Generally speaking they contain the standard model superannuation clause, a draft of which was previously published by the Australian Industrial Relations Commission. An example is clause 22 in the General Retail Industry Award 2010 (MA000004). The key obligation is set out in clause 22.2, which is simply that the 'employer must make such superannuation contributions to a superannuation fund for the benefit of an employee as will avoid the employer being required to pay the superannuation guarantee charge under superannuation legislation with respect to that employee'.
This will mean a number of significant changes from most current award provisions. These are as follows:
- Superannuation contributions will only need to be made quarterly, to meet SG obligations. This contrasts with most current awards, which require more frequent payment.
- Employees under age 18: If the employee is not working more than 30 hours a week, there will be no award obligation to make superannuation contributions.
- Employees 70 years or over will receive no superannuation under these awards.
- Employees earning less than $450 per month will receive no superannuation under these awards.
- There will be no obligation for the employer to enter into a participation agreement with the fund. This contrasts with some awards where there was such an obligation.
For a trustee to insist on a one month contribution obligation in an employer participation agreement would be to exceed the new award obligation, as it is not something an employer is required to do to comply with the award. Where the fund is a default fund under the award, even when there is choice of default funds, the employer is required to contribute to it whenever the employee makes no choice. A trustee is not entitled to impose conditions restricting the ability of the employer to contribute – there is an implicit representation that it will accept award contributions. Accordingly, the somewhat limited powers that trustees may have at present for ancillary enforcement of award superannuation obligations will be further reduced, if not totally extinguished.
As there will no longer be any award obligation for employers to enter into participation agreements with funds, there is a question whether a trustee will be able to insist on a binding obligation that matches the award obligation. The question is significant, because where there is no standard employer-sponsor arrangement, then the employer must ensure that all its employees who are not already members enrol on an application attached to or accompanying an up to date Product Disclosure Statement. If not, Section 1016A of the Corporations Act would not be complied with and the contribution would have to be returned, potentially giving rise to an SG liability. This in turn would give rise to a breach of the award.
A possible solution to this difficulty might be for trustees to allow employers to enter into non binding standard employer-sponsor arrangements, as these will be sufficient to amount to a 'standard employer–sponsor' arrangement as defined in section 16(1) of the Superannuation Industry (Supervision) Act. All that the section requires is an arrangement. An obligation to contribute pursuant to an 'arrangement', having regard to the tax cases dealing with the meaning of 'arrangement', will include a non-legally binding arrangement where the employer acknowledges in a way that need not be binding that it will contribute, for example, agreeing to provide employee details etc on a contribution return. Provided such an arrangement is in place, the relief from the requirement for an employee to complete an application before contributions can be accepted, contained in section 1016A of the Corporations Act, will apply.
Trustees will need to consider whether they should in the circumstances continue to seek to enforce their existing employer participation agreements.
Where an employer was required to enter into a participation agreement with the fund under an old award, arguably the obligations come to an end on 1 January 2010 where the agreement was entered into pursuant to that obligation. Even where the participation agreement was voluntarily entered into, it is still arguable that this was done under an inherent or implied or reasonable award obligation and accordingly ceases to apply once that award obligation cease to apply.
It must be remembered that State awards still apply to employers who are not corporations in terms of the corporations power in the Commonwealth Constitution in NSW, Qld, SA, WA and Tas. The Commonwealth is in the process of passing legislation enabling transfer of State industrial powers to it. Only Victoria, so far, has agreed to refer its powers.
James Hardie Case
This case (NSW Supreme Court 23 April 2009) concerned numerous claims of misleading and deceptive conduct and breach of directors' duties on the part of the members of the James Hardie Board and by three officers – the Company Secretary/General Counsel, the Chief Financial Officer and the Chief Executive Officer.
A significant number (although not all) of these claims were made out.
Of particular interest are the findings concerning the decision-making process giving rise to a statement to the Australian Stock Exchange that a foundation established to pay asbestos claims was fully funded. The establishment of the foundation was part of a corporate reorganisation, undertaken to facilitate the company's migration offshore. In fact, the foundation was not fully funded, and the actuarial advice which had been obtained did not support such a statement.
There were difficulties in establishing what was considered at the relevant board meeting and those directors who gave evidence all said they had no recollection of having considered the statement at that meeting. There were a total of eight witnesses who had no recollection of having considered the statement.
The normal meeting procedure was for the directors to leave the notices of meeting and all the meeting materials either at the meeting or to destroy them shortly thereafter. The company's practice was to keep a copy of those documents, but it could find no copy of the draft statement to the Australian Stock Exchange.
There was, however, a copy in an alternate director's papers and in the papers of the legal advisers to the Board. There was direct evidence given by the person who prepared the statement.
The judge inferred from this that the Board had considered the statement and approved it.
His Honour held that this was a key statement in relation to a highly significant reconstruction. Management having brought the matter to the Board, no member of the Board could abdicate responsibility by delegating his or her duty to a fellow director (at paragraph 260).
The non executive directors were held to be in breach of their duty as they must have realised that an unqualified statement that there were sufficient funds in the foundation could not be made (at paragraph 303). A reasonable person in the circumstances would not have approved the statement, and in the manner in which they dealt with the matter the directors did not discharge their duties under section 180 of the Corporations Act. That section requires a director to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a company in the company's circumstances.
The duties of the company secretary/general counsel were considered. He was found to be in breach of his duties as general counsel as he had an obligation to ensure that documents were not prepared in a misleading and deceptive manner and had an obligation to protect the company from legal risk (at para 402). Accordingly, he was in breach of section 180 (at para 413).
Similar findings were made against the Chief Financial Officer and the Chief Executive Officer.
The judge also held that the Chief Financial Officer should have exercised more care in the application of the limited actuarial advice taken (at paras 453 454).
The business judgment rule under section 180(2) of the Corporations Act was raised by the Chief Executive Officer. However, the Chief Executive Officer gave no evidence, and so there was no evidence to support his attempted reliance on that rule.
The same fate befell the due diligence defence in section 189. Under that section, a director's reliance on certain information or advice is taken to be reasonable where the information or advice was given by an employee, a professional adviser or expert or another director or officer, and the reliance was in good faith and after making an appropriate independent assessment. However, there was no evidence of reliance on advice.
Application To Superannuation Funds
In terms of procedures, it is important to make sure, if the directors are not to keep a copy of board papers and other documents that a full copy is kept by the company.
Superannuation funds are constantly producing documents that could possibly contain statements that are misleading and deceptive. However, it would be rare that an individual statement, if misleading and deceptive, would have such significant consequences as the James Hardie Australian Stock Exchange statement. In the majority of circumstances, directors of fund trustees should therefore remain comfortable with delegations to management in respect of the preparation and issue of statements, disclosure documents and other communications. However, it is important that there be clearly documented delegation procedures so that the section 189 due diligence defence can be relied on if necessary if things go wrong.
A matter not considered in the James Hardie case is that if a misleading and deceptive statement is made, then there would be a duty on the board to ensure it is corrected. Thus procedures need to address the correction of statements once somebody in authority becomes aware that a statement is misleading and deceptive.
Deductibility Of Total And Permanent Disability Insurance Premiums
Since 1 July 2007, with the rewrite and transfer of provisions dealing with the deductibility of TPD insurance premiums from the 1936 to the 1997 Income Tax Assessment Act, there has been confusion about the extent to which these premiums are deductible.
The new provisions include a definition of 'disability superannuation benefit' to mean a benefit paid to a person because they are suffering from mental or physical ill-health, and two legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in the capacity for which he or she is reasonably qualified because of education, experience or training. Funds are then entitled to a deduction for the whole of premiums paid for insurance which provides 'disability superannuation benefits' for members.
Before 1 July 2007, there was no corresponding definition of 'disability superannuation benefit' or a like term, and it was generally accepted that deductions were available for premiums paid in respect of any TPD policy.
In practice, few TPD policies are written in terms which reflect the requirements as set out in the 1997 Tax Act from 1 July 2007. For example, they may provide a TPD definition in terms of 'own occupation', or they may allow for a TPD benefit to be paid if a member loses their sight or certain limbs.
On 13 October, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, announced that there would be an amendment to the tax law to provide transitional relief to complying superannuation funds for the deduction of TPD insurance premiums. The relief is to extend until 30 June 2011, and legislation will be introduced as soon as practicable, after industry consultation.
Although it is obviously helpful for funds to have comfort as regards deductions claimed previously and as to the position until 2011, the current uncertainty may recur unless the proposed consultation results in a practical solution for superannuation funds, their insurers and members.
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