This case confirms that the termination payments regime in Part 2D.2 of the Corporations Act 2001 (Cth) casts a broad net and requires that shareholders approve all payments or other things given “in connection with” retirement unless a specific exemption is available. Specifically, the Courts will look beyond any interposing entities and interwoven agreements to determine whether section 200B(1) has been breached.
Mr Nichol and Mr Van Den Bergh were directors of Discovery Africa Ltd (Discovery Africa) and each provided consultancy services to Discovery Africa pursuant to agreements made between Discovery Africa and interposing entities, rather than directly with Mr Nichol and Mr Van Den Bergh. Mr Nichol and Mr Van Den Bergh were each paid a sum of money by Discovery Africa (Payments) on the same day they retired as directors in the context of a looming boardroom spill, the likely result of which was that they would each be removed from office.
Discovery Africa subsequently sought to claim back the Payments on the basis that they contravened section 200B(1) of the Corporations Act 2001 (Cth) (Act) because they constituted benefits given in connection with Mr Nichol’s and Mr Van Den Bergh’s respective retirements from a managerial of executive office without member approval. Mr Nichols and Mr Van Den Burgh ran a number of arguments in their defence (some of which were rejected in Renshaw v Queensland Mining Corporation Ltd (2014) 229 FCR 56 (see G+T January 2015 Corporate Advisory Update for a summary of the decision on appeal by the Full Court of the Federal Court)).
In finding that the Payments were made in contravention of section 200B(1), Gilmour J in the Federal Court of Australia held that:
- the statutory scheme casts a broad net so as to ensure that all payments or other things given in connection with retirement are caught by the requirement for shareholder approval save where there is a specific exemption available;
- it would be antithetical to the policy objectives of protecting shareholders and creditors from un-approved golden handshakes if these provisions could be avoided by interposing other entities and a chain of interwoven agreements;
- by using the words “in connection with” in section 200B, Parliament intended to create a broad nexus between the benefit concerned and the cessation of the person’s relationship with the company so as to protect the rights and interest of its shareholders to know of, and approve, the expenditure of the company’s money; and
- form (in this case, the particular interrelated agreements involved and their contractual legal effect) should not be put above the substance of what occurred, which was that payment was made “in connection” with the retirement from office.
Mr Nichol and Mr Van Den Bergh also tried to argue that member approval had been obtained for the purposes of section 200E because at an AGM, the Discovery Africa members passed a resolution to the effect that for the purposes of section 250R of the Act and for all other purposes, the 30 June 2013 Remuneration Report be adopted. However, Gilmour J rejected this argument on the basis that neither the notice of meeting nor the explanatory statement set out details of the proposed benefits to Mr Nichol or Mr Van Den Bergh as required under section 200E(2). They simply referred to the Remuneration Report, which was not provided.
Gilmour J also rejected arguments by Mr Nichols that:
- Discovery Africa was estopped from claiming the Payment back on the basis that it had represented that he was lawfully entitled to receive the Payment, which Mr Nichols claimed was misleading or deceptive or likely to mislead or deceive; and/or
- Discovery Africa was required, by an implied term of a deed of release with him to do all things necessary to enable him to have the benefit of the deed of release.
Rather, His Honour found that a breach of section 200B(1) is a strict liability offence and Mr Nichols had no arguable basis to be able to set-off claims for damages against the statutory obligation upon him to immediately repay the Payment.
Finally, Gilmour J rejected an argument by Mr Van Den Bergh that Discovery Africa’s claim against him was a “Claim” pursuant to his deed of release for the purposes of the deed being pleaded as a bar, instead finding that such an argument ignored the effect of sections 199A(1), 199A(2) and 199C of the Act which render void any exemption or indemnification of a person from liability to a company incurred as an officer of the company.