The members voice AICD Review

  • Date:01 Jul 2005
  • Type:CompanyDirectorMagazine
An outline of some of the issues addressed by AICD’s policy department, committees and taskforces over the past month:

The members' voice

An outline of some of the issues addressed by AICD's policy department, committees and taskforces over the past month:

Road Transport Laws

Both NSW and Victoria have passed legislation implementing the Road Transport Reform (Compliance and Enforcement) Bill. The AICD made a submission to the National Transport Commission, then known as the National Road Transport Commission (NTC), on the original Bill in 2003.

The NTC's brief is to promote uniform legislation for road and rail transport. The Bill deals with mass, dimension and load restraint offences in relation to heavy vehicles. This is achieved by establishing a "chain of responsibility" which implicates consignors, packers, loaders, operators, drivers and consignees.

The AICD is concerned not only by the chain of responsibility offences, to which there are limited and in some cases, no defences, but also by the imposition of automatic liability on directors and officers for breaches committed by their companies to which there are limited defences.

For further details on the new laws see the article by AICD Law Committee member, Tony Hulett on page 19.

Hanel v O'Neill Case

In Hanel v O'Neill, decided in 2004, a company acting as the trustee of a trust allegedly incurred a liability which could not be satisfied by the trust assets.

The majority of judges held that a director of a trustee company is liable for the debts incurred by the company as trustee, not only where the company has no legal entitlement to indemnity against the trust property, but also where the trust assets are insufficient to satisfy a legal entitlement to indemnity out of the trust assets otherwise available to the company acting as trustee.

This interpretation of section 197 of the Corporations Act represented a significant change of policy from its predecessor section, section 233 of the then Corporations Law.

The AICD has been successful in ensuring that this anomaly received urgent legislative attention.

On June 2, the Government introduced a Bill to make it clear that the liability under Section 197 only attaches where the trustee company has no legal entitlement to indemnity in relation to a liability incurred by the relevant company, and not merely because the trust estate is insolvent.

Corporations Amendment Regulations 2005

The intention of these proposed regulations is to modify the Corporations Act so that listed company shareholders receive audited information about the remuneration of executives and directors in a single place in the annual directors' report.

Under the current requirements this information must be repeated in both listed companies' annual financial reports and again in their annual directors' reports. This duplication is the result of the interaction between the Corporations Act and the Australian accounting standard AASB 1046. The AICD Law and Reporting committees considered the draft regulations and believe they will achieve the result intended.

Removing termination dates

from property trust deeds

ASIC has announced it will give class order relief to facilitate changes to the constitutions of listed registered schemes and certain unlisted schemes to remove their limited lives without requiring a special resolution of members.

Concerns had been raised that the "perpetuity clause" in trust deeds and other scheme constitutions of listed property trusts meant that members' funds should be treated as a liability rather than equity.

The relief will apply to schemes that are not subject to a mandatory redemption requirement and will only be available where the responsible entity reasonably considers that the removal of the perpetuity clause does not either substantially change the nature of the scheme or adversely affect members' interests.

When considering whether to remove the perpetuity clause responsible entities must have regard to their statutory duties to act in the best interests of members and give each scheme member written notice setting out the reason for, and effect of, the amendment. The issue relating to property trusts is one of the results of Australia's transition to IFRS.

APRA Discussion Paper

Regulator APRA has released a second draft of its November 2003 paper on governance for APRA-regulated institutions. The re-draft followed extensive consultation with industry and other stakeholders.

The latest draft provides background to APRA's draft Prudential Standards which have also been circulated for comment.

APRA intends to release the final Prudential Standards in January 2006 to take effect from the end of an institution's then current financial year.

The latest draft of the paper indicates that APRA has taken into account these concerns raised by industry:

  • The limits on cross and multiple directorships proposed in the first draft have been removed
  • APRA will not now impose formal limits on board tenure
  • The details of board assessment processes will be left to the discretion of individual institutions.
The AICD welcomes these changes but remains opposed to the imposition by APRA of prescriptive standards in other areas which exceed the recommendations of the Australian Stock Exchange Corporate Governance Council's recommendation.

In particular, APRA's deletion of the "if not, why not" approach is of concern.

AICD has formed a task force of members of the Corporate Governance, Law and Reporting committees and will be making a submission.

Role of chairmen

The One-Tel case in 2004 has highlighted a worrying trend for board chairmen, who are being seen as more personally responsible and liable for company performance than in the past when the collegiate nature of board decisions was accepted.

The AICD's Law and Corporate Governance Committees are looking at the implications of this trend and are formulating a policy response.

All AICD policies and submissions can be found at www.companydirectors.com.au under Policy and Advocacy.

If you wish to provide feedback, obtain further information or permission to reproduce this material please contact Rob Elliott, general counsel, manager policy and advocacy at relliott@companydirectors.com.au

FAQ of the month

Non-executive director remuneration - what should I be paid?

The quantum of non-executive director remuneration is based on a number of variables, for example, the size, nature and profitability of a company and the required time commitment.

A discussion of a number of remuneration issues can be found in the AICD publication Remuneration Committees: Good Practice Guide. The following publications may also assist:

AICD Beyond the Top 200 Report 2005 - this specially commissioned report surveyed more than 700 AICD members and covers public listed, unlisted and private companies, co-operatives, credit unions, government and not-for-profit entities. See www.companydirectors.com.au. The 2005 edition of this survey will be available shortly.

Korn Ferry's annual Board of directors in Australia and New Zealand - this survey looks at a range of issues in addition to remuneration such as; board composition, director and CEO compensation, board meetings, stock ownership, corporate governance, board and director performance evaluations in Australia and other countries. An international study including ASIA Pacific is available for 2004. The 2005 issue is due for release later in the year. See http://www.kornferry.com

Ernst & Young's 2005 executive and board remuneration report: regulation and shareholder influence covers the ASX top 200 listed companies. An executive summary of the report is on the Ernst & Young web site.http://www.ey.comThe full report is available direct from Ernst & Young.

The Centre for Corporate Law and Securities Regulation research report A better framework: reforming not-for-profit regulation released in February 2004 examines remuneration in the not-for-profit environment and discusses issues in relation to payments such as disclosure - see http://cclsr.law.unimelb.edu.au/activities/not-for-profit/finalreport/index.html

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.