Lessons for Directors from 2015

Take a look back at some memorable moments from 2015 and learn valuable lessons on what not to do as director.

See below for the complete transcript of this episode -

With 2016 well underway, now is a good time to pause and set up the rest of your year for success by considering some important lessons directors should have learned in 2015.

• Lesson 1 - Termination payments to directors must be approved by members.

  Shareholders of a mining company put together an action to overthrow the existing board. When the new management team took over, they discovered large termination payments had been made to the old directors, BUT the payments had not been approved by the members as is required by Section 200B of the Corporations Act. On application to the Federal Court, the former directors’ assets were frozen, and they were subsequently ordered to repay the amounts.

• Lesson 2 – When you’re a director, you still can’t let your private interests conflict with your duties.

  In a very clear example of what not to do – three directors of a pharmaceutical company seemed to completely forget this duty when they varied the termination clauses in their own contracts and granted themselves 12 months’ remuneration upon resignation. The directors withheld this conduct from the board and then, six months later, resigned. A Queensland Court found the conduct “dishonest”, a “dereliction of their duties”, and a breach of sections 180, 181, and 182 of the Corporations Act. In a decision that shocked no one, they were ordered to pay compensation to their former company.

• Lesson 3 – There are possible changes to insolvency laws but not just yet.

  In 2015 the Productivity Commission’s report provided 15 recommendations for reform to Australia’s insolvency law, which are considered to be far behind the world’s best practice. One proposed change is safe harbour provisions to protect directors from possible personal liability for insolvent trading. But only if they appoint a restructuring advisor. The aim of the changes is to promote innovation by encouraging greater risk-taking. However, these changes are yet to be implemented, so please continue to monitor your company’s financial viability carefully!

If you need further information on any corporate governance issue to help make your 2016 safe and successful, please do not hesitate to get in touch.

What Should I Do Next?

Contact us if you would like further legal advice on Corporate Governance.  Our lawyers at You Legal will be happy to assist you in whatever way we can.

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* This blog is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.