The federal government is accepting submissions on proposed amendments to the Corporations Act 2001 (Cth) (Act) concerning:
The government recently released the Corporations Legislation Amendment (Remuneration Disclosures and Other Measures) Bill 2012 (Proposed Amendments) in exposure draft form. The Proposed Amendments contain a number of amendments to the Act, primarily about dividend payment requirements and executive pay disclosures.
The amendments to the dividends payments test follow the 2010 reforms to laws in this area (2010 Amendments), which are summarised here.
The further amendments to the executive pay reporting framework follow a number of recent changes in the area of executive pay, particularly the 'two-strikes' reforms of 2011 which have received extensive media coverage, and a recent CAMAC investigation into existing remuneration reporting requirements.
The changes to the dividend rules will apply to all companies, whilst the remaining amendments will be of particular interest to directors and shareholders of listed companies.
Under the current test, directors can pay a dividend if:
Under the Proposed Amendments, this test has been simplified so that directors may declare or pay a dividend if:
The Proposed Amendments also clarify some matters which have been of concern since the 2010 Amendments, including:
In contrast, under the current laws it was unclear exactly at what time companies were required to apply the 'dividends test' and, in particular, whether or not the test needed to be applied both at the time of declaration and at the time of payment.
Allowing companies, which are not otherwise required to prepare financial statements which accord with the accounting standards, to calculate assets and liabilities solely by reference to their financial records.
In contrast, under the current laws all companies were required to calculate assets and liabilities in accordance with the accounting standards even if those accounting standards did not otherwise apply to that company.
If the Proposed Amendments are passed, the new 'dividends test' will apply to all dividends declared/paid after the bill receives royal assent.
All listed companies must presently include a remuneration report for the company's Key Management Personnel (KMP), within the annual directors' report.
Under the Proposed Amendments, the federal government aims to improve disclosures in the remuneration report as follows:
Two of the most significant proposals are:
Currently, listed companies must disclose a number of details about the remuneration of each KMP in respect of each financial year. The Proposed Amendments include an added requirement that the remuneration be listed according to:
The Explanatory Memorandum to the Proposed Amendments suggests that presenting information in this way will assist shareholders to clearly distinguish present and future pay from past pay that is received due to it being 'crystallised'.
The new categories of 'remuneration outcomes', however, have the potential to confuse shareholders as they may result in:
If the Proposed Amendments are passed, these new categories of 'remuneration outcomes' will apply to remuneration reports prepared for financial years commencing 1 July 2013 onwards.
If a listed company becomes aware of a material misstatement in any of the company's financial statements for the previous 3 financial years, the proposed reform requires the company to disclose the following details in the remuneration report:
These amendments operate in the context of the 'two-strikes' rule introduced in 2011. The 'two-strikes' rule introduced a new process where shareholders dissatisfied with executive remuneration can seek to 'spill the board'. The rule works like this:
The proposed reforms give more information to shareholders that they can use to make a decision whether to vote for or against a remuneration report.
The Proposed Amendments are in draft form for public consultation and have not yet been introduced in parliament. Submissions on the Proposed Amendments close on 15 March 2013.
The Proposed Amendments and Explanatory Memorandum can be viewed here.
For questions or more information about the above article, please call Maddocks on (03) 9288 0555 and ask to speak to a member of the Corporate and Commercial Team.
You can read other articles concerning companies here.
 Corporations and Markets Advisory Committee.
 Section 254T of the Act.
 Key Management Personnel is defined in the accounting standards as, 'those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity'.
 The directors required to stand for re-election at the 'spill meeting' are those that approved the remuneration report.
Kate is a lawyer in Maddocks General Commercial Team. Kate joined the firm in 2010 as a paralegal and was admitted to practice in December 2012.
Kate has been involved in acting for a range of commercial, government and professional industry clients.
Her areas of expertise include:
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.