One of the regulatory offshoots of the global financial crisis was the addition to the Corporations Act of provisions intended to limit, or at least ensure full disclosure of, substantial payouts to executives on termination of employment. Stated in an over-simplified way, these provisions (s200B and related sections) require certain processes to be followed if an executive's payout exceeds 12 months salary. Some years on from the GFC, it is easy to overlook the process requirements, but failure to comply may invalidate payments or result in an offence.
So what needs to be done?
The basic requirement is for the shareholders in general meeting to approve any payment in excess of 12 months salary. This requires full disclosure to the shareholders of the payments being made, and an appropriate resolution being passed by a general meeting (or by circular resolution in the case of a private company with a small number of shareholders).
Who will be an executive for this purpose?
A person who held a "managerial or executive office" – for a disclosing entity, this will be a person named in the director's report, and for other corporations, it will be a director or person who held a management position and was a director of a related body corporate.
What payments are included?
Any benefit received by the employee in connection with termination is potentially included, even if it is a contractual entitlement, but this does not include wages or accrued annual or long service leave. So, payments structured as notice, redundancy payments, bonuses or the like paid "in connection with" the termination could qualify, as will any non cash benefits provided to the employee.
This is a simplified description of the provisions, which are complex. If you are contemplating the departure of a senior executive or manager, with entitlements exceeding 12 months (averaged over the last 3 years), you need to get advice to ensure full compliance with the requirements of the Corporations Act.
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.
