The Rule

  1. For an Aboriginal and Torres Strait Islander corporation, or an entity that the corporation controls, to give a financial benefit to a related party of the corporation:
    1. the corporation or entity must:
      1. obtain the approval of the corporation's members in the way set out in Division 290; and
      2. give the benefit within 15 months after the approval; or
    2. the giving of the benefit must fall within an exception set out in Division 287.

The Breakdown

What is a financial benefit?

In determining whether a financial benefit is being provided, the CATSI Act requires that corporations give a broad interpretation to the benefit being given.  This includes looking at the economic and commercial substance of the transaction over the legal form.

Some examples of financial benefits are:

  • giving or providing finance or property;
  • buying or selling an asset;
  • leasing an asset; and
  • supplying or receiving services.

The circumstances in which a financial benefit may be provided are broad and include the giving of a benefit:

  • indirectly, for example by going through a few entities;
  • by making an informal agreement or oral agreement; and
  • that does not involve paying money (i.e. awarding a contract or providing a property).

Who is a related party?

The definition of a related party is very wide and consists of:

  • directors of the corporation;
  • an entity that controls the corporation;
  • directors of the entity that controls the corporation;
  • spouses of the persons referred to above;
  • parents and children of those persons referred to above; and
  • any entity which is controlled by a related party as defined above.

What is the procedure for obtaining member approval?

Corporations may obtain member approval at any general meeting of the corporation, including the annual general meeting.

The CATSI Act provides specific requirements that corporations must follow in preparing the notice for a meeting in which member approval will be sought.  Corporations must lodge their notice of meeting and all relevant documentation with ORIC prior to sending it to members.

A resolution to approve a related party benefit transaction needs to be passed by a simple majority (50% of the members present and eligible to vote).   The relevant related party cannot vote on the resolution which proposes to approve their financial benefit.

The benefit must be given to the related party within 15 months of the members providing their approval.

ORIC has developed a useful summary of the rules regarding related party benefits. Click here to have a look