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.
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.