Corporate governance and directors' duties in Australia: overview
A Q&A guide to corporate governance law in Australia.
The Q&A gives a high level overview of board composition, the comply or explain approach, management rules and authority, directors' duties and liabilities, transactions with directors and conflicts, company meetings, internal controls, accounts and audit, institutional investors and reform proposals.
To compare answers across multiple jurisdictions, visit the Corporate Governance Country Q&A tool.
The Q&A is part of the global guide to corporate governance law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corpgov-guide.
Corporate governance trends
In light of the global financial crisis, an increasing spotlight on poor corporate decision-making and a number of recent high-profile corporate collapses, corporate governance continues to play a prominent role in the Australian business environment, particularly in relation to its effect on an organisation's performance.
There is a growing focus on the concept of "social licence to operate" and on its links with corporate governance. This concept is not a fixed concept. It is composed of many elements, but generally requires businesses to act with trust and integrity in their dealings with the community in which they operate or have interests, and also requires communities to provide support for these business activities. Therefore, this concept covers governance, corporate social responsibility and good corporate citizenship.
Key areas of concern for directors in 2016/2017 include:
Company culture. There is a crucial link between corporate culture and governance.
Diversity in board composition. This is linked to the introduction of the recommended board skills matrix disclosure for companies listed on the Australian Stock Exchange. There are also continued calls for a voluntary industry target of 30% of women on boards.
Innovation. This relates to the need for companies to adapt and innovate in order to ensure that they continue to remain competitive in a dynamic environment, particularly with regards to advancements in technology and the growing threats to cybersecurity.
Environmental, social and governance considerations. This relates to the need for greater transparency regarding the reporting and management of environmental risk exposures and social responsibility. Boards are aware of the increasing extent to which investment markets factor climate-related risks and obligations into company valuations and other investment metrics. Several of Australia's largest superannuation funds and fund managers now have sophisticated internal teams set up to analyse the impact of environmental, social and governance risks on company valuations. Further, a manifest lack of understanding of the risks presented by environmental, social and governance issues represents a major governance failure and breach of fiduciary duty on the part of directors.
Continuous disclosure. This relates to the need to keep shareholders informed of price-sensitive developments and information relating to the company. The importance of compliance with continuous disclosure obligations has recently been highlighted by a series of events involving Bellamy's Australia Ltd, which saw the share price fall by more than 60% after a six-week trading halt and resulted in the removal of the company's CEO and the demotion of its CFO. The catalyst for these events was the board's failure to properly disclose issues associated with a fall in demand for its product, problems with a key supplier and an increase in the administrative burden of supplying its product to China.
Public perception of directors. A recent scandal involving the CEO of Seven West Media Ltd has revealed the importance of the public's perception of the moral and ethical stature of directors. Publicity surrounding the CEO's affair with his executive assistant together with allegations of drug abuse and misuse of corporate credit cards caused significant reputational damage to the company given the board's prior knowledge of certain matters. This scandal caused a dramatic fall in the company's share price, which the company has not yet fully recovered. Given the public mistrust in the current board and other factors, Seven West Media Ltd announced that it has launched an independent investigation into this scandal.
The Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015, which entered into force on 19 March 2015, has made a number of significant changes, as follows:
Abolition of the "100 member" rule. Previously, directors were required to convene a general meeting on request of 100 shareholders of a company. With the abolition of this rule, only shareholders with at least a 5% shareholding can request a general meeting.
Remuneration reporting. The Act introduced changes with respect to the disclosure obligations relating to options and abolished the obligation of unlisted public companies to prepare a remuneration report.
Auditor appointments. Small companies limited by guarantee and most other companies limited by guarantee with annual revenue of less than A$1 million are no longer required to appoint auditors, unless required by the Australian Securities and Investments Commission, or at least 5% of the company's members.
The Federal Government also signalled its intention to make changes to the composition of the management of superannuation funds. These proposals aim to increase funds' investment transparency and include a requirement that superannuation funds appoint independent directors.
In November 2016, the Senate passed the Fair Work (Registered Organisations) Amendment Bill 2014. This bill will see the establishment of a new regulator, the Registered Organisations Commission, that will take over overseeing trade unions from the Fair Work Commission. This bill aims to impose stricter obligations on unions, and it also provides for protections in respect of whistle-blowers. The federal government has also indicated that these whistle-blower protections may be expanded in their scope to apply to other entities, such as corporations, in the future.
Effective corporate governance is an essential aspect of any modern corporate entity. In Australia, the corporate governance framework includes:
Legislation, including the Corporations Act 2001 (Cth) (Corporations Act), which is the primary legislation regulating all companies.
Rules, including the Australian Stock Exchange (ASX) Listing Rules, which apply to public companies listed on the ASX through a contractual relationship.
Non-binding guidelines, such as:
the ASX Corporate Governance Council's Principles and Recommendations (ASX Principles);
guidance and commentary published by the Australian Securities and Investments Commission (ASIC); and
guidelines published by the Australian Institute of Company Directors, the Governance Institute of Australia, the Financial Services Council and the Australian Council of Superannuation Investors.
ASIC and ASX are the bodies that regulate, monitor and enforce the corporate governance framework, as follows:
ASIC enforces the Corporations Act and can impose civil and criminal penalties for breaches of the Listing Rules.
ASX enforces the Listing Rules and the ASX Principles. It also has limited enforcement powers.
Entities that are subject to prudential regulation (such as banks and insurance companies) are regulated by the Australian Prudential Regulation Authority.
There has been a steady increase in shareholder activism in Australia, which is likely to continue. A key motivation for many of the actions pursued by activists relates to corporate governance concerns, in particular seeking greater transparency and accountability, improved board competence and/or more effective management.
The following groups are particularly influential on a company's corporate governance practices:
Institutional investors, due to their large shareholding. Their aim is to enhance sustainable long-term returns on savings that have been entrusted to them.
Proxy advisory groups, which advise institutional investors on a range of matters that influence discussions on corporate governance, including identifying governance risk and providing voting recommendations.
Shareholder lobby groups (such as the Australian Shareholders' Association or the Australasian Centre for Corporate Responsibility), which advise specific industry shareholders on certain topics (for example, climate change) and monitor the performance of companies with the aim of improving both financial performance and corporate governance.
Australia does not have a general corporate governance code that all companies must comply with. However, listed companies must benchmark their corporate governance practices against the Australian Securities Exchange (ASX) Corporate Governance Council's Principles and Recommendations (ASX Principles). This means that listed companies are not obliged to adopt the ASX Principles, but are encouraged to do so. This is to create a level of flexibility for listed companies to adopt alternative practices more suited to their circumstances.
The ASX Principles, published by the ASX Corporate Governance Council, are designed to promote investor confidence and ensure that listed companies meet shareholder expectations. The principles are based on eight central values:
Lay solid foundations for management and oversight.
Structure the board to add value.
Act ethically and responsibly.
Safeguard integrity in corporate reporting.
Make timely and balanced disclosure.
Respect the rights of shareholders.
Recognise and manage risk.
Remunerate fairly and responsibly.
A listed company that does not adopt the ASX Principles must:
Disclose that fact and explain why.
Include a comparison of its governance practices against the ASX Principles in its annual report (corporate governance statement).
This ensures that there is an appropriate level of disclosure of the company's corporate governance practices to shareholders and the investment community, creating the basis for transparent engagement with investors.
If a listed company fails to include a corporate governance statement in its annual report or on its website, or does not provide sufficient information in its corporate governance statement, the ASX can formally or informally (depending on the significance of the omission) require the company to take immediate action to rectify the breach, including requiring the company to make an announcement to the market to correct the omission.
Corporate social responsibility and reporting
With the increased emphasis on companies to address and clarify issues of corporate social responsibility, both globally and in Australia, it has become common practice for companies to report on social, environmental and ethical issues.
The Australian Securities Exchange Corporate Governance Council's Principles and Recommendations also recommend that listed companies disclose:
Whether they have any material exposure to economic, social and environmental sustainability risks.
How they plan to mitigate or manage these risks.
Board composition and restrictions
Board structures are unitary.
The board of directors is responsible for supervising the management of the business and affairs of the company on behalf of the shareholders.
Generally, responsibility for the overall management and performance of the company is assumed either by the company's:
Managing director (who is a member of the board).
Chief executive officer (who is commonly a member of the board, but does not need to be).
Boards can consist of executive and non-executive directors, with a variety of skills, knowledge and experience.
Employees do not have a right to board representation, unless the company's constitution provide otherwise.
Number of directors or members
Under the Corporations Act 2001 (Cth):
A public company must have at least three directors.
A private company must have at least one director.
Both types of companies must have at least one member.
A director must be at least 18 years old and have consented to taking on the role and responsibilities of a director.
Under the Corporations Act 2001 (Cth):
A public company must have at least two directors who ordinarily reside in Australia.
A private company must have at least one director who ordinarily resides in Australia.
There are currently no gender requirements for board composition. There have been calls for a voluntary industry target of 30% of women on boards.
Non-executive directors are recognised (and encouraged) in Australia, and often referred to as independent directors.
A recent court decision held that a non-executive director is a director independent of corporate management (that is, not employed by the company and acting only in an advisory capacity) (Jaques v AIG Australia Ltd  VSC 269). Non-executive directors do not engage in the day-to-day management of the company. They provide balance and independence to the board's decision-making process.
There is no requirement for a board to consist of a specific number of independent/non-executive directors. However, the Australian Securities Exchange (ASX) Corporate Governance Council's Principles and Recommendations (ASX Principles) recommend that listed companies have a board comprised of a majority of independent/non-executive directors.
Under the ASX Principles, independent directors are directors that are not members of management and are free of any business or other relationships that could materially interfere with, or could reasonably be perceived to interfere with, the independent exercise of their judgement.
Some examples of considerations that are relevant for assessing the independence of a director include whether:
The director holds 5% or more of the shares in the company.
In the last three years, the director has acted in an executive capacity for, or in a material business or contractual relationship with, the company or an associated company.
The director has been a director of the company or an associated company for such a period (for example, more than ten years) that he/she is considered too close to management to be independent.
See Question 8 regarding the distinction between executive and non-executive directors. There are generally no other restrictions on the roles a board member can take. However, for listed companies, the Australian Securities Exchange Corporate Governance Council's Principles and Recommendations recommend that:
The chair should be an independent director.
The same person should not exercise the roles of chair and chief executive officer.
Appointment of directors
Under the Corporations Act, directors can be appointed by either a:
Shareholder resolution passed at a general meeting.
Directors appointed by the other directors must be confirmed by a resolution of shareholders passed either:
Within two months of the appointment.
For a public company, at the next annual general meeting (AGM).
A company's constitution can change the method of appointment (for example, removing the need for any appointment of a director by the other directors to be confirmed by the shareholders).
The following additional requirements apply to listed companies:
If appointed by the directors, a director must be elected by shareholders at the next AGM.
Directors must be re-elected by shareholders every three years.
Removal of directors
Directors can be removed by:
For a private company (subject to the company's constitution), a shareholder resolution passed at a general meeting. A company's constitution will usually also provide for removal of directors by a director resolution.
For a public company, a shareholder resolution, despite any provisions in the company's constitution or any agreement. The other directors cannot remove a director.
There are no restrictions on a directors' term of appointment for private and unlisted public companies, unless the company's constitution provides otherwise.
For listed companies:
A director must be re-elected every three years or before the third annual general meeting (AGM) since the director's appointment, whichever is later. This rule does not apply to the managing director, unless there is more than one managing director, in which case they must rotate or one must retire on the same terms as the other directors.
At least one director must stand for election or re-election at each AGM.
Directors employed by the company
A director can operate in a dual capacity (that is, as both an officer and an employee). A director does not need to be engaged under an employment contract.
Shareholders do not have access to directors' service contracts, unless otherwise provided for in the company's constitution or other relevant agreement.
Determination of directors' remuneration
Private and unlisted companies. Directors' remuneration is determined by the shareholders. This rule can be varied by the company's constitution.
Listed companies. The shareholders determine the total aggregate amount of remuneration that can be paid to non-executive directors, and the directors determine how the amount is split.
The directors determine the remuneration paid to executive directors, which must:
Not include a commission on, or a percentage of, operative revenue.
The Australian Securities Exchange (ASX) Corporate Governance Council's Principles and Recommendations recommend the establishment of a remuneration committee to review and make recommendations on senior executive remuneration packages and incentive schemes. Companies included in the S&P/ASX 300 Index must have a remuneration committee.
Under the Corporations Act 2001 (Cth):
A company must disclose the remuneration paid to each director if directed to do so by a member with at least 5% shareholding or by at least 100 members. The Australian Securities and Investments Commission (ASIC) can also direct a company to prepare a directors' report including details relating to the remuneration of directors.
A listed company must prepare a remuneration report (as part of the directors' report) for shareholders at each annual general meeting (AGM), which discloses prescribed information (including the amount of remuneration paid to key personnel, such as directors).
Following the enactment of the Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015:
Unlisted public companies are no longer required to produce a remuneration report.
Companies are no longer required to disclose the value of options granted to key management personnel that have lapsed, but will be required to disclose the number of lapsed options and the percentage value of each key management personnel's remuneration that comprises options.
Private companies. Directors' remuneration is determined by a resolution of the shareholders, unless this rule is varied by the company's constitution.
Public companies. Shareholders must approve the:
Total aggregate amount of remuneration paid to non-executive directors.
Amount of directors' remuneration, unless the remuneration is considered to be "reasonable".
For listed companies, the aggregate amount of remuneration payable to non-executive directors must not:
Exceed the total amount approved by shareholders.
Be increased without shareholders' approval.
General issues and trends
Listed companies must disclose each director's individual salary and bonus in the remuneration report (contained in the directors' report). In July 2011, the "two strikes" rule for approving remuneration reports was introduced to hold directors accountable for the salaries and bonuses of key management personnel. Under this rule, if at least 25% of shareholders vote against the adoption of the remuneration report at two consecutive AGMs, the shareholders can vote to determine whether all of the directors will need to stand for re-election. The introduction of this rule has led to a number of visible changes within companies, such as:
Improvement of companies' communications and accountability to shareholders about remuneration after receiving a first strike.
Changes to the structure of remuneration (for example, improved links between pay and performance after a first strike).
Management rules and authority
A company can be governed by:
The Corporations Act 2001 (Cth) (Corporations Act).
The company's constitution.
A combination of the two.
Except where expressly required by the Corporations Act, companies can establish their own internal management rules to ensure that an effective governance structure is in place for the company's specific circumstances. These rules are contained in the constitution of the company. For example, a company's constitution can set the quorum requirements for board meetings and the process for calling and holding meetings and passing resolutions.
The following requirements apply, unless varied by a company's constitution:
A directors' meeting can be called by a director giving reasonable notice to every other director.
The quorum for a directors' meeting is two directors.
A resolution can be passed by a simple majority.
A directors' resolution can be passed without a meeting.
Directors can exercise all the powers of the company, unless some powers are expressly reserved for the members under the company's constitution or the Corporations Act 2001 (Cth) (Corporations Act).
Some powers are expressly reserved for members under the Corporations Act and cannot be amended by a company's constitution, such as:
Winding up the company.
Amending or replacing the company's constitution.
For a public company, appointing or removing directors, or approving financial benefits given to related parties.
Subject to the company's constitution, directors can delegate any of their powers to a committee of directors, a director, an employee of the company or any other person. However, the directors are not exempt from liability for the delegate's actions.
The Australian Securities Exchange Corporate Governance Council's Principles and Recommendations recommend that listed companies establish remuneration, audit, risk and nomination committees to ensure a transparent and independent determination. These committees can exercise the relevant powers or act in an advisory capacity only.
Directors' duties and liabilities
Directors' duties are derived from the laws of equity, common law and statute. Directors owe their duties to the company as a whole, and not to individual shareholders.
There are four overarching directors' duties:
To act with due care and diligence (subject to civil liability).
To act in good faith, for the benefit of the company as a whole, and for a proper purpose (subject to criminal liability of up to five years' imprisonment and/or up to A$360,000 (2,000 penalty units)).
Not to use their position improperly to gain an advantage for themselves or someone else, or to cause a detriment to the company (subject to civil liability).
Not to improperly use information obtained by virtue of their position as director to gain an advantage for themselves or someone else, or to cause detriment to the company (subject to civil liability).
Other penalties for breach of directors' duties can include:
Personal fines of up to A$200,000.
Disqualification from acting as a director.
Derivative actions by shareholders.
Actions by employees and creditors claiming personal liabilities.
Legal claims for damages.
The statutory business judgment rule is a defence to a breach of the duty of care and diligence. To rely on this defence, a director must:
Make the decision in good faith and for a proper purpose.
Not have a material personal interest in the subject matter of the decision.
Inform himself on the subject matter to the extent he reasonably believes to be appropriate.
Rationally believe that the decision is in the best interests of the company. A rational belief is a belief that a reasonable person in the same position would hold.
Directors must act honestly, in good faith and undertake their roles to the best of their ability.
In relation to fraud and bribery offences, directors are exposed to criminal and personal liability under the Corporations Act 2001 (Cth) (Corporations Act), the Criminal Code Act 1995 (Cth) and various state and territory legislation.
The Criminal Code Act contains the following provisions in relation to bribery:
A director can be criminally liable for bribery offences committed by the company's employees or agents.
A director can be subject to a penalty of up to A$1.8 million (10,000 penalty units) and/or to up to ten years' imprisonment.
Directors must ensure that there is a sufficiently strong corporate culture of compliance with foreign bribery laws.
A director committing a fraud or a bribery offence is in breach of directors' duties under the Corporations Act (see Question 18). The following penalties can apply:
A director can be personally liable for loss caused by a breach of his duties.
In extreme cases involving dishonesty and recklessness, a director can face:
prosecution by the Australian Securities and Investments Commission;
civil penalties of up to A$200,000; and/or
up to five years' imprisonment.
Under the Corporations Act 2001 (Cth), a director can incur criminal or civil liability for:
Market manipulation and abuse, including false trading and market rigging.
False or misleading statements in a prospectus or other publications.
A director can also be liable for breach of directors' duties for these acts.
Under the Corporations Act 2001 (Cth), a director must ensure that the company is not trading while insolvent. A director will be personally liable if a company incurs a debt while insolvent where the director is aware, or a reasonable person would have been aware, that there are reasonable grounds for suspecting that the company is insolvent or would become insolvent.
A director can be subject to the following penalties for insolvent trading:
Civil penalties, including pecuniary penalties of up to A$200,000.
Compensation proceedings for amounts lost by creditors, which can be initiated by the Australian Securities and Investments Commission, a liquidator or a creditor.
Where the director's failure to prevent the company from incurring the debt was dishonest, criminal liability with a penalty of up to A$220,000 and/or imprisonment for up to five years.
Disqualification from acting as a director.
Directors' duties and liabilities in relation to environment and health and safety differ from state to state. Federal law may also apply, depending on the activities of the company and where its assets and/or operations are located.
In relation to health and safety, directors typically have a duty to:
Keep themselves informed of any occupational health and safety issues in the company.
Exercise due diligence to ensure the company's compliance with its safety obligations.
Ensure the health, safety and welfare of the company's employees, contractors and other persons associated with the workplace.
Noting the differences between state and federal legislation, generally, where a company has committed an environmental offence, a director can be liable for civil and criminal penalties. A director can also be held liable for the ancillary offence of aiding, abetting, attempting or conspiring to commit an environmental offence, which can carry significant penalties (including imprisonment).
The Competition and Consumer Act 2010 (Cth) (CCA):
Outlines the obligations and liabilities of companies and individuals in relation to anti-competitive conduct (such as anti-competitive agreements, exclusive dealing, misuse of market power, predatory pricing and cartels).
Prohibits mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.
Where a company contravened a provision of the CCA, directors of that company may be personally liable. In March 2015, a Competition Policy Review (known as the Harper Review) was published. In November 2015, the Australian Government signalled its commitment to implement a majority of the recommendations contained in the Harper Review. Once and if the recommendations are implemented, competition law in Australia will change significantly.
There are about 700 federal, state and territory laws containing derivative liability provisions that impose personal liability on directors and officers for the wrongdoing of a company. This includes liability under laws relating to:
Work health and safety.
A company cannot exempt a director from any liability to the company incurred as an officer of the company.
Companies can indemnify their directors against liabilities, except with regards to (among others):
Liability for cartel conduct.
Liability to the company or a related body corporate incurred as an officer of the company.
Liability arising out of specific penalty orders or compensation orders.
Liability to a third party that did not arise out of conduct in good faith.
Legal costs, where the director is found guilty in criminal proceedings or in relation to proceedings brought by the Australian Securities and Investments Commission.
Directors can obtain insurance against personal liability, which is usually paid for by the company. However, companies cannot pay insurance premiums for liabilities arising out of:
Misuse of information.
Misuse of position.
Wilful breach of duty.
Directors also often enter into a deed of access and indemnity with the company.
Under the Corporations Act 2001 (Cth), the term "director" includes any third party that was not validly appointed as a director but where either:
That third party acts in the position of a director (de facto director).
The directors of the company are accustomed to acting in accordance with that third party's instructions or wishes (shadow director).
De facto and shadow directors are subject to the same liabilities as validly appointed directors.
Transactions with directors and conflicts
Both under common law and statutory law, directors have a duty to avoid compromising their position in, and duty to, the company and their personal interests (that is, they have a duty to avoid a "real sensible possibility of conflict").
Directors with a material personal interest in a matter can act on the matter despite the conflict provided they notify the company (that is, the other directors) of the interest and obtain the company's fully informed consent.
For public companies, a director cannot vote or attend meetings on matters where there is a conflict of interest, unless the non-interested directors resolve otherwise, if they consider that the interest should not disqualify the director from voting or being present.
Public companies must obtain shareholder approval for transactions giving a financial benefit to a related party of the company (including directors), unless an exception applies. For example, shareholder approval is not required where either the:
Arrangement is on arm's-length terms.
Benefit constitutes reasonable remuneration.
Shareholder approval is also required for the following dealings with listed public companies:
Transactions with persons in a position to influence the company, such as the acquisition and disposal of substantial assets and acquisition of shares in the company (with limited exceptions).
Participation by directors in employee incentive schemes.
Termination benefits for directors.
Remuneration of non-executive directors.
Listed companies are prohibited from issuing or agreeing to issue equity shares (including options) to a related party of the company, such as a director, without shareholder approval. There are exceptions to this prohibition, including for the following types of share issues:
Pro rata issues.
Issues under a dividend reinvestment plan.
Issues under an employee incentive scheme approved by shareholders.
Directors can also be liable for insider trading and breach of directors' duty if they participate in the purchase or sale of shares (or procure another person to purchase or sell shares) based on information or knowledge that they acquired by virtue of their position.
Disclosure of information
The Corporations Act 2001 (Cth) (Corporations Act) and the Australian Securities Exchange (ASX) Listing Rules impose continuous disclosure requirements on companies in certain situations. For example:
Listed companies must disclose to the market and the ASX, and continue to disclose, any material price-sensitive information that a reasonable person would expect would have a material effect on the company's share price or value.
Companies can also be required to publish a disclosure document in connection with fundraising activities (for example, an offer of shares to retail investors).
The information to be disclosed must comply with the Corporations Act and the disclosure document must be provided to ASIC and, for listed companies, to the ASX. There are some exceptions to disclosure obligations, which are aimed at protecting the public (that is, retail investors) and assume that sophisticated, professional and wholesale investors do not need the same level of disclosure.
A person involved in a contravention of the disclosure requirements commits an offence.
A director may be in breach of directors' duties as a result of a company's failure to comply with its disclosure obligations.
A public company with more than one member must hold an annual general meeting (AGM) at least once every year and within five months after the end of its financial year. Failing to hold an AGM within the stipulated times is a strict liability offence and can result in a penalty of A$1,800 (ten penalty units) and/or imprisonment for three months.
The annual financial report, directors' report (including a remuneration report), auditor's report and election of directors must be discussed and approved at the AGM.
Private companies are not required to hold an AGM.
A company must give to each member, director and auditor of the company written notice of a meeting of members (including details of the matters to be discussed), as follows:
At least 21 days before the meeting for a private or unlisted public company. This notice period can be changed if:
the company's constitution provides for a longer notice period;
at least 95% of the members agree to a shorter notice period; or
for an AGM, all members agree in advance to a shorter time period.
However, there must be at least 21 days' notice where an auditor will be removed or, in the case of an unlisted company, where a director will be removed and appointed at the meeting.
At least 28 days before the meeting for a listed company. This notice period cannot be changed by the company's constitution.
The notice must set out:
The place, date and time for the meeting.
The general nature of the meeting's business.
The contents and details of any special resolutions being proposed.
Details in relation to the appointment of a proxy and how votes will be cast.
For the AGM of a listed company, the content and details of the remuneration report.
Members with at least 5% of voting shares, or at least 100 members who can vote at a general meeting, can give the company notice of resolutions they propose to present at the meeting of members.
The Corporations Act takes into account the use of technology and provides that:
Notice can be sent by electronic means (if nominated by the member).
Meetings can occur at two or more locations using technology.
A quorum for a meeting is two members, unless the company's constitution provides otherwise.
Generally, votes can be cast by either:
A show of hands, in which case each member has one vote.
A poll, in which case each member has one vote for each share its holds.
The company's constitution can provide for a different voting procedure.
For a private company, resolutions can also be passed without holding a meeting if all members entitled to vote on the proposed resolution sign a document in favour of the resolution.
Members with at least 5% of voting shares, or at least 100 members who can vote at a general meeting, can give the company notice of resolutions that they propose to present at a meeting of members.
Since March 2015, members holding at least 5% of the votes that can be cast at a general meeting can either (Corporations Legislation Amendment (Deregulatory and Other Measures) Act 2015):
Compel a director to call a meeting of members.
Call a meeting of members themselves, although they will be required to pay the costs of the meeting.
Minority shareholder action
Shareholders have the following rights:
Statutory rights in relation to oppressive conduct.
The ability to seek a variety of remedies where the company has acted contrary to the interests of shareholders as a whole or has been oppressive to, unfairly prejudicial or unfairly discriminatory against, a shareholder or shareholders. Remedies include:
orders that the company be wound up;
regulating the conduct of the company's affairs; and
amendments to the company's constitution.
The ability to seek compulsory liquidation on grounds that it would be just or equitable to do so, or where the directors have been acting in their own interests.
If the shareholder holds at least 5% of the votes that can be cast at a general meeting, the right to request a director to call a general meeting or to call a general meeting itself.
For a shareholder holding at least 5% of the votes that can be cast on the resolution, or at least 100 members, the right to propose a resolution for a general meeting.
Ability to bring legal proceedings in the name of the company with the approval of the court, including actions for breaches of directors' duties.
Internal controls, accounts and audit
The Corporations Act does not contain any formal requirements that directly relate to the internal control of business risks. Instead, the Act indirectly imposes requirements through directors' duties and directors' accountability (that is, criminal or civil liability or personal liability). For example, the duty to act in the best interests of the company with care, skill and diligence requires the directors (and company) not to take unacceptable risks.
For listed companies, the Australian Securities Exchange Corporate Governance Council's Principles and Recommendations recommend that listed companies:
Establish a comprehensive internal audit and risk management system, which should be reviewed at least annually.
Establish an audit and risk management committee that reviews or evaluates areas of risk and makes recommendations to improve risk management strategies.
Publish a sustainability report (at least annually) containing any information on material exposures to economic, environmental and social sustainability risks and how they manage or intend to manage those risks.
The rules relating to a company's accounts include the following:
Companies must keep written financial records that are accurate and would enable true and fair financial statements to be prepared and audited. These records must be retained for seven years.
Depending on the type of company (for example, large proprietary company or public company), a company must prepare annual and half-yearly financial reports.
Directors are responsible for the management of the financial records. For example, an annual financial report must contain the directors' declaration that the records were maintained and compiled in accordance with the Corporations Act.
A company must have its annual financial report (and any mid-year financial report) audited unless it is a:
Small proprietary company.
Small company limited by guarantee.
Specific type of company limited by guarantee.
An auditor's report must include a declaration that the company's financial records were prepared in accordance with the Corporations Act 2001 (Cth).
If an auditor was not appointed by the company in a general meeting:
In a private company, the directors can appoint the auditor.
In a public company, directors must appoint an auditor within one month of the company's registration or within one month of the vacancy, unless there are continuing auditors. This appointment is either confirmed by the members or an alternative auditor is appointed at the first annual general meeting.
An auditor holds office until any of the following occurs:
The auditor is removed by the company.
The auditor ceases to be capable of being an auditor.
The company is wound up.
The auditor obtains consent from the Australian Securities and Investments Commission to resign.
The auditor dies.
In listed companies, auditors must rotate. That is, an individual that plays a significant role in the audit of a listed company for five successive years cannot play a significant role in the audit of the following financial year, subject to certain exceptions.
An auditor can be:
An individual, who must be a registered company auditor (RAC).
A firm with at least one member who is a RAC ordinarily resident in Australia, or is registered on the Business Names Register.
An authorised audit company.
Some exceptions apply. For example, an individual auditor of a private company does not need to be an RAC if the Australian Securities and Investments Commission approves the individual in relation to the company's audit and is satisfied that both:
It is impracticable to appoint any other person, firm or company.
The person is suitably qualified and experienced.
Auditors must be independent from the company and no "conflict of interest situations" must exist at any time. The Corporations Act 2001 (Cth) sets out specific requirements for the different types of entities and examples of "conflict of interest situations".
Auditors must comply with the following:
The Corporations Act 2001 (Cth) (including the standards set by the Auditing and Assurance Standards Board).
The National Consumer Credit Protection Act 2009.
Any conditions of registration.
Any mandatory standards of relevant professional bodies (for example, the Accounting Professional and Ethical Standards Board).
The terms of the professional services contract with the company.
Auditor obligations include:
Ensuring audit quality.
Reporting any conflicts of interest or contraventions (or suspected contraventions) by the company to the Australian Securities and Investments Commission.
Auditors are prohibited from:
Making a false or misleading statement.
Disseminating misleading or false information.
If audited accounts are inaccurate for whatever reason, auditors can be:
Deregistered or suspended.
Fined A$4,500 (25 penalty units) and/or imprisoned for six months.
Fined A$9,000 (50 penalty units).
Fined A$1,800 (ten penalty units).
Imprisoned for ten years and/or fined the greater of A$810,000 (4,500 penalty units) or three times the total value of the benefit (as determined by the court).
A company cannot exempt an auditor from any liability to the company incurred as an auditor of the company.
The company secretary plays a key role in:
Administering the company's corporate governance framework, including preparing a corporate governance/policy manual for the directors and management of the company.
Ensuring that the company complies with its statutory obligations, such as maintaining the company's records and updating the Australian Securities and Investments Commission with notifiable changes.
Updating the Australian Securities Exchange on disclosure and corporate governance matters.
Australian Government Federal Register of Legislation
Description. The Federal Register of Legislation is the authorised government website for Commonwealth legislation (up to date and as introduced) and related documents. The Register is managed by the Office of Parliamentary Counsel (Australian Government).
Australian Securities and Investments Commission (ASIC)
Description. This website provides access to regulatory guides and information for consumers, businesses and finance professionals in relation to obligations, requirements and procedures in the Corporations Act, or which are relevant to companies or to operate in Australia. The information on this website is up to date or at the date issued, as specified in the guides or note. The website is maintained by ASIC.
Australian Securities Exchange (ASX)
Description. This website provides access to the ASX Listing Rules, the Corporate Governance Council's Corporate Governance Principles and Recommendation (3rd Edition), guides, market information and general information for consumers, businesses and finance professionals. The information on this website is up to date or at the date of issue, as specified in the guides or notes. The website is maintained by ASX.
Tim Lester, Head of Corporate and Partner
Professional qualifications. Australia, England and Wales and Hong Kong, Solicitor
Areas of practice. Corporate; mergers and acquisitions; corporate governance; energy and resources; corporate finance.
Joanna Yoon, Associate
Professional qualifications. Australia, Solicitor
Areas of practice. Corporate; mergers and acquisitions; corporate governance; energy and resources.