Submission to Treasury on Corporations Legislation Amendment Bill 2013

  • Date:14 Mar 2013
  • Type:Policy Submission

On 14 March 2013 the Australian Institute of Company Directors provided a submission to Treasury in response to their exposure draft, Corporations Legislation Amendment (Remuneration Disclosure and Other Measures) Bill 2012 (Exposure Draft). This Exposure Draft dealt with amongst other things, changes to the dividends test in paragraph 254T of the Corporations Act and proposed new disclosures to be included in the remuneration report.

In summary, Company Directors key comments are as follows: 

(a) We believe that paragraph 254T should be repealed and replaced with a well-formulated and express solvency test. The net asset test should be removed as it perpetuates the issues that were experienced under the original “profits” test. If Treasury fails to remove the net asset test, then the link to the accounting standards should be removed for all companies in determining the value of their assets and liabilities for the purposes of determining a dividend.

(b) We agree with the proposed introduction of a requirement to include a description of a company’s remuneration governance framework in relation to key management personnel in the remuneration report, or for an appropriate cross-reference be included where this information is already included in the company’s annual report. However, as there is a possibility that a company will already include this description in its annual report in a section other than the financial report or the directors’ report (for example in the corporate governance statement), the proposed draft paragraph 300A(1)(aa)(ii) should be expanded to allow for the information to be included elsewhere in a company’s annual report.

(c) The introduction of additional disclosures relating to remuneration outcomes will not add clarity. Rather, it will add an additional layer of complexity and is likely to further confuse readers of the remuneration report.  In our view, the existing reporting requirements of remuneration outcomes should instead be amended to require the disclosure of a single set of remuneration figures that describe the actual remuneration outcomes for the reporting period (and, as is already the case, for the previous reporting period). This will enhance clarity and provide readers of the remuneration report with the information that is of most use to them by describing executive remuneration in “actual pay” terms as opposed to the disclosure of accounting values as is currently required.

(d) The proposed additional disclosures relating to termination arrangements for key management personnel are unnecessary. Termination arrangements are already adequately disclosed under the existing requirements[1]. If there is a need for these disclosures to be clarified, for example by requiring that they include specific payments or that they be broken down further, this could be more appropriately dealt with as an amendment to reg. 2M.3.03 of the Corporations Regulations 2001 (Cth).

(e) While we agree with the less prescriptive approach towards clawbacks that has been taken in the proposed draft paragraph 300A(1)(i), we do not believe that legislative intervention is warranted in this area. Our strong preference is for this to instead be the subject of ASX Corporate Governance Council guidance.

Download our submission to Treasury (PDF 5 MB).