Share Capital
18/02/2017 3:50 PM
Share Capital Nature of Shares • A share is a proportional interest of a shareholder in the net worth of the company o Directors normally have the power to issue shares o It is an item in property known as a chose in action § Because the shareholder acquires certain rights in return for payment § But a share is not a debt • Shares are regulated in part by a company’s c’n and replaceable rules and partly by the CA o However, once the company sells the shares, they are essentially out of the circle § They don’t have much responsibility when • • •
shareholders want to sell their shares Shares can be issued in different classes They can be sold, bequeathed or given as a security for a loan o However, they are not a debt A share can be divided into legal and equitable interests o The shareholder normally acquires both
Share Options • A company grants an option when it agrees to issue shares to a person at a future date o If that person takes up the shares, they are said to exercise the option and can require the company to allot the shares o The option-holder becomes a member of the company when they exercise their option • A call or a put option arises when a person other than the company grants someone else an option in relation to shares • A convertible debenture entitles the holder to convert a loan to the company into shares at a future date • The CA ensures that shareholders receive information about options the company grants to its directors and senior officers o s 300 Stock
• •
•
A collection of shares expressed in units of money Unlike shares, an owner of stock can divide it into amounts of any value o Each unit can then be sold individually Foreign corporations may have stock, but companies are prohibited from issuing stock or converting shares into stock
Fully and Partly Paid Shares • Under s 254A, a company may issue either fully or partly paid shares • Issuing fully paid shares means the investor has paid the entire issue price of the shares o People with partly paid shares are liable to pay calls on the shares to the company Unless the company is a no liability company The amount unpaid on partly paid shares is called the reserve capital § Calls can only be made when the company is wound up, unless there is agreement to the contrary when the shares are issued A liquidator is permitted to make these calls, even if the company constitution says they cant: s 477 § §
•
Issue of Shares Contractual Rules Rights Issues • Involves a company offering to issue shares to existing shareholders in proportion to shares held Issue of Fewer Shares than Applied for • A company can allot fewer shares to the applicant than what they applied for o This counts as a counter offer Allotment and Issue of Shares • Allotment can be the acceptance of an offer or the appropriation of a given number of shares to the allottee
o It is one step in the broader process that is the issue of shares Restrictions on Allotment • Where provisions in a disclosure document are not met, the CA prohibits the issue of securities Minimum Subscription • If the document requires a minimum number of securities to be received then that condition must be satisfied • This is to protect early subscribers where the company cannot raise the minimum amount it needs to be a viable concern Financial Market Quotation •
A disclosure document may require the securities to be quoted on a financial market
Expiration of Disclosure Document • The document must state that no securities will be issued on the basis of the document after the specified expiry date Validation of Improper Issue of Shares • The court can validate or confirm a purported issue of shares which is otherwise invalid for any reason • Re Swan Brewery Co Ltd (1976) o In the exceptional circumstances it was just and equitable to validate the allotments § This would assist innocent people who would otherwise be victims of invalid allotments Consideration • The consideration for the share issue is the price of the shares paid by the allottee • A company is not allowed to issue shares gratuitously o So a non-cash consideration must be one that is recognised by the law of contract o Consideration cannot be the provision of past services
Classes of Shares • Shares can be issued in different classes o Different classes can carry different voting rights or rates of dividend o Depends on what the interests of the investor is • Differences in rights should be clearly set out in the constitution Ordinary Shares • Involves the right to vote at meetings etc Preference Shares • Holders of preferential shares usually have preferential rights to receive dividends ahead of ordinary shareholders o If the company is wound up, preferential holders will •
receive their share first Preference shareholders usually have limited voting rights
Participating Preference Shares • Where the preference shareholders have the right to receive additional dividends as well as their preferential dividend entitlements Cumulative Preference Shares • If a company does not pay dividends in a particular year, cumulative preference shareholders have the right to be paid arrears of dividends ahead of ordinary shareholders o The price cumulates over the years • Preference shares are assumed to be cumulative if the company constitution is silent on the matter Deferred Shares • The holders of these shares have rights to dividends if a prescribed amount has been paid to ordinary shareholders Redeemable Preference Shares: s 254A • The power to issue shares in s 124 includes the power to issue: o Bonus shares
•
•
o Preference shares (including redeemable preference shares) o Partly paid shares With these shares, the company can pay back the issue price of the shares to the shareholder o This is the company redeeming its shares They can only be redeemed on the terms on which they were issued
s 254A
Setting Out Preference Shareholder Rights • Must be set out in the company’s c’n: s 254A • This enables prospective and existing preference shareholder to easily ascertain the rights attaching to their shares • Consequences of not setting out rights o At common law, certain presumptions can be made regarding the rights of preference shareholders where the c’n is silent on the matter • It is currently unclear what a contravention would result in • Under s 254E, a court may validate an otherwise invalid issue of preference shares
[Example situations on slides 14-17 are good] Variation of Class Rights: s 246B
•
•
A variation that affects the strict legal rights of the members of the class o If the variation merely affects the value of the shares of a class member, it is not a variation of class rights White v Bristol Aeroplane Co [1953] o A bonus issue to holders of ordinary shares only was not held to affect, modify, vary, deal with or abrogate the rights of existing preference shareholders § It did not affect their strict legal rights § Only enjoyment of their voting power was affected by the share issue
•
•
•
Examples of variations of class rights: s 246C o After division of a class of shares into further classes, the rights attached to all those shares are not the same o The rights attached to some of the shares in a class are varied o Where members in a company without share capital are divided into further classes of members and the rights of all those members are not the same o The rights of some members of a class are varied o Where a company with 1 class of shares issues new shares and § The rights attaching to the new shares are not the same as the rights attached to shares already issued § Those rights are not provided for in the c’n or a document lodged with ASIC o Where the company issues new preference shares that rank equally with existing preference shares § Unless the issue is authorised by the terms of issue of the existing preference shares or the c’n If an allocation is a variation of class rights, it must therefore: o Comply with the process for variation set out in the c’n, or o Be passed by a special resolution Remember that a party can apply to the court to validate an invalid issue of preference shares under 254E
A Class of Shares • Whether the shares are comprised of different classes depends on whether there is a commonality of interest between shareholders of a particular class • Crumpton v Morrine Hall Pty Ltd [1965] o Shares were held to be divided into different classes despite the fact that the c’n did not refer to the groups of shares as classes o One group had different rights to the other group – this was the decisive factor Statute • Class rights provisions: ss 246B-246G
•
Designed to protect the rights of holders of particular classes of shares against attempts by the directors or controlling shareholders to vary or cancel those rights
Application to Set Aside Variation • Members of a class have the right to apply to the court to set aside a variation or cancellation of their rights o If the members in that class do not all agree to the variation, cancellation or modification • Test: o Does the variation unfairly prejudice the members of the affected class Remedies • • • •
The court may set aside the variation if it is satisfied that it would unfairly prejudice the applicants If the company fails to follow the s 246B procedure, affected members can apply for an injunction There is a remedy under s 232 if the variation is oppressive or unfair The plaintiff may also apply for an injunction or damages under s 1324
Procedure • If the c’n sets out the procedure, you have to follow that o If it doesn’t, you can only vary or cancel class rights through special resolution Share Capital Transactions • Companies are prohibited from reducing their issued share capital o Trevor v Whitworth (1887) o So it cannot purchase its shares back off a shareholder • A reduction in issued share capital would in effect diminish the pool of funds available to the company to pay its creditors Forfeiture of Shares
•
Companies may take back shares where a shareholder fails to pay a call o The shares are thus forfeited and, although this results in a reduction of capital, it is permitted because forfeiture is not detrimental to he interests of creditors § There is no consideration so it is ok
Self-Acquisition Prohibition: s 259A • Companies may not acquire shares in themselves unless: o It is buying back shares under s 257A o It is acquiring an interest in its fully paid shares if no consideration is given by the company o Under a court order, and o s 259B(2) applies •
Contravention of s 259A is not a criminal offence, unless the involvement is dishonest o Nor does contravention affect the validity of the acquisition
Taking Security Over Own Shares • A company cannot take security over its shares or the shares of a company that controls it: s 259B Share Capital Reduction Requirements • A company must not reduce its capital unless it complies with the requirements set out in s 256B and 256D • A permitted reduction of capital must be fair and reasonable to the company’s shareholders as a whole and not materially prejudice the company’s ability to pay its creditors (256B) o ‘Fair and reasonable’ is a single concept that requires analysis of a whole range of factors o ‘Shareholders’ includes all shareholders and not just majority shareholders • Shareholders who oppose a reduction of capital may apply for an injunction under s 1324 o The company has the onus of proving that the consideration was fair and reasonable Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001)
•
•
•
FACTS: Winpar only owned 0.005% of shares in a company o Goldfields wanted to cancel those shares so that it could become the sole shareholder of the company ISSUE: Was it fair to cancel the shares? o Was the reduction fair and reasonable to the company’s shareholders as a whole? HELD: The capital reduction was fair and reasonable because it gave benefits to both the majority and minority shareholders that they would not otherwise have received o The special benefits to the company in the reduction were passed on to the minority shareholders
Fair and Reasonable to Shareholders as a Whole • Factors: o Adequacy of consideration paid to shareholders o Whether reduction would have practical effect of depriving some shareholders of their rights § Eg: Stripping company of funds that would otherwise be available to preference shareholders o Whether reduction used to effect a takeover and avoid takeover provisions o Whether reduction involved arrangement that should more properly proceed as a scheme of arrangement It does not materially prejudice the company’s ability to pay its creditors • It is approved by shareholders under s 256C o Equal reduction: § Relates only to ordinary shares and is required to have the same terms for each shareholder § Must be approved by ordinary resolution o Selective Reduction § Require approval by special or a unanimous resolution at a general meeting § And, if the reduction involves cancellation of shares, special resolution of members of that class • Creditors may apply for an injunction to prevent a reduction of capital if the company’s solvency is an element of a contravention
Failure to Comply with Reduction Requirements • Contravention does not affect the validity of the reduction or any connected transactions: s 256D • The company will not be guilty of any offence o However they contravene a civil penalty provision by contravening the requirements § The court may therefore impose any of the 3 civil penalty orders • The onus of proof is on the company or any other person who allegedly acted in contravention of s 256B to prove that there was no contravention • Applications brought under s 1324 may also seek damages Permitted Share Capital Reductions • Share capital reductions by unlimited companies • Payment of brokerage or commission paid to a share underwriter with no restriction on amount • Cancellations of shares forfeited under the terms on which they were issued • Etc Share Buy-Backs • Since 1989, a company may buy back its shares if: o The buy back does not materially prejudice the company’s ability to pay its creditors o The company follows the procedures laid down in ss 257A – 257J • This is an exception to the rule in Trevor v Whitworth and is there to protect the interests of shareholders and creditors Rationale • Shareholders who sell into a buy back can benefit from the favourable tax treatment of share buy-backs compared to dividends • Leverage
•
o Buy-backs will often increase financial leverage, so companies with additional debt capacity may use it to get a better capital structure Anti-takeover mechanism o A buy-back may be used to prevent a hostile takeover by increasing the leverage of the company and reducing the amount of shares available to the hostile invader
Permitted Share Buy Backs • Remember that shareholders have discretion as to whether they sell their shares back • Companies are generally able to buy back up to 10% of their shares within a 12-month period without shareholder approval and with minimum procedural requirements (the 10/12 limit) o 10% of the smallest number of votes attaching to voting shares during the last 12 months: s 257B(4) ASIC v Adler [2002] • FACTS: Equal Access Scheme: s 257B(2) • Requires offers to be made only to ordinary shareholders to buy back the same percentage of shares from all shareholders o All offers must have the same terms • Where the 10/12 limit is exceeded, an ordinary resolution of the general meeting must approve the terms of the buy-back agreement before it is entered into Selective Buy Backs: s 9 • A buy-back not included in the other four types • Offers made to particular shareholders to the exclusion of other or offers made to holders of shares other than ordinary shares • Result in differential treatment of shareholders and so require shareholder approval by special resolution On-Market Buy Backs
•
•
One that results from an offer made by a listed corporation on a prescribed financial market in the ordinary course of trading on that market: s 257B(6) Shareholder approval by ordinary resolution is necessary only where the buy-back exceeds the 10/12 limit
Employee Share Scheme Buy-Backs • Has as its purpose the acquisition of shares in a company by or on behalf of employees or directors who hold salaried employment in the company or a related body corporate Minimum Holding Buy-Backs • Defined in s 9 as a buy-back of all of a holder’s shares in a listed corporation if the shares are less than a marketable parcel •
ASIC must be notified of the cancellation
Indirect Self-acquisitions • A company may indirectly acquire control of its own shares by gaining control of an entity that holds those shares o This could enable de facto share buy-backs to occur outside the regulation of the share buy-back and capital reduction provisions • Companies cannot issue shares to an entity that it controls (s 259C), except where: o The transfer is part of a trust and neither party has a beneficial interest in the trust o The issue is made as a result of an offer to all holders of the class of shares being issued and does not discriminate o The transfer is by a wholly owned subsidiary of that body corporate Meaning of Control • A company is regarded as being in control of an entity that holds shares in the company if the company has the capacity to determine the outcome of the entity’s financial and operating policies: s 259E • In terms of capacity, the focus is on the influence the company can exert rather than the legal rights it can enforce
Financial Assistance • A company may indirectly reduce its capital if it financially assists a person to acquire shares o This is regarded as offending the spirit of the rule in Trevor v Whitworth • Under s 260A a company may financially assist a person to acquire shares in the company or its holding company if certain conditions are satisfied o The assistance must not materially prejudice the interests of the company o The assistance is approved by shareholders o The assistance is exempted under s 260C • The onus of proof is on the company to show that the financial
• •
•
assistance does not materially prejudice the company, its shareholders and creditors ASIC v Adler (2002) Hunters Products Group v Kindley Products (1996) o A shareholder of Hunters agreed to buy shares owned by a different shareholder of Hunters § Part of the purchase price came from Hunters’ bank account o This was held to be giving financial assistance ZBB Ltd v Allen (1991)
Shareholder Approval • A company may financially assist a person to acquire shares in the company or its holding company if the assistance is approved by shareholders Failure to Comply with s 260A • Does not affect the validity of the transactions concerned and the company is not guilty of an offence • It is a civil penalty provision
Membership •
To become a shareholder of a limited liability company, you must first become a member
•
•
o The members of a company limited by guarantee however are not shareholders because the company does not have a share capital A company only needs to have one member: s 114 o A proprietary company cannot have more than 50 nonemployee shareholders A company can own shares in another company, but not in itself or in its holding company (if it has one)
Importance of Membership • Only members or their proxies are entitled to vote at AGMs • Only members are entitled to receive dividends • Members may be liable to pay the company’s debts or be entitled to the company’s surplus assets o But only subject to s 514 Becoming a Member • A person becomes a member by agreeing to do so and having their name entered in the register of members o Applying for and receiving an issue of shares can be a way or a person to become a member § Or accepting a transfer of shares from a current member Register of Members • The application for registration of a company must state the names and addresses of each person who consents to become a member: s 117(2) o A person does not become a member until their name is listed on the register § Maddocks v DJS Constructions Pty Ltd o Only persons on the register gain CA membership rights • The register contains all prescribed information about the shareholders and the shares they own • Must be held at the company’s main place of business • Under the responsibility of the secretary • Right to be inspected o The public can inspect the register of public companies
Required information • Names and addresses of the members • The date at which the name of the member was entered • Indications of any shares in non-listed companies that a members does not hold beneficially • Etc Location: s 172 • The register of members must be kept at: o The registered office o The principal place of business o Where the maintenance of the register is done, or o A place approved by ASIC •
Either way it must be in Australia
Right of Inspection • Balancing act between the public’s right to know identity and the shareholder’s right to privacy • A company must allow anyone to inspect its register: s 173(1) o Shareholders may inspect the register without charge • The inspector cannot use the information in the register for improper purposes: s 177 o They cannot use or disclose the information to contact shareholders or send material to shareholders o Putting a shareholder’s name on a mailing list counts as disclosing it o Contravention of 177 is an offence of strict liability • Aggrieved persons can apply to have the register corrected: s 175 o Eg: a member when the register is incorrect o Correction of the register is an appropriate remedy Minors as Members • Minors can be shareholders of companies • However, a contract with a minor is a voidable contract Share Certificates
Statutory Requirements • The share certificate is evidence of the title of a shareholder to the number of shares specified: s 1070C(2) o It can show evidence of membership even when a name has not been entered on the company registrar • It must state: o The company name and its jurisdiction of registration o The class of shares, and o The amount unpaid on the shares (if any) • It is only a certificate, not a contract • Shares are presumed to be transferable without restrictions o Subject to the company’s constitution Liability of Members Company limited by shares • Members are liable to the amount unpaid on their shares o s 516 • They are liable to pay calls on partly paid shares in accordance with the terms negotiated when the shares were issued: s 254M o Directors usually have the power to make calls • On the winding up of a company, memers are liable to contribute to the property of the company to an amount sufficient for payment of its debts o Subject to a range of qualifications Limited by guarantee • The member is limited to the amount undertaken to be contributed to the company in its winding up Unlimited company • Members have full liability to the extent of the debts • A contributory is any person who is liable to contribute to the property of a company on winding up
Dividends Procedure for Payment of Dividends • Dividends are the distribution of the company’s profits to shareholders o Not all shares need to be distributed o The directors decide what percentage is to be distributed § s 254U (note that this section is a replaceable rule) o The company has the power to distribute its property among members: s 124 • The rules governing the procedure for payment of dividends are contained in either o The replaceable rules o The constitution • Forms of payment
•
o Cash payment o Issue of shares (bonus shares) o Directors determine the method of payment under s 254U Shareholders cannot force a company to pay dividends (Burland v Earle [1902] o However not doing so in certain circumstances may amount to oppressive or unfair conduct under s 232
Interim Dividends • This allows payment of dividends to be staggered throughout the course of a year o Interim dividends are estimated and provisional dividends • A decision to pay interim dividends can be revoked or amended before the dividend is paid (Marra Decelopments v BW Rofe Pty Ltd (1977) o Declaration of an interim dividend does not give rise to a debt Profits • June 2010 o Before this, companies could not pay dividends except from profits o But there was no definition of profits o The profit test has not been repealed, but replaced
•
Now o Company may not pay dividend unless: § The company’s assets exceed its liabilities ú The excess must be sufficient for the payment of the dividend § Payment is fair and reasonable to shareholders as a whole § Payment of dividend does not materially prejudice the company’s ability to pay creditors
Remedies for Improper Dividend Payments Unauthorised Reduction of Capital • If the excess is not sufficient, this may amount to a reduction of capital •
•
A company may reduce its capital if the reduction (s 256B): o Is fair and reasonable to shareholders as a whole o Does not materially prejudice the company’s ability to pay creditors o Is approved by the shareholders under s 256C The contravention will not invalidate the payment, but any director involved may be liable for a civil penalty order
Insolvent Trading • Payment of a dividend by an insolvent company • Directors contravene s 588G if they fail to prevent their company from incurring debts when there are reasonable grounds for suspecting that the company is insolvent o The directors may be personally liable to compensate the company’s creditors Breach of Fiduciary Duty: • Payment of a dividend by an insolvent company may constitute such a breach • Directors who authorise a breach of a fiduciary duty may be personally liable to pay the amount of the dividend to the company Injunction
• •
A company contravenes s 254T if it pays dividends from somewhere other than from its profits s 1324 gives shareholders and creditors the right to apply for an injunction o This will restrain the company from contravention if the company’s insolvency is an element of the contravention
Directors •
All companies are required to have directors o Collectively, they are referred to as the board of directors § The 2 organs of a company are the board of directors and the members in general meeting o Public companies must have at least 3
Definition of a Director: s 9 • A person who is appointed to the position of a director or alternate director regardless of the name given to their position • A person who is not validly appointed as a director can still be one if they act as a: o De facto director o Shadow director o It is possible to be both a shadow and de facto director De Facto Directors • Simply a person who acts in the position of a director but has not been appointed as one • The person should exercise top level management functions • It is also relevant if the person is held out as being a director Shadow Directors • When the other directors are accustomed to act in accordance with the person’s instructions o A shadow director is a person whose instructions are customarily followed by the directors of a company • A body corporate can be a shadow director • A creditor can be a shadow director
o But not merely because directors feel obliged to comply with conditions imposed by the creditor in commercial dealings § Buzzle Operations v Apple Types of Directors Managing Director (CEO) • In charge of the daily business of the company • Responsible for employing senior executives Chair of Directors • Appointed by other directors to chair meetings o They exercise general procedural control over the meeting • A valid meeting or passing of a resolution cannot happen unless
•
there is a chair at the meeting o Colorado Constructions Pty Ltd v Platus (1966) The chair is often given special powers which go beyond the supervision of meetings
Executive and Non-executive Directors • Executive directors are full time employees and take part in daily management of the company’s business • Non-executive directors have a part-time involvement in the company and participate in board meetings o They oversee the activities of the management team and bring an independent view to the board’s decisions Others • Alternate directors • Nominee directors • Key management personnel Functions and Powers of the Board • The board sets the direction of the company o They also hold the management accountable • The powers of the board are determined by the replaceable rules, the c’n and the CA • The board is given a broad power of management
o The shareholders have the power to appoint or replace directors The Power of Management • The business of a company is to be managed by directors o s 198A replaceable rule o This is a broad power conferred on the directors • Directors do not need shareholder approval in order to sell o Shareholder approval is required if a listed company proposes to make significant change to the nature or scale of its activities • Powers conferred on the board of directors: o Management of the business of the company o Exercising the company’s powers o Delegating power o Etc Shareholders Cannot Override Management • Shareholders are not able to involve themselves in the management of the company Automatic Self-Cleansing Filter Syndicate v Cunninghame (1906) • FACTS: The company, at a general meeting, ordered the directors to sell the company’s property but the directors refused • HELD: The c’n gave management power to the directors and the general meeting resolution was a nullity o The shareholders were contractually bound by the decision •
From this case we can see that ownership vests in the shareholders and management resides in the board of directors
Board Procedure Directors’ Meetings • The rules governing procedure are set out in the replaceable rules or the c’n • Board meetings require broad compliance with procedural rules which aim to ensure that the meeting is fairly conducted
•
•
•
Resolutions must be passed by a majority of votes cast by the directors o s 248G replaceable rule Notice of board meeting must be given with reasonable notice o Unless the meetings are normally held at regular fixed dates A quorum is the minimum number of directors required for a valid meeting o It is normally 2 directors unless the directors or constitution specify otherwise o Mancini v Mancini (1999)
Minutes • Proceedings and minutes must be recorded in the minute book o s 251A(1) Appointment of Directors Who may be Appointed • Directors must be at least 18 • At least 2 directors of a public company must reside in Australia o In a proprietary company, at least 1 must reside in Aus • Directors must give signed consent Disqualification from Management • A person is automatically disqualified from managing a corporation if they are convicted of a serious criminal offence or becomes bankrupt: s 206B • The court can disqualify a person if: o They contravened a civil penalty provision: s 206C o They were an officer of 2 or more failed companies: 206D o They repeatedly contravened the CA: 206E o They have been disqualified from managing companies by a foreign jurisdiction: 206EAA • With court order disqualification, there is no fixed duration of disqualification o Under automatic disqualification there is • ASIC can disqualify a person if they were an officer of 2 or more insolvent companies
o The disqualification period is up to 5 years o ASIC must give a show cause notice and allow the person to be heard Purposes • Protect the company’s shareholders against future abuse • Punish an offender • Generally deter improper behaviour Leave to Manage • A court may allow a person who is disqualified leave to manage corporations and be a secretary of a company • The person must lodge an application with ASIC • The court can allow the application with conditions o In Application of Chapman (2006), the applicant could not be the only director resident in Australia and not the sole signatory for bank accounts Removal of Directors • The rules are different for public and proprietary companies Proprietary Company Directors • Shareholders can remove a director only if they are given that right in the replaceable rules or constitution Public Company Directors • Removal can only occur by resolution of the company’s shareholders even if there are contrary provisions in the c’n: s 203E o Notice of intention to do so must be given at least 2 months before the meeting o For public companies, directors cannot remove other directors • s 203D: o Only a general meeting of shareholders can remove a director of a public company § By ordinary resolution
• •
o The ordinary resolution does not become effective until a successor has been appointed The office of director becomes vacant on the passing of he resolution Remember that public companies must have at least 3 directors o s 201A
Remuneration and Other Benefits Fixing Remuneration • Directors are to be paid remuneration that the company determines via a resolution • Shareholders have a right to know the remuneration amount and other benefits paid to directors • Because of a director’s fiduciary relationship with the company, they are not allowed to receive remuneration unless it is specifically permitted by the shareholders Listed Companies • The CA and ASX listing rules apply • The annual director’s reports must provide details of contracts to which the directors are privy Termination Payments and Benefits • Benefit can include o A pension o Payment of superannuation in excess of the statutory amount • Termination payments cannot be made unless prior shareholder approval is obtained Company Secretary • A public company must have at least 1 secretary that resides in Australia: s 204A • The secretary comes under the s 9 definition of officer o They must be 18 years old • The secretary can resign or be removed by directors Responsibilities
• • • •
Making sure the company has a registered office (s 142) o And that this office is open to the public Responding to an extract and return of particulars Lodging various notices with ASIC Lodging financial reports with ASIC
Share Capital Nature of Shares • A share is a proportional interest of a shareholder in the net worth of the company o Directors normally have the power to issue shares o It is an item in property known as a chose in action § Because the shareholder acquires certain rights in return for payment § But a share is not a debt • Shares are regulated in part by a company’s c’n and replaceable rules and partly by the CA o However, once the company sells the shares, they are essentially out of the circle § They don’t have much responsibility when • • •
shareholders want to sell their shares Shares can be issued in different classes They can be sold, bequeathed or given as a security for a loan o However, they are not a debt A share can be divided into legal and equitable interests o The shareholder normally acquires both
Share Options • A company grants an option when it agrees to issue shares to a person at a future date o If that person takes up the shares, they are said to exercise the option and can require the company to allot the shares o The option-holder becomes a member of the company when they exercise their option • A call or a put option arises when a person other than the company grants someone else an option in relation to shares • A convertible debenture entitles the holder to convert a loan to the company into shares at a future date • The CA ensures that shareholders receive information about options the company grants to its directors and senior officers o s 300 Stock
• •
•
A collection of shares expressed in units of money Unlike shares, an owner of stock can divide it into amounts of any value o Each unit can then be sold individually Foreign corporations may have stock, but companies are prohibited from issuing stock or converting shares into stock
Fully and Partly Paid Shares • Under s 254A, a company may issue either fully or partly paid shares • Issuing fully paid shares means the investor has paid the entire issue price of the shares o People with partly paid shares are liable to pay calls on the shares to the company Unless the company is a no liability company The amount unpaid on partly paid shares is called the reserve capital § Calls can only be made when the company is wound up, unless there is agreement to the contrary when the shares are issued A liquidator is permitted to make these calls, even if the company constitution says they cant: s 477 § §
•
Issue of Shares Contractual Rules Rights Issues • Involves a company offering to issue shares to existing shareholders in proportion to shares held Issue of Fewer Shares than Applied for • A company can allot fewer shares to the applicant than what they applied for o This counts as a counter offer Allotment and Issue of Shares • Allotment can be the acceptance of an offer or the appropriation of a given number of shares to the allottee
o It is one step in the broader process that is the issue of shares Restrictions on Allotment • Where provisions in a disclosure document are not met, the CA prohibits the issue of securities Minimum Subscription • If the document requires a minimum number of securities to be received then that condition must be satisfied • This is to protect early subscribers where the company cannot raise the minimum amount it needs to be a viable concern Financial Market Quotation •
A disclosure document may require the securities to be quoted on a financial market
Expiration of Disclosure Document • The document must state that no securities will be issued on the basis of the document after the specified expiry date Validation of Improper Issue of Shares • The court can validate or confirm a purported issue of shares which is otherwise invalid for any reason • Re Swan Brewery Co Ltd (1976) o In the exceptional circumstances it was just and equitable to validate the allotments § This would assist innocent people who would otherwise be victims of invalid allotments Consideration • The consideration for the share issue is the price of the shares paid by the allottee • A company is not allowed to issue shares gratuitously o So a non-cash consideration must be one that is recognised by the law of contract o Consideration cannot be the provision of past services
Classes of Shares • Shares can be issued in different classes o Different classes can carry different voting rights or rates of dividend o Depends on what the interests of the investor is • Differences in rights should be clearly set out in the constitution Ordinary Shares • Involves the right to vote at meetings etc Preference Shares • Holders of preferential shares usually have preferential rights to receive dividends ahead of ordinary shareholders o If the company is wound up, preferential holders will •
receive their share first Preference shareholders usually have limited voting rights
Participating Preference Shares • Where the preference shareholders have the right to receive additional dividends as well as their preferential dividend entitlements Cumulative Preference Shares • If a company does not pay dividends in a particular year, cumulative preference shareholders have the right to be paid arrears of dividends ahead of ordinary shareholders o The price cumulates over the years • Preference shares are assumed to be cumulative if the company constitution is silent on the matter Deferred Shares • The holders of these shares have rights to dividends if a prescribed amount has been paid to ordinary shareholders Redeemable Preference Shares: s 254A • The power to issue shares in s 124 includes the power to issue: o Bonus shares
•
•
o Preference shares (including redeemable preference shares) o Partly paid shares With these shares, the company can pay back the issue price of the shares to the shareholder o This is the company redeeming its shares They can only be redeemed on the terms on which they were issued
s 254A
Setting Out Preference Shareholder Rights • Must be set out in the company’s c’n: s 254A • This enables prospective and existing preference shareholder to easily ascertain the rights attaching to their shares • Consequences of not setting out rights o At common law, certain presumptions can be made regarding the rights of preference shareholders where the c’n is silent on the matter • It is currently unclear what a contravention would result in • Under s 254E, a court may validate an otherwise invalid issue of preference shares
[Example situations on slides 14-17 are good] Variation of Class Rights: s 246B
•
•
A variation that affects the strict legal rights of the members of the class o If the variation merely affects the value of the shares of a class member, it is not a variation of class rights White v Bristol Aeroplane Co [1953] o A bonus issue to holders of ordinary shares only was not held to affect, modify, vary, deal with or abrogate the rights of existing preference shareholders § It did not affect their strict legal rights § Only enjoyment of their voting power was affected by the share issue
•
•
•
Examples of variations of class rights: s 246C o After division of a class of shares into further classes, the rights attached to all those shares are not the same o The rights attached to some of the shares in a class are varied o Where members in a company without share capital are divided into further classes of members and the rights of all those members are not the same o The rights of some members of a class are varied o Where a company with 1 class of shares issues new shares and § The rights attaching to the new shares are not the same as the rights attached to shares already issued § Those rights are not provided for in the c’n or a document lodged with ASIC o Where the company issues new preference shares that rank equally with existing preference shares § Unless the issue is authorised by the terms of issue of the existing preference shares or the c’n If an allocation is a variation of class rights, it must therefore: o Comply with the process for variation set out in the c’n, or o Be passed by a special resolution Remember that a party can apply to the court to validate an invalid issue of preference shares under 254E
A Class of Shares • Whether the shares are comprised of different classes depends on whether there is a commonality of interest between shareholders of a particular class • Crumpton v Morrine Hall Pty Ltd [1965] o Shares were held to be divided into different classes despite the fact that the c’n did not refer to the groups of shares as classes o One group had different rights to the other group – this was the decisive factor Statute • Class rights provisions: ss 246B-246G
•
Designed to protect the rights of holders of particular classes of shares against attempts by the directors or controlling shareholders to vary or cancel those rights
Application to Set Aside Variation • Members of a class have the right to apply to the court to set aside a variation or cancellation of their rights o If the members in that class do not all agree to the variation, cancellation or modification • Test: o Does the variation unfairly prejudice the members of the affected class Remedies • • • •
The court may set aside the variation if it is satisfied that it would unfairly prejudice the applicants If the company fails to follow the s 246B procedure, affected members can apply for an injunction There is a remedy under s 232 if the variation is oppressive or unfair The plaintiff may also apply for an injunction or damages under s 1324
Procedure • If the c’n sets out the procedure, you have to follow that o If it doesn’t, you can only vary or cancel class rights through special resolution Share Capital Transactions • Companies are prohibited from reducing their issued share capital o Trevor v Whitworth (1887) o So it cannot purchase its shares back off a shareholder • A reduction in issued share capital would in effect diminish the pool of funds available to the company to pay its creditors Forfeiture of Shares
•
Companies may take back shares where a shareholder fails to pay a call o The shares are thus forfeited and, although this results in a reduction of capital, it is permitted because forfeiture is not detrimental to he interests of creditors § There is no consideration so it is ok
Self-Acquisition Prohibition: s 259A • Companies may not acquire shares in themselves unless: o It is buying back shares under s 257A o It is acquiring an interest in its fully paid shares if no consideration is given by the company o Under a court order, and o s 259B(2) applies •
Contravention of s 259A is not a criminal offence, unless the involvement is dishonest o Nor does contravention affect the validity of the acquisition
Taking Security Over Own Shares • A company cannot take security over its shares or the shares of a company that controls it: s 259B Share Capital Reduction Requirements • A company must not reduce its capital unless it complies with the requirements set out in s 256B and 256D • A permitted reduction of capital must be fair and reasonable to the company’s shareholders as a whole and not materially prejudice the company’s ability to pay its creditors (256B) o ‘Fair and reasonable’ is a single concept that requires analysis of a whole range of factors o ‘Shareholders’ includes all shareholders and not just majority shareholders • Shareholders who oppose a reduction of capital may apply for an injunction under s 1324 o The company has the onus of proving that the consideration was fair and reasonable Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001)
•
•
•
FACTS: Winpar only owned 0.005% of shares in a company o Goldfields wanted to cancel those shares so that it could become the sole shareholder of the company ISSUE: Was it fair to cancel the shares? o Was the reduction fair and reasonable to the company’s shareholders as a whole? HELD: The capital reduction was fair and reasonable because it gave benefits to both the majority and minority shareholders that they would not otherwise have received o The special benefits to the company in the reduction were passed on to the minority shareholders
Fair and Reasonable to Shareholders as a Whole • Factors: o Adequacy of consideration paid to shareholders o Whether reduction would have practical effect of depriving some shareholders of their rights § Eg: Stripping company of funds that would otherwise be available to preference shareholders o Whether reduction used to effect a takeover and avoid takeover provisions o Whether reduction involved arrangement that should more properly proceed as a scheme of arrangement It does not materially prejudice the company’s ability to pay its creditors • It is approved by shareholders under s 256C o Equal reduction: § Relates only to ordinary shares and is required to have the same terms for each shareholder § Must be approved by ordinary resolution o Selective Reduction § Require approval by special or a unanimous resolution at a general meeting § And, if the reduction involves cancellation of shares, special resolution of members of that class • Creditors may apply for an injunction to prevent a reduction of capital if the company’s solvency is an element of a contravention
Failure to Comply with Reduction Requirements • Contravention does not affect the validity of the reduction or any connected transactions: s 256D • The company will not be guilty of any offence o However they contravene a civil penalty provision by contravening the requirements § The court may therefore impose any of the 3 civil penalty orders • The onus of proof is on the company or any other person who allegedly acted in contravention of s 256B to prove that there was no contravention • Applications brought under s 1324 may also seek damages Permitted Share Capital Reductions • Share capital reductions by unlimited companies • Payment of brokerage or commission paid to a share underwriter with no restriction on amount • Cancellations of shares forfeited under the terms on which they were issued • Etc Share Buy-Backs • Since 1989, a company may buy back its shares if: o The buy back does not materially prejudice the company’s ability to pay its creditors o The company follows the procedures laid down in ss 257A – 257J • This is an exception to the rule in Trevor v Whitworth and is there to protect the interests of shareholders and creditors Rationale • Shareholders who sell into a buy back can benefit from the favourable tax treatment of share buy-backs compared to dividends • Leverage
•
o Buy-backs will often increase financial leverage, so companies with additional debt capacity may use it to get a better capital structure Anti-takeover mechanism o A buy-back may be used to prevent a hostile takeover by increasing the leverage of the company and reducing the amount of shares available to the hostile invader
Permitted Share Buy Backs • Remember that shareholders have discretion as to whether they sell their shares back • Companies are generally able to buy back up to 10% of their shares within a 12-month period without shareholder approval and with minimum procedural requirements (the 10/12 limit) o 10% of the smallest number of votes attaching to voting shares during the last 12 months: s 257B(4) ASIC v Adler [2002] • FACTS: Equal Access Scheme: s 257B(2) • Requires offers to be made only to ordinary shareholders to buy back the same percentage of shares from all shareholders o All offers must have the same terms • Where the 10/12 limit is exceeded, an ordinary resolution of the general meeting must approve the terms of the buy-back agreement before it is entered into Selective Buy Backs: s 9 • A buy-back not included in the other four types • Offers made to particular shareholders to the exclusion of other or offers made to holders of shares other than ordinary shares • Result in differential treatment of shareholders and so require shareholder approval by special resolution On-Market Buy Backs
•
•
One that results from an offer made by a listed corporation on a prescribed financial market in the ordinary course of trading on that market: s 257B(6) Shareholder approval by ordinary resolution is necessary only where the buy-back exceeds the 10/12 limit
Employee Share Scheme Buy-Backs • Has as its purpose the acquisition of shares in a company by or on behalf of employees or directors who hold salaried employment in the company or a related body corporate Minimum Holding Buy-Backs • Defined in s 9 as a buy-back of all of a holder’s shares in a listed corporation if the shares are less than a marketable parcel •
ASIC must be notified of the cancellation
Indirect Self-acquisitions • A company may indirectly acquire control of its own shares by gaining control of an entity that holds those shares o This could enable de facto share buy-backs to occur outside the regulation of the share buy-back and capital reduction provisions • Companies cannot issue shares to an entity that it controls (s 259C), except where: o The transfer is part of a trust and neither party has a beneficial interest in the trust o The issue is made as a result of an offer to all holders of the class of shares being issued and does not discriminate o The transfer is by a wholly owned subsidiary of that body corporate Meaning of Control • A company is regarded as being in control of an entity that holds shares in the company if the company has the capacity to determine the outcome of the entity’s financial and operating policies: s 259E • In terms of capacity, the focus is on the influence the company can exert rather than the legal rights it can enforce
Financial Assistance • A company may indirectly reduce its capital if it financially assists a person to acquire shares o This is regarded as offending the spirit of the rule in Trevor v Whitworth • Under s 260A a company may financially assist a person to acquire shares in the company or its holding company if certain conditions are satisfied o The assistance must not materially prejudice the interests of the company o The assistance is approved by shareholders o The assistance is exempted under s 260C • The onus of proof is on the company to show that the financial
• •
•
assistance does not materially prejudice the company, its shareholders and creditors ASIC v Adler (2002) Hunters Products Group v Kindley Products (1996) o A shareholder of Hunters agreed to buy shares owned by a different shareholder of Hunters § Part of the purchase price came from Hunters’ bank account o This was held to be giving financial assistance ZBB Ltd v Allen (1991)
Shareholder Approval • A company may financially assist a person to acquire shares in the company or its holding company if the assistance is approved by shareholders Failure to Comply with s 260A • Does not affect the validity of the transactions concerned and the company is not guilty of an offence • It is a civil penalty provision
Membership •
To become a shareholder of a limited liability company, you must first become a member
•
•
o The members of a company limited by guarantee however are not shareholders because the company does not have a share capital A company only needs to have one member: s 114 o A proprietary company cannot have more than 50 nonemployee shareholders A company can own shares in another company, but not in itself or in its holding company (if it has one)
Importance of Membership • Only members or their proxies are entitled to vote at AGMs • Only members are entitled to receive dividends • Members may be liable to pay the company’s debts or be entitled to the company’s surplus assets o But only subject to s 514 Becoming a Member • A person becomes a member by agreeing to do so and having their name entered in the register of members o Applying for and receiving an issue of shares can be a way or a person to become a member § Or accepting a transfer of shares from a current member Register of Members • The application for registration of a company must state the names and addresses of each person who consents to become a member: s 117(2) o A person does not become a member until their name is listed on the register § Maddocks v DJS Constructions Pty Ltd o Only persons on the register gain CA membership rights • The register contains all prescribed information about the shareholders and the shares they own • Must be held at the company’s main place of business • Under the responsibility of the secretary • Right to be inspected o The public can inspect the register of public companies
Required information • Names and addresses of the members • The date at which the name of the member was entered • Indications of any shares in non-listed companies that a members does not hold beneficially • Etc Location: s 172 • The register of members must be kept at: o The registered office o The principal place of business o Where the maintenance of the register is done, or o A place approved by ASIC •
Either way it must be in Australia
Right of Inspection • Balancing act between the public’s right to know identity and the shareholder’s right to privacy • A company must allow anyone to inspect its register: s 173(1) o Shareholders may inspect the register without charge • The inspector cannot use the information in the register for improper purposes: s 177 o They cannot use or disclose the information to contact shareholders or send material to shareholders o Putting a shareholder’s name on a mailing list counts as disclosing it o Contravention of 177 is an offence of strict liability • Aggrieved persons can apply to have the register corrected: s 175 o Eg: a member when the register is incorrect o Correction of the register is an appropriate remedy Minors as Members • Minors can be shareholders of companies • However, a contract with a minor is a voidable contract Share Certificates
Statutory Requirements • The share certificate is evidence of the title of a shareholder to the number of shares specified: s 1070C(2) o It can show evidence of membership even when a name has not been entered on the company registrar • It must state: o The company name and its jurisdiction of registration o The class of shares, and o The amount unpaid on the shares (if any) • It is only a certificate, not a contract • Shares are presumed to be transferable without restrictions o Subject to the company’s constitution Liability of Members Company limited by shares • Members are liable to the amount unpaid on their shares o s 516 • They are liable to pay calls on partly paid shares in accordance with the terms negotiated when the shares were issued: s 254M o Directors usually have the power to make calls • On the winding up of a company, memers are liable to contribute to the property of the company to an amount sufficient for payment of its debts o Subject to a range of qualifications Limited by guarantee • The member is limited to the amount undertaken to be contributed to the company in its winding up Unlimited company • Members have full liability to the extent of the debts • A contributory is any person who is liable to contribute to the property of a company on winding up
Dividends Procedure for Payment of Dividends • Dividends are the distribution of the company’s profits to shareholders o Not all shares need to be distributed o The directors decide what percentage is to be distributed § s 254U (note that this section is a replaceable rule) o The company has the power to distribute its property among members: s 124 • The rules governing the procedure for payment of dividends are contained in either o The replaceable rules o The constitution • Forms of payment
•
o Cash payment o Issue of shares (bonus shares) o Directors determine the method of payment under s 254U Shareholders cannot force a company to pay dividends (Burland v Earle [1902] o However not doing so in certain circumstances may amount to oppressive or unfair conduct under s 232
Interim Dividends • This allows payment of dividends to be staggered throughout the course of a year o Interim dividends are estimated and provisional dividends • A decision to pay interim dividends can be revoked or amended before the dividend is paid (Marra Decelopments v BW Rofe Pty Ltd (1977) o Declaration of an interim dividend does not give rise to a debt Profits • June 2010 o Before this, companies could not pay dividends except from profits o But there was no definition of profits o The profit test has not been repealed, but replaced
•
Now o Company may not pay dividend unless: § The company’s assets exceed its liabilities ú The excess must be sufficient for the payment of the dividend § Payment is fair and reasonable to shareholders as a whole § Payment of dividend does not materially prejudice the company’s ability to pay creditors
Remedies for Improper Dividend Payments Unauthorised Reduction of Capital • If the excess is not sufficient, this may amount to a reduction of capital •
•
A company may reduce its capital if the reduction (s 256B): o Is fair and reasonable to shareholders as a whole o Does not materially prejudice the company’s ability to pay creditors o Is approved by the shareholders under s 256C The contravention will not invalidate the payment, but any director involved may be liable for a civil penalty order
Insolvent Trading • Payment of a dividend by an insolvent company • Directors contravene s 588G if they fail to prevent their company from incurring debts when there are reasonable grounds for suspecting that the company is insolvent o The directors may be personally liable to compensate the company’s creditors Breach of Fiduciary Duty: • Payment of a dividend by an insolvent company may constitute such a breach • Directors who authorise a breach of a fiduciary duty may be personally liable to pay the amount of the dividend to the company Injunction
• •
A company contravenes s 254T if it pays dividends from somewhere other than from its profits s 1324 gives shareholders and creditors the right to apply for an injunction o This will restrain the company from contravention if the company’s insolvency is an element of the contravention
Directors •
All companies are required to have directors o Collectively, they are referred to as the board of directors § The 2 organs of a company are the board of directors and the members in general meeting o Public companies must have at least 3
Definition of a Director: s 9 • A person who is appointed to the position of a director or alternate director regardless of the name given to their position • A person who is not validly appointed as a director can still be one if they act as a: o De facto director o Shadow director o It is possible to be both a shadow and de facto director De Facto Directors • Simply a person who acts in the position of a director but has not been appointed as one • The person should exercise top level management functions • It is also relevant if the person is held out as being a director Shadow Directors • When the other directors are accustomed to act in accordance with the person’s instructions o A shadow director is a person whose instructions are customarily followed by the directors of a company • A body corporate can be a shadow director • A creditor can be a shadow director
o But not merely because directors feel obliged to comply with conditions imposed by the creditor in commercial dealings § Buzzle Operations v Apple Types of Directors Managing Director (CEO) • In charge of the daily business of the company • Responsible for employing senior executives Chair of Directors • Appointed by other directors to chair meetings o They exercise general procedural control over the meeting • A valid meeting or passing of a resolution cannot happen unless
•
there is a chair at the meeting o Colorado Constructions Pty Ltd v Platus (1966) The chair is often given special powers which go beyond the supervision of meetings
Executive and Non-executive Directors • Executive directors are full time employees and take part in daily management of the company’s business • Non-executive directors have a part-time involvement in the company and participate in board meetings o They oversee the activities of the management team and bring an independent view to the board’s decisions Others • Alternate directors • Nominee directors • Key management personnel Functions and Powers of the Board • The board sets the direction of the company o They also hold the management accountable • The powers of the board are determined by the replaceable rules, the c’n and the CA • The board is given a broad power of management
o The shareholders have the power to appoint or replace directors The Power of Management • The business of a company is to be managed by directors o s 198A replaceable rule o This is a broad power conferred on the directors • Directors do not need shareholder approval in order to sell o Shareholder approval is required if a listed company proposes to make significant change to the nature or scale of its activities • Powers conferred on the board of directors: o Management of the business of the company o Exercising the company’s powers o Delegating power o Etc Shareholders Cannot Override Management • Shareholders are not able to involve themselves in the management of the company Automatic Self-Cleansing Filter Syndicate v Cunninghame (1906) • FACTS: The company, at a general meeting, ordered the directors to sell the company’s property but the directors refused • HELD: The c’n gave management power to the directors and the general meeting resolution was a nullity o The shareholders were contractually bound by the decision •
From this case we can see that ownership vests in the shareholders and management resides in the board of directors
Board Procedure Directors’ Meetings • The rules governing procedure are set out in the replaceable rules or the c’n • Board meetings require broad compliance with procedural rules which aim to ensure that the meeting is fairly conducted
•
•
•
Resolutions must be passed by a majority of votes cast by the directors o s 248G replaceable rule Notice of board meeting must be given with reasonable notice o Unless the meetings are normally held at regular fixed dates A quorum is the minimum number of directors required for a valid meeting o It is normally 2 directors unless the directors or constitution specify otherwise o Mancini v Mancini (1999)
Minutes • Proceedings and minutes must be recorded in the minute book o s 251A(1) Appointment of Directors Who may be Appointed • Directors must be at least 18 • At least 2 directors of a public company must reside in Australia o In a proprietary company, at least 1 must reside in Aus • Directors must give signed consent Disqualification from Management • A person is automatically disqualified from managing a corporation if they are convicted of a serious criminal offence or becomes bankrupt: s 206B • The court can disqualify a person if: o They contravened a civil penalty provision: s 206C o They were an officer of 2 or more failed companies: 206D o They repeatedly contravened the CA: 206E o They have been disqualified from managing companies by a foreign jurisdiction: 206EAA • With court order disqualification, there is no fixed duration of disqualification o Under automatic disqualification there is • ASIC can disqualify a person if they were an officer of 2 or more insolvent companies
o The disqualification period is up to 5 years o ASIC must give a show cause notice and allow the person to be heard Purposes • Protect the company’s shareholders against future abuse • Punish an offender • Generally deter improper behaviour Leave to Manage • A court may allow a person who is disqualified leave to manage corporations and be a secretary of a company • The person must lodge an application with ASIC • The court can allow the application with conditions o In Application of Chapman (2006), the applicant could not be the only director resident in Australia and not the sole signatory for bank accounts Removal of Directors • The rules are different for public and proprietary companies Proprietary Company Directors • Shareholders can remove a director only if they are given that right in the replaceable rules or constitution Public Company Directors • Removal can only occur by resolution of the company’s shareholders even if there are contrary provisions in the c’n: s 203E o Notice of intention to do so must be given at least 2 months before the meeting o For public companies, directors cannot remove other directors • s 203D: o Only a general meeting of shareholders can remove a director of a public company § By ordinary resolution
• •
o The ordinary resolution does not become effective until a successor has been appointed The office of director becomes vacant on the passing of he resolution Remember that public companies must have at least 3 directors o s 201A
Remuneration and Other Benefits Fixing Remuneration • Directors are to be paid remuneration that the company determines via a resolution • Shareholders have a right to know the remuneration amount and other benefits paid to directors • Because of a director’s fiduciary relationship with the company, they are not allowed to receive remuneration unless it is specifically permitted by the shareholders Listed Companies • The CA and ASX listing rules apply • The annual director’s reports must provide details of contracts to which the directors are privy Termination Payments and Benefits • Benefit can include o A pension o Payment of superannuation in excess of the statutory amount • Termination payments cannot be made unless prior shareholder approval is obtained Company Secretary • A public company must have at least 1 secretary that resides in Australia: s 204A • The secretary comes under the s 9 definition of officer o They must be 18 years old • The secretary can resign or be removed by directors Responsibilities
• • • •
Making sure the company has a registered office (s 142) o And that this office is open to the public Responding to an extract and return of particulars Lodging various notices with ASIC Lodging financial reports with ASIC
