A director arranged for his services to be made available
through a company, and requested that payment be made to it.
The court accepted that the payment had been made available,
indirectly, to the director as remuneration, for the purpose of
calculating the maximum retirement benefit that could be paid to
The Corporations Act 2001 limits the amount that
companies may pay a director in connection with their retirement,
without shareholder approval. In Dome Resources NL v Silver 
NSWCA 322, the New South Wales Court of Appeal considered this
limitation in the context of a challenge to the validity of a
retirement deed, which it held to be valid and effective.
The company's constitution – businesslike
Clause 11.5 of Dome Resources NL's (Dome's) constitution
provided that "the Directors may at any time adopt any
scheme or plan" to provide retirement or
superannuation benefits for both present and future non-executive
directors. Under the agreement, Mr Silver, the outgoing director,
(or more accurately a company controlled by Dome which procured his
services) was entitled to be paid a benefit upon his
The question in this case was whether clause 11.5 required a
pre-existing "scheme or plan", pursuant to which benefits
are conferred or whether clause 11.5 empowered the board to provide
for benefits in whatever way it thought appropriate.
The court took the latter view. It stated that, in interpreting
a company's constitution, it is appropriate to approach the
task so as to give the document a "businesslike
interpretation", paying "attention to the language used
by the parties, the commercial circumstances which the document
addresses, and the objects which it is intended to secure".
The Court said that these principles require that the provision in
a constitution conferring power on the directors should be given as
broad an operation as is reasonably available on the language and
without imposing procedural constraints on the board, absent some
contextual indication or purpose requiring the language to be so
Section 200G – shareholder approval required?
The second question the court had to decide was whether the
payments to companies controlled by Mr Silver and procuring
delivery of his services were "remuneration" for the
purposes of the Corporations Act, and therefore could be
counted in determining the maximum retirement benefit that could be
paid under section 200G.
The court had regard to the fact that the Corporations
Act adopts the accounting standard definition of
"remuneration", which under the relevant accounting
standard at the time extended to all benefits paid to a director,
whether direct or indirect. The court also considered that the
economic and commercial substance of the payments should prevail
over their legal form. Accordingly, it held that providing a
payment to a party associated with the director is to provide the
benefit to the director. The payments made to Mr Silver's
companies by Dome for the provision of Mr Silver's personal
services therefore constituted part of his total remuneration from
A further question was whether Mr Silver could include in the
calculation amounts which he had received for his services as
managing director, prior to stepping down from his executive role
and becoming a non-executive director of Dome. The court held that
these amounts could be included, because section 200G did not
require that the calculation be made by reference to a period
during which the officer held the particular office from which they
The court adopted a commercial interpretation of the
company's constitution and a purposive interpretation of the
legislation to find this retirement benefit valid.
In drafting and reviewing constitutions, it is worth bearing in
mind that provisions conferring powers on directors will tend to be
construed broadly and without imposing procedural constraints,
absent some indication they should be construed otherwise.
The case reminds us of the need to construe the retirement
benefit provisions of the Corporations Act in a way that
makes sense having regard to the purpose of the legislation. It
also reminds us that statutory provisions may require that conduct
be traced through corporate entities, not stopping the analysis at
the point at which a new corporate entity is introduced.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Franchisors should minimise the risk to their brands by helping their franchisees understand and meet their obligations.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).