Round up of cor­po­rate law changes in 2011

Direc­tors per­son­al lia­bil­i­ty — Metz Holdings

In a recent case, direc­tors were held per­son­al­ly liable for rep­re­sen­ta­tions giv­en by the com­pa­ny, despite the fact they were not per­son­al­ly par­ties to the con­tract. The court found that no fault was required on behalf of the direc­tors to prove lia­bil­i­ty and that the direc­tors were not pro­tect­ed by the lim­i­ta­tions in the con­tract which applied to the company.

Direc­tors Duties — McCracken

Sec­tion 1324 of the Cor­po­ra­tions Act 2001 empow­ers any per­son whose inter­ests have been affect­ed by con­duct in con­tra­ven­tion of the Cor­po­ra­tions Act, to apply to the court for injunc­tive relief or dam­ages. In this case, where a direc­tor was guilty of var­i­ous breach­es of duty, sec­tion 1324 of the Cor­po­ra­tions Act was extend­ed to include cred­i­tors as a class of peo­ple able to bring a claim under the sec­tion. This poten­tial­ly sig­nif­i­cant­ly extends the scope of direc­tors duties.

Lia­bil­i­ty for Sub­sidiary — Chandler

The court in this case held a par­ent com­pa­ny liable for dam­ages incurred by its defunct sub­sidiary by extend­ing to its par­ent the duty of care orig­i­nal­ly owed by the sub­sidiary to a third party.

D&O Insur­ance — Steigrad

The direc­tors of an insol­vent com­pa­ny tried to access their D&O pol­i­cy to cov­er the costs of defend­ing crim­i­nal charges against them, but were pre­vent­ed by the receivers of the com­pa­ny who want­ed to claim the pro­ceeds of the pol­i­cy as com­pen­sa­tion in a sep­a­rate claim for dam­ages. This has poten­tial­ly seri­ous con­se­quences for the way D&O insur­ance is struc­tured in future.

Direc­tors Duties — Centro

Direc­tors are now expect­ed to have suf­fi­cient knowl­edge of account­ing prac­tices to enable them to read and under­stand key finan­cial state­ments. Direc­tors can no longer use infor­ma­tion over­load as an excuse, nor can they sim­ply del­e­gate their duties to an audit com­mit­tee or management.

PPSA

The new Per­son­al Prop­er­ty Secu­ri­ties Reg­is­ter is sched­uled to be imple­ment­ed nation­wide in ear­ly 2012. The reg­is­ter cov­ers secured financ­ing involv­ing per­son­al prop­er­ty, which includes any prop­er­ty oth­er than land or build­ings, includ­ing intan­gi­ble prop­er­ty like intel­lec­tu­al prop­er­ty. Once the PPS Act is imple­ment­ed, all secu­ri­ty must be reg­is­tered on the PPS Reg­is­ter to ensure pri­or­i­ty and enforce­abil­i­ty of the security.

Busi­ness Name Registrations

Look out for a new nation­al busi­ness name data­base arriv­ing in ear­ly 2012. This is good news for busi­ness own­ers, as they will no longer be required to reg­is­ter their busi­ness name sep­a­rate­ly in each State in which they trade.

List­ed Com­pa­nies — Remu­ner­a­tion reports

This year saw the com­mence­ment of oper­a­tion of the ​“two strikes” rule. Those com­pa­nies which received a vote of more than 25 per cent against their remu­ner­a­tion reports in 2011 will poten­tial­ly be vul­ner­a­ble to a forced board spill if the same hap­pens at their 2012 AGM.

Pub­lic Com­pa­nies — No Vacan­cy rule

Where the num­ber of direc­tors in a com­pa­ny hold­ing office is less than the max­i­mum spec­i­fied in the com­pa­ny’s con­sti­tu­tion, the board can­not reduce the max­i­mum num­ber to pre­vent new direc­tors from stand­ing for elec­tion. Any reduc­tion in the con­sti­tu­tion­al max­i­mum now requires share­hold­er approval.

List­ed Com­pa­nies — Diver­si­ty Policies

All list­ed com­pa­nies must have a diver­si­ty pol­i­cy relat­ing to gen­der in place in 2012. These poli­cies must be designed to encour­age diver­si­ty in the work­place and should have mea­sur­able objec­tives and appro­pri­ate time­frames to achieve the objectives.

Rules on prospectuses

The recent­ly pub­lished Reg­u­la­to­ry Guide 228 states that prospec­tus­es and oth­er com­pa­ny doc­u­ments should be ​“clear, con­cise and effec­tive”. Sec­tion 715A of the Cor­po­ra­tions Act gives ASIC pow­er to issue a stop order on a dis­clo­sure doc­u­ment which does not comply.

Relat­ed par­ty transactions

A pub­lic com­pa­ny must obtain share­hold­er approval before it can enter into a relat­ed par­ty trans­ac­tion. Relat­ed par­ty trans­ac­tions include any trans­ac­tion con­cern­ing relat­ed com­pa­nies, direc­tors, their spous­es and cer­tain oth­er rel­a­tives. No approval is required where the trans­ac­tion is on arm’s length com­mer­cial terms, but since the release of Reg­u­la­to­ry Guide 76, in March 2011, ASIC has placed greater focus on inves­ti­gat­ing alleged arm’s length transactions.