Policy Update

Some of the issues addressed by AICD’s policy department, committees and taskforces recently are outlined below.

Administrative Review Council – Government Agency Coercive Information Gathering Powers

The Administrative Review Council has released a report on Government Agency Coercive Information Gathering Powers for comment. These powers are conferred on many government agencies to enable them to require the supply of information for the performance of their statutory functions. This report proposes that the powers should be exercised effectively, efficiently and in a manner consistent with administrative law principles. In addition there also needs to be a balance maintained between agency objectives and the rights of individuals. AICD has made a submission to the Administrative Review Council broadly supporting their approach.

CAMAC reference on Sons of Gwalia Ruling

The Parliamentary Secretary to the Treasurer has referred the issues arising from the High Court decision in Sons of Gwalia to the Corporate and Markets Advisory Committee (CAMAC) for consideration and advice. The High Court decision has made it easier for shareholders to recover funds in circumstances where they acquire shares as a result of misleading conduct prior to the company becoming insolvent.

In AICD’s view, the case brings into question the fundamental difference between debt and equity. In general, equity receives higher returns for taking on greater risk and debt has a lower risk profile. If a shareholder can become a creditor, this goes to the heart of the pricing of debt and equity and the corporate structure that has underpinned our economic prosperity. AICD will make representations to CAMAC on this issue.

Boardroomradio – online voice for directors

Six AICD Boardroomradio presentations were compiled in January 2007 giving voice to directors’ opinions about the revised Principles of Good Corporate Governance and Best Practice Recommendations from the ASX Corporate Governance Council. Members of AICD’s Policy Committees shared their opinions about risk; sustainability and corporate social responsibility; executive remuneration, director independence and board composition; and corporate governance intermediaries. Follow the AICD Conversations links on the Policy page of AICD’s website – www.companydirectors.com.au – to listen to these broadcasts from participants Bill Beerworth, Tony Berg, Stephen Gerlach, Martin Kriewaldt, Linda Nicholls and moderator Stephen Copplin.

Director obligations during boom times

AICD has released a position paper examining the major issues and responsibilities of directors during a phase of the market where there are substantial mergers and acquisitions (M&A) activity and private equity takeover offers. AICD urges directors of listed companies to be meticulous in their corporate governance processes during any M&A or corporate transaction activity, particularly in the areas of disclosure and where there is potential for conflicts of interest. Directors must not place themselves in a position where there is an actual or substantial possibility of conflict between a personal interest or a duty owed elsewhere, and the director’s duty to act in the best interests of the company. The paper can be found in the Policy & Advocacy section of the AICD website under Policies and Papers for 2007.

Liaison with industry groups

Every quarter AICD hosts the Industry Liaison Committee, a roundtable of prominent business organisations, to discuss major concerns and, in many cases, to co-ordinate lobbying and advocacy efforts for maximum effect. Participating organisations include: the Business Council of Australia, Australian Securities Exchange, Chartered Secretaries Australia, Investment and Financial Services Association, Australian Bankers Association, Australian Shareholders Association, Australasian Investor Relations Association, Financial Services Association of Australasia and Australian Employee Owners Association.

Business checklist for regulatory proposals

Through the Industry Liaison Committee, AICD is supporting the BCA’s creation of a business checklist for Commonwealth regulatory proposals. The checklist’s creation follows the Banks Taskforce on Reducing the Regulatory Burden on Business which recommended various improvements in the consultation processes for making new regulations. The checklist enables business to monitor and assess whether new government regulatory proposals comply with the government’s new processes.

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

FAQ of the month

QUESTION

I am the sole director of an Australian proprietary company which plans to open a branch office overseas this year. I will need to relocate overseas for a few years and am wondering if another director needs to be appointed for the local company in my absence?

ANSWER

Section 201A of the Corporations Act 2001 states that a proprietary company must have at least one director who is ordinarily resident in Australia. What ‘ordinarily resident’ means has been the subject of debate in court cases, eg see a discussion in a West Australian case from 2002 - http://www.austlii.edu.au/au/cases/wa/WASC/2002/231.html (points 226-242).

In this situation there are a number of options. For example, a second director who is resident in Australia could be appointed. You would still participate as a director yourself, perhaps dialling in for board meetings. You would share liability with the new director for any breach of fiduciary duties. See AICD’s FAQ on Appointment Procedures  for a basic introduction to the process of appointments.

Another option is to appoint an alternate director. For companies that opt to use replaceable rules, this is covered by section 201K of the Corporations Act, otherwise the company’s constitution will need to provide for it. Alternate directors are appointed by a director to fill in for them when they cannot attend one or more board meetings. When appointing an alternate director, the terms of appointment need to be specified in writing, the delegation must be recorded in the minute book and ASIC must be notified. The terms include the length of time covered and whether the alternate director is appointed to act as an agent on your behalf or in their own right. As a general rule, an alternate director is in the same legal position as any other director while they are acting in this role. Their acts are considered to be as effective as the real director. Notice of termination of this arrangement must also be sent to ASIC.

You can read more about alternate directors in Professor Baxt’s book, Duties and Responsibilities of directors and officers, on pp 19-23 and also in section 201K, a replaceable rule, of the Corporations Act (www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/).

Note that there are further requirements if you are a single shareholder as well as a single director (see 201F of the Corporations Act).