The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 was passed by the Senate on 16 November after it dropped an amendment requiring a review in three years time. The House of Representatives sent the Bill back to the Senate after it disagreed with the proposed Senate change.
Key features of the Bill include:
- termination benefits for company directors and executives exceeding one year's average base salary are subject to shareholder approval.
- The scope of the requirements relating to termination benefits is expanded to include senior executives or key management personnel of a disclosing entity.
- The definition of what constitutes a "benefit" is broadened.
- New regulation-making powers will specify what types of payments are, or are not, a termination benefit, and to define 'base salary'.
- The obligation to immediately repay unauthorised termination benefits .
- The retention of the existing requirement for the giving of the benefit to be approved by a resolution passed at a general meeting.
The legislation and accompanying regulations will take effect the day after Royal Assent is granted.
UPDATE 25 November: The Bill was assented to on 23 November and commenced 24 November 2009.
It inserts new sections 200AA and 200AB in the Corporations Act and amends sections 200A-G and J relating to the payment of termination benefits to company directors and executives.
The Corporations Act currently allows for termination benefits up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.
The new rules will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.
The new rules will also apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.