RELATED PARTY TRANSACTIONS AND MATERIAL PERSONAL INTERESTS

The Corporations Act regulates the relationships between the company and its officers. Section 191 deals with material personal interests. If the company is public,  s195 CA and Chapter 2E CA will apply to the financial relationships between the company and its officers . The constitution must also be complied with.

The directors must still satisfy themselves that entering into the transaction will be in the best interests of the company, made in good faith and for a proper purpose — the non-interested directors need to still satisfy their duties under ss 180 and 181 CA and at common law. The general meeting cannot exempt a director from a liability (s 199A(1)) eg if the transaction would result in a breach of a statutory duty.

Disclosure of interests

• Under s 191 a director should fully disclose his interests to the board (unless the matter does not require disclosure under s 191(2) — note, s 191(2)(d) and only effective standing notices are exempted).
• A director of a proprietary company may vote on an issue if his interest has been disclosed: s194
• A listed public company director must disclose their company shareholdings to the market operator.s205G

• Under s 195(1) CA a public company director must leave the room and not vote, unless the Board permits under s195(2).

Related party transactions

• s 229(3)(d) CA defines a ‘financial benefit’. For the other directors to approve the contract it would have to be on reasonable terms or an arm’s length nature (s 210 CA).

• If it is not at arm’s length, the matter would have to be put before a general meeting (s 208 (1) CA), following the procedure of Pt 2E.1 Div 3 and the director could not vote (s 224(1) CA).