Australian directors face jail over new voting rules
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Australian firms have been cautioned that a widening of
the related party rules in regard to remuneration
resolutions could lead to prosecution for
non-compliance.
The recently introduced
Corporations Amendments (Improving Accountability on
Director and Executive Remuneration) Act 2011 prohibits
key management personnel, including directors and their
'closely-related parties', from voting their own shares to
adopt a remuneration report, or from voting undirected proxies
on remuneration resolutions.
Notably, the amended Act involves a definition of 'related
party' that is significantly broader than in other similar
regulation. Those who fail to comply correctly with the new
resolution face severe penalties, including the possibility of
up to five years' jail time and/or a $22,000 fine.
According to Chartered Secretaries Australia (CSA)'s Chief
Executive Tim Sheehy, the amended Act would 'count a 'closely
related party' not just a spouse but also an adult step-child
from a previous marriage or a sibling, whether estranged or
otherwise. You could almost go so far as to say anyone who
may have shared a toothbrush with key management would now be
perceived as a closely related party and therefore be
prohibited from voting.
'In fact, the risks are so great that CSA is pleased to have
been asked by the Australian Securities and Investments
Commission to develop these guidelines as directors and key
management will definitely need guidance negotiating this
minefield,' said Mr Sheehy.
The guidance to assist companies in complying.
Guidelines on managing voting exclusions on
remuneration-related resolutions
offers clarification of the relevant regulations, as
well as providing practical steps that the company secretary
can take to manage voting restrictions.
Presented by CSA 8 November 2011.