Corporate governance update

Whilst reviews of corporate laws continue post-HIH and James Hardie, real world developments such as Telstra, AWB and Westpoint are raising new issues and fresh perspectives.

So it is worth recapping where the various reviews are up to:

1. Corporate Social Responsibility:

CAMAC issued a discussion paper in November 2005 and the time for submissions has now closed.

In summary the key issue is whether the law should be changed (from companies only being obliged to consider the interests of shareholders) to give companies the right to consider "social" issues or to oblige companies to consider interests of persons other than shareholders or to simply require additional reporting on social and environmental issues.

Interestingly the Discussion Paper made reference to overseas anti-bribery guidelines.

CAMAC’s report is not expected before the middle of this year.

Separately, the Parliamentary Joint Committee’s report on CSR is now due on 15 June 2006.

2. Duties of company officers below board level

The CAMAC report on this issue is now expected by April.

In summary, the issue is whether the duties of directors should be extended to employees.

3. Personal liability for corporate fault

The CAMAC report on this issue is also expected by April.

In summary, this issue relates to whether company directors should be personally liable for company offences even if they had no personal involvement.

The Discussion Paper usefully lists state legislation where this situation already applies (mainly tax, workplace health and safety, fair trading, environment and hazardous goods).

Court decisions on shareholder rights

Separate from any non-judicial reviews, the courts of course continue to interpret the law.

In this area, Australian shareholder class actions (by which shareholders sue the company they invested in) are continuing. Most recently the Full Court of the Federal Court of Australia confirmed the right to compensation by shareholders under section 729 of the Corporations Act for misleading or deceptive statements in a prospectus in Cadence Asset Management Pty Ltd v Concept Sports Limited [2005] FCAFC 265

Damages can also be claimed by shareholders under section 674(2) of the Corporations Act (relating to breaches of a company’s continuous disclosure obligations).

On 27 February the Full Court of the Federal Court of Australia in Sons of Gwalia Limited (Subject to Deed
of Company Arrangement) v Margaretic [2006] FCAFC 17
affirmed that an on-market purchaser (as opposed to
a subscribing shareholder) of shares can in a winding up prove for damages against the company
for the misrepresentation which induced the purchase and so have claims in damages or for compensation
for contraventions of s 52 of the Trade Practices Act 1974 (Cth),
s 1041H of the Corporations Act 2001 (Cth) or s 12DA of the
Australian Securities and Investments Commission Act 2001 (Cth).

Further, the Full Court decided that such claimants were not claiming in their capacity as members but as third parties and therefore did not rank in priority after creditors under Section 563A Corporations Act.

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