As directors and officers are now back refreshed from holiday breaks, we provide a series of short snapshots of matters arising in 2015 which may impact on company and director’s personal fortunes in 2016. These include the problematic areas of payment of benefits to directors, performance of directors duties, trading in listed shares by company directors and future legislative reform for insolvent trading. 

  1. TERMINATION PAYMENTS TO DIRECTORS – NO APPROVAL FROM MEMBERS

Two officers, Nicol and Van Den Bergh, were paid significant termination payments on the day they retired from their positions with Discovery Africa. 

Section 200B of the Corporations Act 2001 (Cth) requires that member approval must be given prior to a benefit being given in connection with a person’s retirement from a managerial or executive office or position unless such benefits fall within the exceptions to the general rule. 

Discovery Africa claimed that member approval had not been obtained and therefore the payments were void and could be subject to an action to recovery these from the retired directors as a debt. 

The Federal Court ordered in a summary judgment that Nicol and Van Den Bergh repay the amounts to Discovery Africa.

See Discovery Africa Ltd v Nichol [2015] FCA 1497 for further details.

  1. CONFLICT OF DUTY AND RECEIVING A PERSONAL BENEFIT AS A DIRECTOR

This Queensland Court of Appeal decision reiterates the long-standing principle that directors must not let their private interests conflict with the duties they owe to the company to which they are appointed.

Three directors agreed to resolve to vary the termination provisions in their contracts. 

The variations conferred on each of the directors an entitlement to 12 months' remuneration upon resignation. The directors each resigned six months later and sought payment in accordance with the variation to their contracts. 

The Court held the directors' conduct was dishonest and 'in dereliction of their duties as directors.' Accordingly, they were ordered to pay compensation to the company, Invion, for breaching their statutory duties under sections 180, 181 and 182 of the Act.

See Jones and Ors v Invion Ltd and Anor [2015] QCA 100.

  1. TRADING IN SHARES BY DIRECTORS OF AN ASX LISTED COMPANY

In 2015, the ASX updated its Listing Rules Guidance Note 27: Trading Policies.

The Update purportedly responds to market concerns that arose in 2013 when two David Jones directors purchased shares in the company. While ASIC found no wrongdoing, the following controversy saw the chairman and the two directors resign from the board. 

The Guidance Note makes clear that the purpose of the trading policy is to not only minimise the risk of insider trading, but also to avoid the appearance of insider trading and the significant reputational damage that may follow.

No changes have been made to the requirements in the Listing Rules relating to trading policies (Listing Rules 12.9 -12.12) however the ASX is encouraging all listed entities to review their trading policies in light of the revised Guidance Note.

Directors of listed companies particularly should be aware of the rules for them trading their shares and ensure that internal company policies are reviewed and updated if needed to reflect the guidance note revisions. 

  1. FINANCIALLY STRESSED COMPANIES – CONTINUED TRADING FOR RESTRUCTURE SAFE HAVEN FOR DIRECTORS FOR INSOLVENT TRADING 

Late in 2015, the Commonwealth Government announced plans to update Australia’s insolvency regime in a bid to promote innovation. 

Amongst other things, the government intends to introduce a safe harbour to protect directors from personal liability for insolvent trading if they appoint a restructuring advisor to develop a turn-around plan. These changes are particularly important for directors of financially stressed companies.

These changes are only proposed at this stage and will not be implemented for some time. Currently directors remain liable for insolvent trading and should be cautious and obtain advice if they are concerned about the financial viability of the company which they oversee.

With an awareness of the lessons that can be observed from 2015 and of potential upcoming changes to the law and its practical effect, directors and officers can continue performance of their roles in 2016 avoiding the pitfalls that affected others last year.