Corporations Act 2001

CHAPTER 2D - OFFICERS AND EMPLOYEES  

PART 2D.2 - RESTRICTIONS ON INDEMNITIES, INSURANCE AND TERMINATION PAYMENTS  

Division 1 - Indemnities and insurance for officers and auditors  

SECTION 199A   INDEMNIFICATION AND EXEMPTION OF OFFICER OR AUDITOR  
Exemptions not allowed

199A(1)    
A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company.

Note: This section is modified for the director of a wholesale CCIV: see subsection 1224D(7) . This section has an extended operation in relation to officers and auditors of the corporate director of a CCIV: see section 1225E .

When indemnity for liability (other than for legal costs) not allowed

199A(2)    
A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company:

(a)    a liability owed to the company or a related body corporate;

(b)    

a liability for a pecuniary penalty order under section 1317G or a compensation order under section 961M , 1317H , 1317HA , 1317HB , 1317HC or 1317HE ;

(c)    a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith.

This subsection does not apply to a liability for legal costs.

When indemnity for legal costs not allowed

199A(3)    
A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred:

(a)    in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subsection (2) ; or

(b)    in defending or resisting criminal proceedings in which the person is found guilty; or

(c)    in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the court to have been established; or

(d)    in connection with proceedings for relief to the person under this Act in which the Court denies the relief.

Paragraph (c) does not apply to costs incurred in responding to actions taken by ASIC or a liquidator as part of an investigation before commencing proceedings for the court order.

Note 1: Paragraph (c) - This includes proceedings by ASIC for an order under section 206C , 206D , 206E or 206EAA (disqualification), section 232 (oppression), section 961M , 1317E , 1317G , 1317H , 1317HA , 1317HB , 1317HC or 1317HE (civil penalties) or section 1324 (injunction).

Note 2: The company may be able to give the person a loan or advance in respect of the legal costs (see section 212 ).

199A(4)    
For the purposes of subsection (3) , the outcome of proceedings is the outcome of the proceedings and any appeal in relation to the proceedings.

SECTION 199B   INSURANCE PREMIUMS FOR CERTAIN LIABILITIES OF DIRECTOR, SECRETARY, OTHER OFFICER OR AUDITOR  

199B(1)    
A company or a related body corporate must not pay, or agree to pay, a premium for a contract insuring a person who is or has been an officer or auditor of the company against a liability (other than one for legal costs) arising out of:

(a)    conduct involving a wilful breach of duty in relation to the company; or

(b)    a contravention of section 182 or 183 .

This section applies to a premium whether it is paid directly or through an interposed entity.

Note: This section has an extended operation in relation to officers and auditors of the corporate director of a CCIV: see section 1225E .

199B(2)    

An offence based on subsection (1) is an offence of strict liability.

Note: For strict liability , see section 6.1 of the Criminal Code .

SECTION 199C   CERTAIN INDEMNITIES, EXEMPTIONS, PAYMENTS AND AGREEMENTS NOT AUTHORISED AND CERTAIN DOCUMENTS VOID  

199C(1)   [ Unlawful acts]  

Sections 199A and 199B do not authorise anything that would otherwise be unlawful.

199C(2)   [ Purported cover void]  

Anything that purports to indemnify or insure a person against a liability, or exempt them from a liability, is void to the extent that it contravenes section 199A or 199B .

Division 2 - Termination payments  

SECTION 200  

200   INTERPRETING THIS DIVISION  

For the purposes of this Division, in determining whether a benefit is given:

(a) give a broad interpretation to benefits being given, even if criminal or civil penalties may be involved; and

(b) the economic and commercial substance of conduct is to prevail over its legal form.

SECTION 200AA   MEANING OF MANAGERIAL OR EXECUTIVE OFFICE  

200AA(1)   If the company is a disclosing entity.  

For a company to which section 300A applies for the previous financial year for the company, a person holds a managerial or executive office in the company during the current financial year if the person's details were included in the directors ' report for that previous financial year for the company in accordance with paragraph 300A(1)(c) .

Note: A person holding a managerial or executive office ceases to do so if the person ' s details are not included in the next director ' s report. However, this is not relevant to whether the person has retired from an office or position in the company (see paragraph 200A(1)(f) ).

200AA(2)   [ Retirement]  

The person is taken to hold the managerial or executive office for the whole of the current financial year unless and until the person retires from an office or position in the company before the end of that year.

Note: Retires has an extended meaning (see section 200A ).

200AA(3)   Otherwise.  

For a body corporate not covered by subsection (1), a managerial or executive office for the body corporate is:

(a) an office of director of the body corporate; or

(b) any other office or position in connection with the management of the body corporate ' s affairs that is held by a person who also holds an office of director of the body corporate or a related body corporate.

SECTION 200AB   MEANING OF BENEFIT  

200AB(1)    

For the purposes of this Division, a benefit includes any of the following:

(a) a payment or other valuable consideration;

(b) any kind of real or personal property;

(c) any legal or equitable estate or interest in real or personal property;

(d) any legal or equitable right;

(e) a thing specified in regulations made for the purposes of this paragraph.

Note: For specification by class, see subsection 13(3) of the Legislation Act 2003 .

200AB(2)    

However, for the purposes of this Division, a benefit does not include a thing specified in regulations made for the purposes of this subsection.

Note: For specification by class, see subsection 13(3) of the Legislation Act 2003 .

SECTION 200A   WHEN BENEFIT GIVEN IN CONNECTION WITH RETIREMENT FROM AN OFFICE OR POSITION  

General rules

200A(1)    

For the purposes of this Division:

(a) a benefit is given in connection with a person's retirement from an office or position if the benefit is given:

(i) by way of compensation for, or otherwise in connection with, the loss by the person of the office or position; or

(ii) in connection with the person's retirement from the office or position; and

(b) giving a benefit includes:

(i) if the benefit is a payment - making the payment; and

(ii) if the benefit is an interest in property - transferring the interest; and

(c) a person gives a benefit even if the person is obliged to give the benefit under a contract; and

(d) a pension or lump sum is paid or payable in connection with the person's retirement from an office or position if the pension or lump sum is paid or payable:

(i) by way of compensation for, or otherwise in connection with, the loss by the person of the office or position; or

(ii) in connection with the person's retirement from the office or position; and

(e) retirement from an office or position includes:

(i) loss of the office or position; and

(ii) resignation from the office or position; and

(iii) death of a person at a time when they hold the office or position; and

(f) when working out whether a person has retired from an office or position, disregard whether or not the person ' s details are included in a directors ' report in accordance with paragraph 300A(1)(c) .

Rules in regulations

200A(1A)    

Without limiting subsection (1), a benefit is given in connection with a person ' s retirement from an office or position if the benefit is given in circumstances specified in regulations made for the purposes of this subsection.

Note: For specification by class, see subsection 13(3) of the Legislation Act 2003 .

Related benefits

200A(2)    

For the purposes of this Division, if:

(a) a person ( person A ) gives another person a benefit ( benefit A ); and

(b) person A gives benefit A for the purpose, or for purposes including the purpose, of enabling or assisting someone to give a person a benefit in connection with the retirement of a person ( person B ) from an office or position;

person A is taken to give benefit A in connection with the person B's retirement from that office or position.

SECTION 200B   RETIREMENT BENEFITS GENERALLY NEED MEMBERSHIP APPROVAL  
Benefits in connection with retirement if person has held a managerial or executive office

200B(1)    

An entity mentioned in subsection (1AA) must not give a person a benefit in connection with a person ' s (the retiree ' s ) retirement from an office, or position of employment, in a company or a related body corporate if:

(a)    the office or position is a managerial or executive office; or

(b)    the retiree has, at any time during the last 3 years before his or her retirement, held a managerial or executive office in the company or a related body corporate;

unless there is member approval under section 200E for the giving of the benefit.

Note 1: This subsection extends to benefits given by way of compensation for, or otherwise in connection with, a person ' s loss of an office or position (see subsections 200A(1) and (3) ).

Note 2: Sections 200F , 200G and 200H provide for exceptions to this subsection.

Note 3: The recipient of the benefit need not be the retiree.

Note 4: This section has a modified operation in relation to CCIVs: see section 1224ZD .

200B(1AA)    

The entities are as follows:

(a)    the company;

(b)    an associate of the company (other than a body corporate that is related to the company and is itself a company);

(c)    a prescribed superannuation fund in relation to the company.

200B(1A)    

For an offence based on subsection (1) , strict liability applies to the circumstance, that the benefit is in connection with the retiree ' s, or someone else ' s, retirement.

Note: For strict liability , see section 6.1 of the Criminal Code .

Prescribed superannuation funds

200B(2)    
For the purposes of this section:

(a)    a superannuation fund is taken to be a prescribed superannuation fund in relation to a company if the company, or an associate of the company, gives a benefit to the superannuation fund in prescribed circumstances; and

(b)    if a prescribed superannuation fund in relation to a company gives a benefit to another superannuation fund in prescribed circumstances, the other superannuation fund is taken to be a prescribed superannuation fund in relation to the company.

Prescribed circumstances

200B(3)    

For the purposes of this section, if:

(a)    a company, or an associate of a company, gives a benefit to a superannuation fund solely for the purpose of enabling or assisting the superannuation fund to give to a person a benefit in connection with the retiree ' s retirement from an office or position in the company or a related body corporate; or

(b)    a superannuation fund gives a benefit to another superannuation fund solely for the purpose of enabling or assisting the other superannuation fund to give to a person a benefit in connection with the retiree ' s retirement from an office or position in a company or a related body corporate;

the benefit first referred to in paragraph (a) or (b) is taken to be given in prescribed circumstances.

200B(4)    
In this section:

superannuation fund
means a provident, benefit, superannuation or retirement fund.

SECTION 200C   BENEFITS ON TRANSFER OF UNDERTAKING OR PROPERTY NEED MEMBERSHIP APPROVAL  

200C(1)    
A person must not give a benefit to a person who:

(a)    

holds, or has at any previous time held, a managerial or executive office in a company or a related body corporate; or

(b)    is the spouse of a person referred to in paragraph (a); or

(c)    is a relative of a person referred to in paragraph (a) or of the spouse of such a person; or

(d)    is an associate of a person referred to in paragraph (a) or the spouse of an associate of such a person;

in connection with the transfer of the whole or any part of the undertaking or property of the company.

Note: This section has a modified operation in relation to CCIVs: see section 1224ZD .

200C(2)    

For an offence based on subsection (1) , strict liability applies to the circumstance, that the transfer is in connection with the transfer of the whole or any part of the undertaking or property of the company.

Note: For strict liability , see section 6.1 of the Criminal Code .

200C(3)    

Subsection (1) does not apply to the extent that there is member approval under section 200E .

Note: A defendant bears an evidential burden in relation to the matter in subsection (3) , see subsection 13.3(3) of the Criminal Code .

SECTION 200D   CONTRAVENTION TO RECEIVE BENEFIT WITHOUT MEMBER APPROVAL  

200D(1)   [ Prohibition on receiving benefit]  

A person who:

(a) holds, or has at any previous time held, a managerial or executive office in a company or related body corporate; or

(b) is the spouse of a person referred to in paragraph (a); or

(c) is a relative of a person referred to in paragraph (a) or of the spouse of such a person; or

(d) is an associate of a person referred to in paragraph (a) or the spouse of an associate of such a person;

must not receive a benefit if the giving of the benefit contravenes section 200B or 200C.

200D(2)   [ Strict liability offence]  

An offence based on subsection (1) is an offence of strict liability.

Note: For strict liability , see section 6.1 of the Criminal Code .

SECTION 200E   APPROVAL BY MEMBERS  

200E(1)   Conditions for member approval.  

For the purposes of section 200B , the conditions set out in subsections (1B), (2) and (2A) must be satisfied for there to be member approval under this section for the giving of the benefit to the person in connection with the retiree ' s retirement from the office or position.

200E(1A)   [ Conditions for member approval for benefits on transfer of undertaking or property]  

For the purposes of section 200C , the conditions set out in subsections (1B) and (2) must be satisfied for there to be member approval under this section for the giving of the benefit.

200E(1B)   First condition.  

The first condition is that the giving of the benefit be approved by a resolution passed at a general meeting of:

(a) the company; and

(b) if the company is a subsidiary of a listed domestic corporation - the listed corporation; and

(c) if the company has a holding company that:

(i) is a domestic corporation that is not listed; and

(ii) is not itself a subsidiary of a domestic corporation;

the holding company.

200E(2)   Second condition.  

The second condition is that details of the benefit must be set out in, or accompany, the notice of the general meeting that is to consider the resolution. The details must include:

(a) if the proposed benefit is a payment:

(i) the amount of the payment; or

(ii) if that amount cannot be ascertained at the time of the disclosure - the manner in which that amount is tobe calculated and any matter, event or circumstance that will, or is likely to, affect the calculation of that amount; and

(b) otherwise:

(i) the money value of the proposed benefit; or

(ii) if that value cannot be ascertained at the time of the disclosure - the manner in which that value is to be calculated and any matter, event or circumstance that will, or is likely to, affect the calculation of that value.

These requirements are in addition to, and not in derogation of, any other law that requires disclosure to be made with respect to giving or receiving a benefit.

200E(2A)   Third condition - for approvals relating to section 200B.  

The third condition is that at the general meeting, a vote on the resolution must not be cast (in any capacity) by or on behalf of:

(a) the retiree; or

(b) an associate of the retiree.

200E(2B)   [ Exception to third condition]  

Subsection (2A) does not prevent the casting of a vote if:

(a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the resolution; and

(b) it is not cast on behalf of the retiree or an associate of the retiree.

200E(2C)   [ Regulations]  

The regulations may prescribe cases where subsection (2A) does not apply.

200E(3)   Meeting may approve a lesser benefit.  

For the purposes of subsection (1B), the resolution may give approval by approving the giving of another benefit to the person if:

(a) the other benefit is given to the person instead of the proposed benefit; and

(b) the amount or money value of the benefit is less than the amount or money value of the proposed benefit.

200E(4)   Effect of approval on directors ' duties.  

Member approval under this section does not relieve a director of a body corporate from any duty to the body corporate (whether under section 180 , 181 , 182 , 183 or 184 or otherwise and whether of a fiduciary nature or not) in connection with the giving of the benefit.

SECTION 200F   EXEMPT BENEFITS AND BENEFITS GIVEN IN CERTAIN CIRCUMSTANCES  

200F(1)    
Subsection 200B(1) does not apply to:

(a) a benefit that is a payment made in respect of leave of absence to which the person is entitled under an industrial instrument; or

(aa) a benefit given under an order of a court; or

(b) a benefit given in prescribed circumstances.

200F(2)    

Subsection 200B(1) does not apply to a benefit given in connection with a person's retirement from an office or position in relation to a company if:

(a) the benefit is:

(i) a genuine payment by way of damages for breach of contract; or

(ii) given to the person under an agreement made between the company and the person before the person became the holder of the office or position as the consideration, or part of the consideration, for the person agreeing to hold the office or position; and

(b) the value of the benefit, when added to the value of all other benefits (if any) already given in connection with the person's retirement from offices or positions in the company and related bodies corporate, does not exceed the amount worked out under whichever of subsections (3) and (4) is applicable.

200F(3)    

This subsection applies if the relevant period for the person is less than 1 year. The amount worked out under this subsection is:

	Estimated annual base salary	×	Number of days in relevant period
	365

where:

estimated annual base salary
is a reasonable estimate of the base salary that the person would have received from the company and related bodies corporate during the relevant period if the relevant period had been 1 year.

Note: The relevant period for the person is defined in subsection (5).

200F(4)    

This subsection applies in every other case. The amount worked out under this subsection is:

(a) if the relevant period is 1 year - the base salary that the person received from the company and related bodies corporate during the relevant period; or

(b) if the relevant period is more than 1 year but less than 2 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period, worked out as if:

(i) the relevant period were 2 years; and

(ii) the person ' s annual base salary for the second year were a reasonable estimate of what the person would have received as base salary after the first year of the relevant period had the relevant period been 2 years; or

(c) if the relevant period is 2 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period; or

(d) if the relevant period is more than 2 years but less than 3 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period, worked out as if:

(i) the relevant period were 3 years; and

(ii) the person ' s annual base salary for the third year were a reasonable estimate of what the person would have received as base salary after the second year of the relevant period had the relevant period been 3 years; or

(e) if the relevant period is 3 years or more - the average annual base salary that the person received from the company and related bodies corporate during the last 3 years of the relevant period.

200F(5)    

For the purposes of this section, if a person has held a managerial or executive office in relation to a company:

(a) throughout a period; or

(b) throughout a number of periods;

the relevant period for that person is that period or the period consisting of those periods.

SECTION 200G   GENUINE PAYMENTS OF PENSION AND LUMP SUM  

200G(1)   [ When member approval not required]  

Subsection 200B(1) does not apply to a benefit if:

(a) the benefit is a payment in connection with a person's retirement from an office or position in a company or a related body corporate; and

(b) the payment is for past services the person rendered to:

(i) the company; or

(ii) a related body corporate; or

(iii) a body that was a related body corporate of the company when the past services were rendered; and

(c) the value of the benefit, when added to the value of all other benefits (if any) already given in connection with the person's retirement from offices or positions in the company and related bodies corporate does not exceed the amount worked out under whichever of subsections (2) and (3) is applicable.

In applying paragraph (c), disregard any pensions or lump sums that section 200F applies to.

200G(2)   [ Calculation if relevant period less than 1 year]  

This subsection applies if the relevant period for the person is less than 1 year. The amount worked out under this subsection is:

	Estimated annual base salary	×	Number of days in relevant period
	365

where:

estimated annual base salary
is a reasonable estimate of the base salary that the person would have received from the company and related bodies corporate during the relevant period if the relevant period had been 1 year.

Note: The relevant period for the person is defined in subsection (6).

200G(3)   [ Calculation]  

This subsection applies in every other case. The amount worked out under this subsection is:

(a) if the relevant period is 1 year - the base salary that the person received from the company and related bodies corporate during the relevant period; or

(b) if the relevant period is more than 1 year but less than 2 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period, worked out as if:

(i) the relevant period were 2 years; and

(ii) the person ' s annual base salary for the second year were a reasonable estimate of what the person would have received as base salary after the first year of the relevant period had the relevant period been 2 years; or

(c) if the relevant period is 2 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period; or

(d) if the relevant period is more than 2 years but less than 3 years - the average annual base salary that the person received from the company and related bodies corporate during the relevant period, worked out as if:

(i) the relevant period were 3 years; and

(ii) the person ' s annual base salary for the third year were a reasonable estimate of what the person would have received as base salary after the second year of the relevant period had the relevant period been 3 years; or

(e) if the relevant period is 3 years or more - the average annual base salary that the person received from the company and related bodies corporate during the last 3 years of the relevant period.

200G(4)   [ Amounts to be disregarded]  

In determining for the purposes of paragraph (1)(c) the value of a pension or lump sum payment, disregard any part of the pension or lump sum payment that is attributable to:

(a) a contribution made by the person; or

(b) a contribution made by a person other than:

(i) the company; or

(ii) a body corporate (a relevant body corporate ) that is a related body corporate of the company, or that was, when the contribution was made, such a related body corporate; or

(iii) an associate of the company, or of a relevant body corporate, in respect of:

(A) the payment of the pension, or the making of the lump sum payment, as the case may be; or

(B) the making of the contribution.

200G(5)    
(Repealed by No 115 of 2009, s 3, Sch 1, Pt 1 [ 38] (effective 24 November 2009) [ see relevant application provision under s 200 of this Act].)

200G(6)   [ Definitions]  

In this section:

payment
means a payment by way of pension or lump sum and includes a superannuation, retiring allowance, superannuation gratuity or similar payment.

relevant period :
if a person has held a managerial or executive office in the company or a related body corporate:

(a) throughout a period; or

(b) throughout a number of periods;

the relevant period for that person is that period or the period consisting of those periods.

SECTION 200H  

200H   BENEFITS REQUIRED BY LAW  
Subsection 200B(1) does not apply to a benefit given by a person if failure to give the benefit would constitute a contravention of a law in force in Australia or elsewhere (otherwise than because of breach of contract or breach of trust).

SECTION 200J   BENEFITS TO BE HELD ON TRUST AND REPAID  

200J(1)   [ Creation of trust]  

If an entity (the giver ) contravenes section 200B by giving a benefit to a person (the recipient ), then the amount of the benefit, or the money value of the benefit if it is not a payment:

(a) is taken to be received by the recipient on trust for the giver; and

(b) must be immediately repaid by the recipient to the giver.

200J(1A)   [ Character of amount]  

An amount repayable under subsection (1) to the giver:

(a) is a debt due to the giver; and

(b) may be recovered by the giver in a court of competent jurisdiction.

200J(2)   [ Section applies to whole amount]  

Subsection (1) applies to the whole of the amount of a payment or of the money value of the benefit even though giving the benefit would not have contravened section 200B if that amount or value of the benefit had been less.