Corporation Law: Director Duties and Executive Remuneration in Australia

This report discusses the provisions and case law related to director duties and executive remuneration in Australia. It also provides an overview of ASIC and its responsibilities. The report highlights the sensitivity of the issue of executive remuneration and its negative impact on company performance and the general economy.

Corporation law

Table of Contents
Introduction................................................................................................................................2
Overview of ASIC......................................................................................................................2
Director Duties...........................................................................................................................2
Executives Remuneration...........................................................................................................4
REFERENCES...........................................................................................................................6

INTRODUCTION
In present market economies, the desirability of appropriate governance id usually promoted.
Moreover, the variant which is not encouraged is that governance which is required for public
interest can be developed only in the required form of market economy which is not present
in the free market. As free-market represent specific interest group, who aim for their own
objective even though other organizations resist there. However, governance of economic
activity in public interest needs inclusive process considering all issues through which public
is affected and continues constant research of effective democracy. Present report revolves
around a discussion of current issues of Australia which affect director, manager and
shareholder of a company. In order to develop an appropriate base provision and case law
relating to same have been discussed so that it could be understood in an appropriate manner.
OVERVIEW OF ASIC
ASIC refers to Australian Securities and Investment Commission which is an independent
Australian government body which is represented as a corporate regulator of Australia. The
main responsibility of ASIC comprises managing, facilitating and enhancing the existing
level of efficiency of the financial system and entities within it. Moreover, it is also
responsible for encouraging confident and informed participants through investor and
consumers of the financial system. The main areas of responsibility of ASIC comprise
corporate governance, insurance, consumer protection, securities and derivatives and
financial literacy. The main vision of the specified organization is to transform behaviour in
order to assist consumer and investor in attaining an appropriate outcome. It also encourages
strong and innovative developments of the financial system in order to assist Australian for
controlling their financial lives. ASIC ensures the existence of the fair, orderly and
transparent market and same is attained through accomplishing the entire obligations relating
to market supervision, competition and corporate governance in an appropriate manner.
DIRECTOR DUTIES
Provisions
Section 180(1) of Corporations Act 2001 provides specification relating to an objective
standard for performance of director duties. It provides that an individual is required to

exercise the available power and to discharge required duties with care and diligence as a
reasonable person in case the same is a director or has occupied office within an organization
as director. Further section 181 of Corporation Act 2001 specifies that good faith should be
added to the above-specified provisions. It specifies that a director is required to exercise his
powers in good faith, i.e. in the best interest of the corporation and for proper use only.
Further, the business judgement rule which is provided in section 180(2) of Corporations Act
provides that a director can rely on business judgement rule only in the following situations:
 In order to make a judgement in good faith and for an appropriate reason.
 In case material personal interest does not exist in a subject matter of decision.
 Rationally a belief is available that the decision is in the best interest of the
corporation. They are confident to a significant extent that they can believe the judgement to be
appropriate.
Analysis
Duties of the director are a concerned issue as directors are the representative of a company,
and they take a decision on behalf of the company. In the present case of Australian and
Investment Commission (ASIC) v Cassimatis1 the Federal Court of Australia deemed the
nature of responsibility of care and industries owned by executives under section 180(1) of
the Corporations Act 20012. Further, the court conceded that manager of the financial
services company had broken their duties as executives, since a rational executive with their
responsibilities and in the organization’s conditions must have been rationally aware that the
organization was probably to breach the Corporations Act, with catastrophic effects for the
firms3.
Moreover, the court stated that Storm had contravened the Corporation Act offering financial
services in accordance with the model to the category of vulnerable clients recognized by
1 (No.8) FCA 1023
2 Tills M. And Wills C. (2016). Available through < https://www.clydeco.com/insight/article/australian-
directors-found-guilty-of-breaching-duties-following- corporation?
utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original>. [Accessed on 2nd October
2018]
3 CORPORATIONS ACT 2001 - SECT 202A (2015). Available through <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s202a.html> [Accessed on 2nd
October 2018]

ASIC and the managers had contravened their responsibilities related to care and diligence
because:
A rational manager of a corporation in Storm’s conditions and with Mr and Mrs Cassimatis
duties would have been conscious of strong likelihood of a breaking of Corporation Act in
case he or she uses his or her authorities to allow the storm model to be applied to clients
who are in a class pleaded by ASIC, specifically investors who are retired or close to
retirement with some assets and restricted earnings. Furthermore, the court concluded that
the contravention by Storm was not only reasonably predictable but that a reasonable
executive in place of Mr and Mrs Cassmatis will have regarded them as likely4. It is approved
by the courts that there had been only one contravention by each of the executives.
EXECUTIVES REMUNERATION
Provisions
The Section 202A of Corporation Act 2001 specifies that executives of an organisation are to
be paid remuneration in the manner as the same is determined by resolution5. Further,
payments relating to travelling as well as other expenses which have been incurred in below
specified situation are also part of executive remuneration:
 In attending the executives’ conferences or any other conferences on the board of
managers.
 Attending any general conference of the organisation.
 Any other expenses related to the operations of the company.
Further, section 202B of Corporation Act 2001 specifies that:
An organisation should reveal all the information related to the remuneration paid to every
executive of the firm or subsidiary if any by the corporation, individual controlled
organisation if it is entitled to reveal the information by-
4 Wills C. and Tills M. (2016). Available through <
http://www.mondaq.com/australia/x/527680/Corporate+Governance/Australian+Directors+F
ound+Guilty+Of+Breaching+Duties+Following+Corporations+Breaches>. [Accessed on 2nd
October 2018]
5 CORPORATIONS ACT 2001 - SECT 202A (2015)

 Members with not less than 5% of the voted that might be given at a general
conference of the organisation.
 Minimum of 100 members who are allowed to vote at a general conference of the
organisation6.
The organisation has to reveal information relating to the remuneration paid by the company
to its executives, irrespective of whether it is given to the managers compared with their
capacity as a director or another capacity7. The firm must obey with the directions as far as
feasible through:
 Making the reports related to the remuneration paid to every director of the firm or
subsidiary for the current financial year prior to the direction was specified.
 Further, the statement should be audited.
 The duplicate of audited statement has to be sent to every individual who is permitted
to obtain the notice of general conferences of the firm.
Analysis
The fact cannot be denied that the director’s remuneration as a mechanism of corporate
governance has been utilized to resolve the agency issues, but it has developed into a
corporate governance problem of its own.
Board of members is responsible for controlling the decision-making procedure in support of
the owners, and the directors are responsible for verifying the daily decision making
procedure. Moreover, executives could utilize the assets of an organization to improve their
own livelihood. The same implies that they take benefit of their control authority to fulfil
their own needs, for example, living the comfortable life along with exclusive cars and
personal tour while leaving the cost to fall on the owners.
Accounting scandals of known companies such as Enron, WorldCom, Fannie Mae, General
Electric (GE), Royal Bank of Scotland (RBS), represent the sensitivity of the issue of
executive remuneration. These instances have made believe that executives are an agent and
there is no similarity in executives as shareholders as principal and in the form of the agent as
executives of the company. As this relationship enhance the complexity rather than resolving
6 He, W.P. and Lepone, A., 2014. Determinants of liquidity and execution probability in exchange operated dark
pool: Evidence from the Australian Securities Exchange. Pacific-Basin Finance Journal, 30, pp.1-16.
7 CORPORATIONS ACT 2001 - SECT 202B (2015)

them. Executive remuneration enhances only the personal interest and does not consider the
interest of shareholder interest and same effects negatively to company performance as well
as the general economy.

REFERENCES
CORPORATIONS ACT 2001 - SECT 202A (2015). Available through <
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s202a.html> [Accessed on 2nd
October 2018]
He, W.P. and Lepone, A., 2014. Determinants of liquidity and execution probability in
exchange operated dark pool: Evidence from the Australian Securities Exchange. Pacific-
Basin Finance Journal, 30, pp.1-16.
Tills M. And Wills C. (2016). Available through <
https://www.clydeco.com/insight/article/australian-directors-found-guilty-of-breaching-
duties-following- corporation?
utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original>.
[Accessed on 2nd October 2018]
Wills C. and Tills M. (2016). Available through <
http://www.mondaq.com/australia/x/527680/Corporate+Governance/Australian+Directors+F
ound+Guilty+Of+Breaching+Duties+Following+Corporations+Breaches>. [Accessed on 2nd
October 2018]