mertons corporate snapshot - june quarter 2011
Mertons' Corporate Snapshot is intended to provide you with an overview of corporate governance matters including compliance changes, trends and other issues. Should you need further information or assistance with any of the matters raised here, or to discuss how these matters may affect your business, please contact:
Mark Licciardo
Managing Director
Level 6, 350 Collins Street
Melbourne Victoria 3000
ph: 03 8689 9997
fax: 03 9670 5942
mobile: 0419 327 725
www.mertons.com.au
Back to basics governance — is your company's framework functioning as it should?
What are the elements of an effective governance framework? Mark Licciardo, Managing Director, Mertons, answers this question in an article published in the May 2011 edition of Chartered Secretaries Australia's journal Keeping Good Companies. Read the article.
Centro Case Decision — Far-reaching implications for company directors
On Monday, 27 June 2011, the Federal Court announced its decision in the case against eight directors and former executives of Centro Properties Group. Justice Middleton found that the directors had breached their corporate duties because they had "failed to take all reasonable steps required of them, and acted in the performance of their duties as directors without exercising the degree of care and diligence the law requires of them." A clear implication of the decision is that directors should understand the key elements of a company's financial position and be able to communicate these accurately to the market.
We note that directors being investigated by ASIC under a Section 19 hearing need to get good legal advice as evidence arising from these hearings may lead to prosecution. Contact Mertons for assistance with a referral to a specialist legal advisor.
James Hardie — Honesty alone is not a defence
The New South Wales Court of Appeal has handed down its decision regarding James Hardie's former general counsel and company secretary (Shafron) and the former CFO (Morley). Both had appealed against earlier findings that they had breached a duty of care and diligence regarding assurances by James Hardie to the ASX that a compensation fund for asbestos victims would fund all present and future claims, which turned out not to be the case. Morley had applied for relief against liability on the grounds that he was acting honestly when he failed to disclose important information to the JHIL board. The Court of Appeal found that honesty is not a substitute for care and diligence.
Disclosure of financial information
ASIC published a regulatory guide on 30 June 2011 on when it may or may not be appropriate to disclose information in financial reports, documents related to the financial report (including remuneration reports) or transaction documents.
Executive remuneration amendments to apply from 1 July 2011
The Senate has passed the Corporations Act Amendment (Improving Accountability on Director and Executive Remuneration) Bill 2011. It applies from 1 July 2011 and will affect companies that have AGMs later this year. Key items in the Act include:
- The 'two strikes' rule — if the remuneration report receives two 'no' votes of 25% or more over two consecutive years, a spill meeting must be called.
- Voting on 'no vacancy' declarations — shareholder approval must be obtained for board 'no vacancy' declarations.
- Voting on remuneration arrangements — prevents key management personnel and their closely related parties from voting on remuneration matters. (This provision starts on 1 August 2011).
- Prohibitions on 'cherry picking' — requires proxy holders to vote all directed proxies on all resolutions. (This provision starts on 1 August 2011).
The Act introduces other reforms that do not specifically relate to the holding of AGMs (such as the engagement of remuneration consultants) which you will need to become familiar with.
At the same time, the government will be considering the recommendations from the report by the Corporations and Markets Advisory Committee on Executive Remuneration. Among others:
- require companies to give a general description of their remuneration governance framework
- require the disclosure of all termination payments, identifying entitlement payments, severance payments and post-severance arrangements
- require disclosure, for each executive, of crystallized past pay (remuneration granted at some previous time and paid in the current financial year), present pay (remuneration granted and paid in the current financial year) and future pay (remuneration that is deferred to some future period).
NSW OHS Reforms
The first phase of reform of occupational health and safety (OH&S) laws introduced by the NSW Government constitutes a significant step in implementing a better and more consistent OH&S regime for the whole nation.
Australian companies caught in UK Bribery Act
The UK Bribery Act 2010 comes into force on 1 July 2011. Australian companies can be caught by the Act in two ways:
- If bribery is committed in the UK — for example, an improper payment is offered or made by a senior officer of an Australian company during a convention or business trip in the UK; or
- If an Australian company carries on business or a part of its business in the UK. Here, the company may be strictly liable for bribery committed anywhere in the world by any person or entity that performs services for or on behalf of the company, unless the company can establish that it had "adequate procedures" in place to prevent the bribery (corporate offence).
New processes for off-market transfers may have implications for company constitutions
Following recent changes to the ASX Listing Rules, a security validation check has been introduced by the share registries to ensure that the person seeking to transfer the shares is the valid shareholder. The registries will charge a fee to shareholders to carry out the security validation. However, some companies have enshrined within their constitutions measures that may prohibit it from charging shareholders for such checks. Companies need to review their constitutions to assess if any changes are required.
Sources of information for this document include: Australian Securities and Investments Commission; Australian Securities Exchange; Chartered Secretaries Australia; Commonwealth Government; Freehills; UK Ministry of Justice.