Photo credit: Warren Wong, Unsplash
Director’s have a duty to disclose a material personal interest.
Now, it’s important to know about this duty because a breach is a strict liability offence.
So, strict liability means intent is not necessary. A breach is a breach.
Below, I will take you through what the duty to disclose means for directors in practical terms.
Director's have a duty to notify other directors of material personal interest when a conflict arises.
Now, this duty applies where the director of a company has a material personal interest in a matter that relates to the affairs of the company.
Bill is a director at Zippy Pty Ltd, Zippy is looking to source extra USB-C cables from a supplier.
The supplier happens to be Bill’s brother who runs Speedy USB-C Pty Ltd, a company that Bill holds 55% of the shares.
As bill stands to gain from the purchase so should disclose this material personal interest to the other directors.
Now, a director does not need to give notice of an interest if the interest arises because:
A director's disclosure must give details of:
And the details must be recorded in the minutes of the meeting.
A breach by a director does not affect the validity of any act, transaction or agreement. And, these rules won't apply to a single director of a private company.
A director of a company who has an interest in a matter may give the other directors standing notice of the nature and extent of the interest.
So, this means the notice may be given at any time and whether or not the matter relates to the affairs of the company at the time the notice is given.
The standing notice may be given to the other directors before the interest becomes a material personal interest.
And the notice must:
The director must ensure that the nature and extent of the interest disclosed in the standing notice is in the minutes of the meeting where the standing notice is given or tabled.
The standing notice:
Also, the notice may be given to the person by someone other than the director to whose interests it relates (for example, by the secretary).
The standing notice ceases to have effect for a particular interest if the nature or extent of the interest materially increases above what's in the notice.
And it's important to note that a breach by a director does not affect the validity of any act, transaction, agreement, instrument, resolution or other thing.
Now, section 191 of the Corporations Act 2001 deals with a director disclosing a material interest and section 192 has to do with giving a standing notice.
Also, sections 191 and 192 of the Corporations Act 2001 are in addition to, and wont reduce the effect of any law about:
Section 194 of the Corporations Act has rules about directors of private companies voting and completing transactions when they have a material personal interest.
Importantly, section 194 is a replaceable rule. It's not mandatory. This means it can be replaced by a company's own internal rules in a constitution.
Below is the replaceable rule in section 194 of the Corporations Act.
If a director of a private company has a material personal interest in a matter that relates to the affairs of the company and:
(a) the director discloses the nature and extent of the interest and its relation to the affairs of the company at a meeting of the directors; or
(b) the interest is one that does not need to be disclosed; then:
(c) the director may vote on matters that relate to the interest; and
(d) any transactions that relate to the interest may proceed; and
(e) the director may retain benefits under the transaction even though the director has the interest; and
(f) the company cannot avoid the transaction only because of the existence of the interest.
Finally, paragraphs (e) to (f) will only apply if disclosure is made before the transaction.
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