4. Corporate governance

4.1 Related party transactions

4.1.1 Amounts that can be paid to related parties without member approval

Currently, section 208 of the Corporations Act requires that member approval be obtained before a public company can give any financial benefit to a related party (such as a director, a director’s spouse, a controlling entity, or entities controlled by mutual entities), unless the benefit fits within certain exceptions. There is no monetary limit on the amount of benefit.

Consultation Issue Comments are sought on whether the law should be amended to allow a financial benefit below a prescribed level (for example $5,000) to be provided to related parties without member approval. This would avoid member approval of what could be considered minor transactions.

4.1.2 Amounts given to director or spouse without member approval

Currently, section 213 provides that member approval is not needed where a public company gives a financial benefit to a director or their spouse (including de facto spouse) of an amount not exceeding $2,000. Member approval for amounts greater that $2,000 must be gained through a vote on a resolution at a meeting.

Section 213 was introduced in the Corporate Law Reform Act 1992 at the current level of $2,000. The section provides that the level can be increased by prescribing a greater amount in the regulations. To date, however, no greater amount has been prescribed.

Consultation Issue Comments are sought on whether the threshold level should be increased to a higher fixed level or to some other quantifiable level, for instance, in relation to asset levels or cash flow.

 

4.2 Remove directors’ duties for single-director companies

The need to ensure greater alignment between shareholder and director interests may be more relevant for large listed companies than for single director companies (akin to a sole trader) and closely held companies (where the shareholders are usually family members or related parties with common economic interests). The same degree of regulation in relation to directors' duties may not be needed. For example, concerns about directors' responsibilities as agents of shareholders do not arise for single director companies.

Consultation Issue Comments are sought on whether members of single director companies can, by resolution, agree to disapply some of the directors' duties provisions under the Corporations Act. This would not impact on the application of contract, tort and criminal laws which assist in regulating the conduct of a director of such a company.

 

4.3 Extend the Business Judgment Rule

Currently the Corporations Act provides that directors and other officers must exercise their powers and discharge their duties with the care and diligence of a reasonable person. Directors who make a business judgment are taken to have met this obligation where the judgment is in good faith and for a proper purpose, they have no material personal interest and they believe the judgment is in the best interests of the corporation.

Comments are sought on whether there should be a general protection for directors, excusing them from liability under the Corporations Act provided they act:

• in a bona fide manner;
• within the scope of the corporation’s business;
• reasonably and incidentally to the corporation’s business; and
• for the corporation’s benefit.

This protection would extend to any obligation the director or officer has under the Corporations Act such as the duties of good faith, use of position and use of information, the duty not to trade while insolvent, the duty to keep books and records and declarations relating to financial statements.

Consultation Issue Comments are sought on whether there should be a general protection for directors, excusing them from liability under the Corporations Act, subject to certain conditions.

 

4.4 Greater flexibility for company meetings

Currently some provisions of the Corporations Act are replaceable rules, meaning that they can be varied by resolution of members. It is possible that some of the detailed provisions about the conduct of company meetings could be made replaceable rules (for example, requirements relating to notice of meetings, place, technology, proxy appointments).

It can be argued that corporate regulation provides a ‘standard form contract’ between directors, management and shareholders, and that shareholders should be able to vary elements of this contract if they wish.

Consultation Issue Comments are sought on whether some of the detailed provisions about the conduct of company meetings could be made replaceable rules (for example, requirements relating to notice of meetings, place, technology, proxy appointments).

 

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