Payments in lieu of notice under the monetary threshold
for termination benefits may not require shareholder approval under
the "past services payment" exception.
A company cannot give a person a benefit in connection with
their retirement if:
they hold a managerial or executive office; or
the person has, at any time during the last three years before
his or her retirement, held a managerial or executive office.
unless approval of the company's members is obtained.
One of the exceptions to this restriction is for payments in
connection with a person's retirement where:
the payment is for "past services" the person
rendered to the company; and
the amount of the payment together with the value of other
termination benefits given in connection with the person's
retirement does not exceed a monetary threshold (which, generally
speaking, is the average annual base salary during the last 3 years
In Cummings Engineering Holdings Pty Ltd, the NSW Supreme Court
recently dealt with a situation in which a managing director who
had a contractual entitlement to payment in lieu of notice voted to
give himself an ex gratia payment instead (in recognition of his
past services). The Court held that the ex gratia payment in lieu
of notice could be a payment for "past services". As a
result, the ex gratia payment would not have required shareholder
approval if it had been below the threshold. . This reasoning would
appear to apply equally to payments made under a contractual
obligation to give a payment in lieu of notice.
However, the managing director in this case:
had breached his directors' duties by voting in favour of
the ex gratia payment; and
had forfeited his contractual entitlement to a payment in lieu
of notice by failing to give himself notice of termination in
circumstances where he knew that the business was going to close
but had continued to draw his salary without looking for another
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Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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