The government has released its draft legislation to broaden the
circumstances where shareholder approval will be required for the
payment to directors and executives of termination benefits as
announced on 18 March 2009. The legislation applies to all
Currently shareholder approval is required for benefits paid in
connection with the retirement from office of a director where the
benefit exceeds seven times the director's average total annual
remuneration (that is the amount required to be
disclosed in financial statements about director's
remuneration) for the last three years.
The government, as previously announced, proposes to limit the
amount to the person's average annual base
salary, as determined under the Accounting Standards,
during the last three years during which the person held a
managerial or executive position. For shorter periods there are
shading in provisions.
In the case of listed entities the new rules will apply to key
management (as determined under the Accounting Standards) and the
five highest remunerated executives as detailed in the
directors' report for the previous financial year. For any
other body corporate it is directors and directors of a related
In addition to the existing circumstances of when a benefit is
taken to be given in connection with a person's retirement form
an office or position the circumstances are to be extend by the new
regulations to include the automatic or accelerated vesting of
options and a payment in lieu of giving notice of termination.
A meeting cannot be called for the sole or dominant purpose of
passing a resolution to approve benefits that are greater than the
prescribed limit. The resolution may only be considered at a
meeting called to deal with other business of the entity. The
government's rationale for this is to reduce the compliance
costs. In addition the person must have retired before any notice
of meeting is given which is intended to ensure that shareholders
have an understanding of how the person has performed before
exercising their vote.
A proposed new definition of 'benefits' is designed to
capture every imaginable benefit. This will be augmented by
regulations. Under the proposed regulations benefits will include
pensions, superannuation payments in excess of the statutory amount
and voluntary out of court settlements. Benefits will not include
deferred bonuses and payments from existing defined benefits
Provision is made to require immediate repayment of any benefit
given in contravention of the requirement to obtain shareholder
approval in addition to the existing requirement to hold any
benefit in trust for the entity.
The maximum fines for breaches will be increased to $19,800 for
individuals and $99,000 for corporations.
The government has called for public comment on the draft
legislation. Submissions may be made on or before 2 June 2009.
Please contact the authors if you require further information
concerning the proposed legislation or would like assistance in
formulating a submission.
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and should not be relied on as a substitute for professional
advice. Specialist legal advice should always be sought in relation
to any particular circumstances and no liability will be accepted
for any losses incurred by those relying solely on this
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