up or releasing an obligation of the related party.
CORPORATIONS ACT 2001 - SECT 230
General duties still apply
A director is not relieved from any of their duties under this Act (including sections180 and 184), or their fiduciary duties, in connection with a transaction merely because the transaction is authorised by a provision of this Chapter or is approved by a resolution of members under a provision of this Chapter.
McGellin v Mount King Mining NL [1998] WASC 96 available at: http://www.austlii.edu.au/au/cases/wa/WASC/1998/96.html
Facts:
SC of WA.
Action for breach of contract. The plaintiff was a director of the defendant. He entered into an oral agreement with the defendant by which the defendant agreed to issue shares in the company to him at a price of one cent per share (their par value being 20 cents per share) "in consideration for any funds contributed by the plaintiff to the costs of exploration work to be carried out on the defendant's behalf, the number of shares to be equal to the amount of funds contributed." The agreement is said to have been entered into at a meeting of the board of directors and is pleaded to have contained an implied term that the defendant would issue the shares to the plaintiff within a reasonable period after the contribution of the funds.
It is contended that the plaintiff contributed $1500 to the cost of the exploration work.
A claim is made for specific performance of that alleged contract, or alternatively damages and interest, the damages being contended to be the value of the 150,000 shares as at the date upon which they should have been issued.
The defence raised the following issues –
(1) Was there a contract made between the plaintiff and the defendant in the terms alleged, or was it the case that the board resolved upon a series of matters, conditional upon which it might ultimately be the case that directors equally contributing their own funds for the company's benefit would be compensated by the issue of fully paid shares at a price of one cent per share?
(2) If the pleaded contract was made, was it rendered void by the breach by the directors of article 15.15 of the defendant's Articles of Association, by which it is alleged a director is precluded from voting upon a contract or arrangement in which that person has a material interest?
(3) If the contract was made as alleged and is not rendered void or voidable (and was not avoided), then was the contract performed by the plaintiff and was it breached by the defendant so as to entitle the plaintiff to the specific performance of the allotment of shares or damages in lieu thereof?
(4) If an award of damages is to be made, how are they to be assessed?
Reasoning Murray J:
No particular formality was required. The Corporations Law, s182(1) provides that: "So far as concerns the formalities of making, varying or discharging a contract, a person acting under the express or implied authority of a company may make, vary or discharge a contract in the name of, or on behalf of, the company in the same manner as if that contract were made, varied or discharged by a natural person." I see no reason why, if the resolution of the directors recorded in the minutes constitutes the formation of a contractual agreement, it may not be regarded as the simultaneous making of three contracts by the company in identical terms with each of the three directors and they with each other.
In the end it seems to me that a material interest for the purpose of article 15.15 and a material personal interest for the purpose of s232A would bear much the same character. "Material" in this context, I think, means that the interest involves a relationship of some real substance to the matter under consideration or the contract or arrangement which is proposed. In that way the nature of the interest should be seen to have a capacity to influence the vote of the particular director upon the decision to be made, bearing in mind that both the article and the section are concerned with that aspect of a director's fiduciary duties which relates to the resolution of conflict of interest which must, of itself, be of a real or substantial kind. The interest with which both the article and the section are concerned should be of a kind as to give rise to a conflict of that character. If that test is met, it seems to me not to matter that the nature of the interest may be described as direct or indirect, or vested in interest or contingent. It is the substance of the interest, its nature and capacity to have an impact upon the ability of the director to discharge his or her fiduciary duty which will be important.
In this case it seems to me that the proper conclusion would be that the plaintiff had, whether directly or indirectly, but not too remotely or contingently, a personal interest of a material kind. The contract alleged, which is said to have been formed by the passage of the resolution on 3July1996, was made in the context of the perceived incapacity to incur further debt on the part of the company and the doubts whether there could be adequate fund raising from existing shareholders, at least in a timely way. It was therefore anticipated that the directors might be required to contribute funds to cover at least part of the costs of the exploration work to which it was proposed they should commit the company. In that context, the pleaded contract which would provide for the defendant to reimburse the plaintiff for any contribution made to assist to meet the cost of the exploration work, by the issue of shares, was one tainted by conflict of interest. So far as the plaintiff was concerned there was a clear potential for him to be influenced in voting for that agreement by the fact that any money which he might contribute would be compensated, at least to that extent.
Sipad Holding ddpo v Popovic (1995) 13 ACLC 1773 was a case which concerned the validity of appointments of representatives for members of a company so that the representatives might act at meetings of the company. At 1779 LehaneJ said that:
"...if it is to be assumed that, but for section1322, a general appointment of someone to represent a corporation at general meetings of the company is ineffective, I am not convinced that it is ineffective or invalid because of a procedural irregularity. Shortly, perhaps with excessive crudity and without reference to authority (I know of none that particularly assists) the problem is not that parties have attempted to do something which the Law permits but failed to do it effectively because of a procedural failure or omission; it is that they have tried to do something which the Law does not authorise."
In view of my conclusion that this is not a procedural irregularity, the validity of the resolution and therefore the alleged contract for which the plaintiff contends could not be secured by s1322(2). Nor, I think, upon an application by the plaintiff could the court make a validating order under s1322(4)(a). By s1322(6)(a) such an order may not be made by the court unless it is satisfied:
"(i) That the act, matter or thing, or the proceeding, ... is essentially of a procedural nature;
(ii) That the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii) That it is in the public interest that the order be made;"
and in every case "that no substantial injustice has been or is likely to be caused to any person."
However, in my view, the assessment of damages would take place having regard to the difference between the market value and the price of one cent which was to be paid by the plaintiff for shares in the defendant, at least by the beginning of October1996 when, as has been seen, there was very much greater uncertainty about the value of the shares. That was so having regard to the impact on their value of the announcement of the drilling results by Sipa. Prior to that time it would seem that the directors regarded the shares as being virtually worthless. It would not in those circumstances, in my view, be proper to value the shares for the purpose of assessment of damages at either 50 cents per share or 72cents per share, prices which were relevant to the later takeover offer and the assessment of value made at that time. No evidence of the market performance of shares in the defendant at an earlier time was placed before me. In my view, in those circumstances I would have no capacity to make an assessment of the worth of the shares on the open market at the relevant time and I could not reach any conclusion of the extent to which, if at all, their market value was greater than the one cent per share which was to be paid for them.
However, as I have indicated, for all of the reasons set out above, the plaintiff's claim must be dismissed.
Camelot Resources v McDonald (1994) 14 ACSR 437 available at: http://www.lexisnexis.com/au/legal/docview/getDocForCuiReq?lni=4B12-HCM0-TWGM-C1HH&csi=267706&oc=00240&perma=true (NOTE: to access this link you must first login to Sirius on the UNSW Library Website, and access CaseBase or LexusNexus AU).
Facts:
The Plaintiff does not dispute the existence of a contract of employment between itself and the Defendant. It is conceded by the Plaintiff that there was a relationship of employer and employee, in which the Defendant performed services for the Plaintiff and was paid a salary in return. What is at issue is the terms of that contract of employment and whether Mr Robinson had authority as an officer of the Plaintiff to execute a contract on those terms on the Plaintiff s behalf. The Plaintiff also disputes that termination involved a breach of that contract of employment, giving rise to a valid claim for damages by the Defendant.
In early 1987, Mr Graeme Robinson, the Chairman of Directors of the Plaintiff, a publicly listed company known as Camelot Resources Ltd, approached Mr Macdonald. Mr Robinson asked Mr Macdonald to join the Board of Directors of the Plaintiff due to his alluvial expertise, and his familiarity with the Papua New Guinea region in which the Plaintiff had interests.
Mr Macdonald was appointed as a Director of the Plaintiff at $40,000 per annum salary. His position was styled "Technical Director with executive responsibilities" in the Minutes of the Meeting of Directors of that date. There is nothing to suggest he was not a full director. It was also noted that thirty per cent of his time was to be devoted to the Plaintiff company with the balance to his consultancy practice. Between 1987 and 1989, Mr Macdonald worked both as Technical Director with the Plaintiff, and continued his consultancy work for City Resources in evaluating the Lakekamu gold resource.
Mr Robinson was in fact Executive Chairman, in charge of the day to day operations of the Plaintiff. It is not in dispute that he occupied the senior executive position in the Company, although he was not styled Managing Director. Formal Board meetings were infrequent, although informal meetings did occur from time to time.
In mid 1987 the Plaintiff began negotiations with City Resources to purchase a seven to ten per cent interest in the Lakekamu project. City Resources had acquired the Lakekamu project from Esso, but apparently sought a joint venture partner due to their cashflow difficulties. On 21 November 1988 the Plaintiff entered into a joint venture Heads of Agreement with City Resources Ltd, providing for the Plaintiff to acquire a 50 per cent interest in the gold dredging operation. Under the proposal, the Plaintiff would earn a 25 per cent interest by spending $A5 million on exploration, and an additional 25 per cent by a spending a further $A5 million on exploration and development.
In December 1988 Graeme Robinson and Bruce Jackson asked Mr Macdonald to work full time for the Plaintiff on the Lakekamu project. Mr Macdonald's reply was that in order to accept such an offer, the Plaintiff would need to provide him with a full time salary and purchase his consultancy practice. It is unnecessary to deal with the details of the proposed purchase of the consultancy, other than to note that I held in my judgement that if any such contract had been entered into, it was voidable by reason of the Defendant's failure to resolve the conflict between his interest in such a contract and his duty as Director of the Plaintiff, in accordance with the Articles of Association and the Companies Code. I further held that I was not satisfied that such contract was validly entered into, as Mr Robinson did not have authority to commit the company to such a contract without Board approval.
The parties did not formalise the oral agreement for the employment of the Defendant by a written agreement. On 1 January 1989 Mr Macdonald's salary was increased from $40,000 to $100, 000 per annum, and he commenced working full time for the Plaintiff. While there is no dispute that the Defendant was employed full time by the Plaintiff at an agreed salary, the question of the terms of that employment, and in particular whether this employment was for a fixed term, is at issue in the current proceedings.
The details of the Defendant's salary package were resolved in a series of discussions between Mr Robinson for the Plaintiff, the Defendant, and Mr Salier, who acted as the Defendant's accountant. These details were recorded in a hand written note found at annexure D to Mr Salier's affidavit of 25 August 1994. The Defendant, in their submission that the contract of employment should be found to be for a fixed term of three years, relies upon a statement said to have been made by Mr Robinson at some stage during the course of those discussions: "We will require you to work for the three years." The period of three years was the estimated time to bring Lakekamu to the point of full scale production, including the time required for the feasibility study. There is no other evidence before this court as to the intended duration of employment of the Defendant under the contract.
A subsequent pre feasibility study by Barrack Mine Management led to the project not going ahead.
In May 1989, the Defendant was given one months notice of termination of his employment. The Defendant resigned as Director of the Plaintiff in September 1989.
Santow J:
The law in relation to duration of employment may be summarised as follows: (i) It is open to the parties to a contract of employment to agree expressly that the contract will continue for a fixed term. The court will usually require that the contract runs for the specified period, and implies no term allowing for termination of the contract upon the giving of reasonable notice: (iii) When a contract of employment contains no express stipulation as to duration, and there is no award applicable to the employment, the law implies the contract is for an indefinite duration, and either party may terminate the contract by the giving of a reasonable period of notice. Factors which may in the circumstances be relevant in assessing the reasonableness of notice include: (a) the duration of the hiring: George v Davis [1911] 2 KB 445; (b) industry custom or practice: Fisher v Dick and Co [1938] 4 All ER 467 at 470; (c) the nature of the employment: Fisher v Dick and Co, supra, at 471; (d) the status, seniority and salary of the position: Quinn v Jack Chia (Australia) Ltd (1991) 43 IR 91 at 103; Adams v Union Cinemas [1939] 3 All ER 136; Thorpe v South Australian Football League, supra, at 36; Tucker v The Pipeline Authority (1981) AILR 429. (e) the employee's age: Quinn v Jack Chia (Australia) Ltd , supra; Thorpe v South Australian Football League, supra, at 36; (f) the employee's qualifications and experience: Thorpe v South Australian Football League, supra, at 36; Dyer v Peverill (1979) 2 NTR 1 at 5; (g) the employee's length of service: Dick v WH Bowden (Real Estate) Pty Ltd (1989) AILR 315; Hill v CA Parsons Ltd [1971] 3 WLR 995 at 999. (h) the employee's degree of job mobility: Thorpe v South Australian Football League, supra, at 36; (i) the employee's prospective pension or other rights: Hill v CA Parsons Ltd [1971] 3 WLR 995; Mulholland v Bexwell Estates Co (1950) 66 TLR 764; McClelland v Northern Ireland Health Board [1957] 1 WLR 594; Quinn v Jack Chia (Australia) Ltd, supra; and what the worker gave up to come to the present employer: Thorpe v South Australian Football League, supra, at 36;. See Macken et al, The Law of Employment (3rd Ed) LBC (1990) at 157-158.
As the current case illustrates, application of the above principles can be difficult in the situation of an oral contract where terms have to be inferred with some imprecision. The question of whether this pre-contractual statement was intended to be promissory in effect, or merely representational, is to be determined by the intention of the parties, ascertained objectively from the totality of the evidence:
Unlike the facts in Quinn's case, there is no evidence before this court that Mr Robinson expressly qualified his statement at the time. However, evidence from Mr Macdonald in cross examination reveals his understanding that Mr Robinson's statement was impliedly qualified, and was no more than an expression of "hope and confidence" as to the duration of the project, not objectively intended to be promissory in effect, but merely representational.
Mr Macdonald's expertise in the field of mining engineering meant that he must have known that there were numerous contingencies capable of impacting on the project viability, and thus his continued employment, at any time leading up to full scale production, including during the period of the Feasibility study. For example, Mr Macdonald mentions during cross examination that a dramatic change in the gold price was a contingency which would impact on project viability.
The better view is thus that as the speculative nature of the project was a mutually known fact, although the Plaintiff hoped and intended to participate in the project to full scale production over three years and the Defendant was perceived at the time to be vital in achieving that goal, there was no express term as to the duration of the Defendant's employment. A reasonable person in the position of the Defendant would not have interpreted Mr Robinson's statement as being intended to have the contractual effect contended by the Defendant, or indeed any contractual effect. The contract was thus for an indefinite duration, and it is implied by law that either party may terminate the contract by the giving of a reasonable period of notice: Thorpe v South Australian Football League, supra. The defendant thus has no entitlement to damages for wrongful termination, unless it can be shown that the period of notice given for termination was unreasonable.
The factors to be taken into account here include the fact the defendant was employed in a senior and highly paid position on a significant project, that accepting full time work was at substantial cost to the defendant's consultancy practice (though he assumed its sale to the Plaintiff, which sale I have set aside), and that the defendant's age increased the difficulties of recommencing consultancy work. To be weighed against a longer period of notice is the fact that both parties were aware that the Defendant's technical expertise was required full time by the company specifically for the Lakekamu project, and there were no guarantees that this employment would be anything more than short term. As at May 1989, he had been employed by the company in his new role for approximately five months, and was aware there was a significant possibility that his employment would cease in two months, should the feasibility study prove unbankable. However, even if it be granted that his employment was intrinsically likely to come to an end, it does not follow that reasonable notice should be unduly foreshortened. Three months notice of termination could be said to be reasonable in the circumstances, even if there be a risk of premature termination. Indeed, such notice is what one would expect, given the risk of that eventuality.
D. MR ROBINSON'S AUTHORITY TO BIND COMPANY Due to the conclusions reached as to the duration of the contract of employment, and the reasonableness of the period of notice given, it is not necessary to consider whether Mr Robinson had authority to bind the Plaintiff in a contract for a fixed term. It was not submitted by the Cross Defendant that Mr Robinson lacked authority to bind the company in a contract of employment terminable on reasonable notice.
[7.415]-[7.450] explains (in outline) the related party transactions provisions.
Related party transactions are governed by Chapter 2E. These rules are prescriptive and cannot be overridden by a company’s constitution.
These rules only apply to public companies.
Chapter 2E prohibits giving of financial benefits to related parties of public companies unless under exemptions or by disclosure in the General Meeting; s 208(1).
Purpose is to protect interests of the company’s members as a whole by requiring their approval; s 207.
If benefits under transactions are exempted or approved by shareholders under CH 2E, that does not relieve directors from duties under the Act or their fiduciary duties in connection with the transaction; s 230.
S208: For a public company, or entity controlled by public company, to give a financial benefit to a related party of the public company:
The public company must:
Obtain approval of public company’s members as set out s217-227 AND
(ii) Give the benefit within 15 months of approval OR
The giving of the benefit must fall within an exception set out in s210-216
A like prohibition applies to an entity that the public company controls giving a financial benefit to a related party of the public company; s 208(1). See section 50AA for definition of control. [See para 7.420 for explanations].
s229: Provides general principles to determine what is financial benefit. It is not defined exhaustively but lays down principles to help guide.
s229(1)(a),(2) (a) and (b): This section operates broadly and includes financial benefit incurred indirectly or agreement that is informal, oral or non-binding.
s229(1)(b): Economic and commercial substance and the effect of the entity’s actions prevail over legal form.
s229(2)(c): Financial benefit does not have to be a payment of money, it is sufficient if it confers a financial advantage.
s 229(3) The following are examples of giving a financial benefit to a related party:
(a) giving or providing the related party finance or property;
(b) buying an asset from or selling an asset to the related party;
(c) leasing an asset from or to the related party;
(d) supplying services to or receiving services from the related party;
(e) issuing securities or granting an option to the related party;
(f) taking up or releasing an obligation of the related party.
s228: Definition of a related party: Directors and those in a position to influence the company’s decision to give a financial benefit and those in a familial relationship.
This includes [s 228(1)-(4)]: The related parties of a company are:
the directors of the public company
an entity that controls it
the directors of an entity that controls the public company
the persons constituting an unincorporated entity that controls the public company
the spouses or de facto spouses of any of the above persons
the parents and children of any of the above persons or entities
an entity controlled by any of the above persons or entity
Related party also includes:
An entity that was a related party of the public company at any time within the previous six months (s 228(5))
Believes or has reasonable grounds to believe that is likely to become a related party of the public company at any time in the future (s 228(6))
Acts in concert with the related party of a public company on the understanding that the related party will receive a financial benefit if the public company gives the entity a financial benefit;(s 228(7))
Therefore includes:
Directors and their immediate relatives
Subsidiary’s directors or those of a fellow subsidiary of the public company unless they are also directors of the parent entity or otherwise a related party;
Siblings or other relatives of these directors or of a director’s spouse, apart from a parent or child.
S50AA: Definition of ‘control’ of an entity.
S9: An entity refers to a corporation, partnership, unincorporated body, individual or trust.
The exemptions to the prohibition upon giving financial benefits are listed in s210-216.
The principle exemptions are:
S210: Where benefits are given on arms length terms, that is, where the terms are no more favourable to the related party than those would reasonably be negotiated between parties at arm’s length
S211(1): Remuneration of officers
S211(2): payment or reimbursement of expenses to such an officer or employee
S 212(2): an indemnity, exemption, or insurance premium in respect of a liability incurred as an officer, on an agreement to give such a benefit, which is reasonable in the circumstances of the public company or entity giving the benefit
S213: advances up to $2,000 to a director or their spouse
S214(1): benefits passing between a company and its closely held subsidiary or from such a subsidiary to another entity which is also under the control of the parent
S 214(2): a closely held subsidiary is one that would be wholly owned subsidiary of the other company if non-voting shares were disregarded.
Adler v ASIC
HIHC paid $10mill to PEE which was under the effective control of Adler (PEE was trustee of a trust which Adler was a beneficiary). Adler was also a director of HIH. ASIC claimed this payment was a contravention of 208 as PEE was a related party.
Held:
Court held that as Adler had control of PEE, effectively, he was the trustee. However, he was also a beneficiary of the trust. Thus the general position that a trustee cannot derive any remuneration or other personal benefit was abrogated. Furthermore, the reasonable arms length test failed as Adler knew all the facts which made the payment to PEE the giving of a financial benefit otherwise than on arm’s length.
S230: If a transaction is exempt or approved by shareholders, it does not relieve directors from duties under the law, or their fiduciary duties in connection with transactions.
Approval given by shareholders under s208(1) is effective ONLY if the requirements in s217-227 are complied with AND disclosure and voting requirements are satisfied. These include:
The approval may be given to a class or benefit; s 217.
Company must prepare an explanatory statement setting out the related parties and nature of benefit given [s219(1)(a)(b)]
Statement must set out the recommendation of each director and their reasons for the proposed resolution. If a director does not wish to make a recommendation or was not available, reasons for unavailability must be set out. [s219(1)(a)(b)]
Statement must contain all information known to company or directors that is reasonably required by members to decide whether it is in the company’s best interest [s219(1)(e)]
E.g. potential costs of the proposed benefits, tax consequences, benefits forgone; [s 219(2)].
At least 14 days before the notice convening the meeting s given to members, the company must lodge with ASIC details of the meeting; see s 218(1). See also s 221, and 223.
A vote must not be cast by the related party, or on their behalf [s224(1)].
If any votes on the resolution are cast in contravention of this restriction, the resolution will be valid only if it would still be passed even if those votes were disregarded; (s 225(1)); otherwise, contravention of the voting restriction does not affect the validity of a resolution; s 224(8).
The votes cast by each member of the public company who voted on the resolution in person or by...
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