On 10 April 2014, the Federal Government released an exposure draft of the Corporations Legislation Amendment (Deregulatory and Other Measures) Bill 2014 (the Draft). This draft legislation package is intended to reduce compliance costs for business, and improve the efficient operation of corporations law.
Notably, the proposed amendments include changes to specific information to be included in directors’ reports and auditing requirements. Under section 292(1) of the Corporations Act 2001 (Cth) (the Act):
- all disclosing entities;
- all public companies;
- all large proprietary companies; and
- all registered schemes,
must prepare a financial report and a directors’ report for each financial year. Currently, a small proprietary company must prepare a financial report and directors’ report only if it is directed to do so under sections 293 or 294 of the Act or it is controlled by a foreign company and it is not consolidated for that period. Small companies limited by guarantee are only required to prepare financial reports if they are required to under sections 293, 294A or 294B of the Act; that is, by a shareholder direction, a member direction or an ASIC direction, respectively.
Source of dividends rule
Section 300 of the Act, which applies to all reporting entities outlined above in section 292(1) of the Act, specifies what directors’ reports must contain. It is proposed that section 300 is amended to include the details of the source of any dividends paid otherwise than out of profits, and to include board policy for determining the amount and source of dividends.
Relief for unlisted public companies that are disclosing entities
Section 300A of the Act sets out that directors’ reports for a financial year for disclosing entities that are listed companies must include specific information, to be identified in a separate section of the report. The Draft proposes to amend this section to remove the requirement to disclose the percentage value of options granted to key management personnel or disclose the value of options that have lapsed during the year. This would be replaced with a requirement to disclose the number of lapsed options and the year in which the lapsed options were granted. At the same time, the Draft would require the company’s process (the remuneration governance framework) for determining the remuneration of key management personnel to be included in the directors’ report.
The current requirement under section 300A to produce remuneration reports extends to disclosing entities that are companies. Given the limited use of such remuneration reports for shareholders of unlisted companies, the Draft proposes to relieve unlisted disclosing entities from the obligation to prepare one. This would be done by explicitly stating that the section applies to listed disclosing entities.