Australia: Accountability on Termination Payments & Fiduciary Duty in Private Companies

Last Updated: 21 September 2009


  • The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 – release of final Regulations
  • Fiduciary duties and private companies – is there a duty to disclose a "deal in the wings"

The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 – release of final Regulations


The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 was announced in May this year. The Bill passed through the House of Representatives on 24 June 2009 and has been referred to the Senate Economics Legislation Committee for review.

The Bill was introduced with a view to amending the Corporations Act 2001 to lower the threshold at which termination payments to company directors and executives require shareholder approval. It also clarifies the types of benefits that are subject to shareholder approval as well as requiring unauthorised payments to be repaid.

Significantly, the threshold at which termination payments require shareholder approval has been reduced from payments exceeding seven times the total annual remuneration package to payments exceeding one year's average "base salary".

On 3 September 2009 the Minister for Financial Services, Superannuation & Corporate Law released the final Regulations. These Regulations will supplement the Bill by providing clarification as to:

  • what constitutes a "base salary";
  • what types of benefits are subject to shareholder approval; and
  • the circumstances in which a benefit is given in connection with retirement.

Payments subject to shareholder approval

One of the goals of the Regulations is to minimise the legal ambiguity that currently exists in regards to what types of payments are considered to be benefits and therefore subject to shareholder approval.

Payments that are considered to be benefits include (but are not limited to):

  • any kind of pensions other than pensions paid from a superannuation fund or superannuation annuity;
  • amounts paid as voluntary out of court settlements in matters relating to termination of employment; and
  • in some circumstances, payments made as part of restrictive covenants, restraint of trade clauses or non-compete clauses.

The Regulations explicitly exclude "genuine" superannuation contributions, though the judiciary will ultimately determine what "genuine" means.


The provisions will apply to all companies incorporated under the Corporations Act 2001 including proprietary companies and companies limited by guarantee. Significantly, the Bill extends the scope of the provisions from directors to include executives and key management personnel. However, the provisions will apply differently to disclosing entities (for example, listed public companies) and companies which are not disclosing entities (for example, private companies).

While the new arrangements will not apply retrospectively to contracts that have already been settled, there will be serious implications for those individuals and bodies corporate that do not comply with the shareholder approval requirements for contracts entered into after the enactment of the Bill. The penalty provisions as they currently stand provide for $2,750 fines for individuals and $16,500 fines for body corporates. The Bill increases this to $19,800 and $99,000 fines respectively, indicating the position that has been taken in regards to excessive termination payments and the rights of shareholders in the current economic environment.


Fiduciary duties and private companies – is there a duty to disclose a "deal in the wings"


A position often taken by the majority shareholder of a private company is that he or she has no duty to look out for the interests of the minority shareholders – that he or she can exercise rights as majority shareholder in an entirely selfish manner. The principle has its limits, particularly where the majority shareholder is a director, as indicated in a recent decision of the Supreme Court of Victoria.

In Jones v Jones [2009] VSC 292, the Court held that a director/shareholder, when negotiating to acquire the interest of a minority shareholder of a company, owed (and breached) a fiduciary duty to the minority shareholder to disclose the existence of negotiations to sell the company's business.


The facts (simplified) were:

  • David Jones ( minority shareholder ) and Jeffrey Jones ( majority shareholder and director ) owned all the shares and units in the ITR Group.
  • Following the minority shareholder's resignation as a director, the majority shareholder and director became the sole director on 7 February 2006.
  • On 7 September 2006, the minority shareholder contracted to sell his ITR shares and units to the majority shareholder and director for $575,000.
  • On 11 September 2006, ITR had sold its business for $4,050,000.
  • Before contracting to sell his shares and units, the minority shareholder asked the majority shareholder and director on two occasions if there was a "deal in the wings" (in relation to the sale of the company or its business), to which the majority shareholder and director answered in the negative.
  • The minority shareholder alleged at the hearing that the majority shareholder and director breached his duty by failing to disclose the fact and details of the negotiations of the sale while procuring the minority shareholder to complete the sale of his shares and units. Equitable compensation was claimed in the sum of $963,710 as the amount denied by reason of the breach.


The denials of the existence of the negotiations by the majority shareholder and director were held to be misleading and deceptive within the meaning of the Fair Trading Act 1999 (Vic) and also constituted deceit.

Of more interest from a company law point of view, is that the Court found that the majority shareholder and director had also breached a fiduciary duty owed to the minority shareholder and ordered the majority shareholder and director to pay $963,710 in equitable compensation.

Fiduciary duty

The case reaffirms the finding in Brunninghausen v Glavanics [1999] NSWCA 199 that directors may owe fiduciary duties not only to the company, but also to its shareholders.

Whilst the director-shareholder relationship is not expressly recognised as a fiduciary relationship, it may be deemed to be in certain circumstances.

In this case where the director is coordinating the sale of the company, the director will also be acting in the interests of its shareholders. Moreover, a director in this situation must not put his or her interests above those of the shareholders.

Lessons to be learned

Directors and director/shareholders should be conscious of any information they are privy to that may affect the interests of other shareholders.

Whenever there are dealings between shareholders in circumstances where one shareholder is aware of a "deal in the wings" careful consideration is necessary to determine the extent to which the shareholder is obliged to disclose his knowledge of the deal. There can, for example, be a duty to disclose significant contracts and transactions that will otherwise have an impact on the value of the company and therefore on the value of the shares.

Alan Eden t (07) 3114 0229 e
Michael Owens t (07) 3114 0146 e
Paul Lagozzino t (08) 8233 0647 e

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.

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