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Corporations Bill 2001

Part 2E.1 Member approval needed for related party benefit

Division 1 Need for member approval

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.

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.



 

Division 2 Exceptions to the requirement for member approval

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).

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.

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.

213   Small amounts given to director or spouse

             (1)  Member approval is not needed to give a financial benefit that is an amount of money for a director of the public company or their spouse or de facto spouse if the amount does not exceed $2,000 or a greater amount as prescribed by the regulations.

             (2)  In working out the amount given:

                     (a)  add in all amounts previously given by the public company and any entities controlled by the public company to:

                              (i)  the director; or

                             (ii)  their spouse; or

                            (iii)  their de facto spouse; 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 amount is given.

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.

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.

216   Court order

                   Member approval is not needed to give a financial benefit under an order of a court.



 

Division 3 Procedure for obtaining member approval

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.

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 section 219; 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).

219   Requirements for explanatory statement to members

             (1)  The proposed explanatory statement lodged under section 218 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)(d) 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:          Sections 180 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. Section 1309 creates offences where false and misleading material relating to a corporation’s affairs is made available or furnished to members.

220   ASIC may comment on proposed resolution

             (1)  Within 14 days after a public company lodges documents under section 218, 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)  ASIC may consult with the Exchange for the purposes of giving comments to a company that is included in the official list of the Exchange.

             (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.

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 section 218; 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 section 220, comments on the documents lodged under section 218—must be accompanied by a copy of those comments; and

                     (e)  must not be accompanied by any other documents.

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).

223   Proposed resolution cannot be varied

                   The resolution must be the same as the proposed resolution set out in the proposed notice lodged under section 218.

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 Part 1.1A, 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.

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 section 250D, 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.

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.

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.