Corporations Amendment (Repayment of Directors' Bonuses) Act 2003

Administered by Department of the Treasury

Legislation au C2004A01112 In force Act

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Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003

 

No. 25, 2003

 

 

 

 

 

An Act to amend the Corporations Act 2001, and for related purposes

 

 

Contents

1 Short title

2 Commencement

3 Schedule(s)

Schedule 1—Amendments

Corporations Act 2001

 

 

 

Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003

No. 25, 2003

 

 

 

An Act to amend the Corporations Act 2001, and for related purposes

[Assented to 11 April 2003]

The Parliament of Australia enacts:

1  Short title

  This Act may be cited as the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003.

2  Commencement

  This Act commences on the day on which it receives the Royal Assent.

3  Schedule(s)

  Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.


Schedule 1—Amendments

 

Corporations Act 2001

1  Section 9

Insert:

close associate of a director means:

 (a) a relative or de facto spouse of the director; or

 (b) a relative of a spouse, or of a de facto spouse, of the director.

2  Section 9

Insert:

unreasonable director‑related transaction has the meaning given by section 588FDA.

3  After section 588FD

Insert:

588FDA  Unreasonable director‑related transactions

 (1) A transaction of a company is an unreasonable director‑related transaction of the company if, and only if:

 (a) the transaction is:

 (i) a payment made by the company; or

 (ii) a conveyance, transfer or other disposition by the company of property of the company; or

 (iii) the issue of securities by the company; or

 (iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and

 (b) the payment, disposition or issue is, or is to be, made to:

 (i) a director of the company; or

 (ii) a close associate of a director of the company; or

 (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and

 (c) it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:

 (i) the benefits (if any) to the company of entering into the transaction; and

 (ii) the detriment to the company of entering into the transaction; and

 (iii) the respective benefits to other parties to the transaction of entering into it; and

 (iv) any other relevant matter.

The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.

Note: Subparagraph (a)(iv)—This would include, for example, granting options over shares in the company.

 (2) To avoid doubt, if:

 (a) the transaction is a payment, disposition or issue; and

 (b) the transaction is entered into for the purpose of meeting an obligation the company has incurred;

the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).

 (3) A transaction may be an unreasonable director‑related transaction because of subsection (1):

 (a) whether or not a creditor of the company is a party to the transaction; and

 (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.

4  Subsection 588FE(1)

Repeal the subsection, substitute:

 (1) If a company is being wound up:

 (a) a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and

 (b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003.

5  After subsection 588FE(6)

Insert:

 (6A) The transaction is voidable if:

 (a) it is an unreasonable director‑related transaction of the company; and

 (b) it was entered into, or an act was done for the purposes of giving effect to it:

 (i) during the 4 years ending on the relation‑back day; or

 (ii) after that day but on or before the day when the winding up began.

6  At the end of section 588FF

Add:

 (4) If the transaction is a voidable transaction solely because it is an unreasonable director‑related transaction, the court may make orders under subsection (1) only for the purpose of recovering for the benefit of the creditors of the company the difference between:

 (a) the total value of the benefits provided by the company under the transaction; and

 (b) the value (if any) that it may be expected that a reasonable person in the company’s circumstances would have provided having regard to the matters referred to in paragraph 588FDA(1)(c).

7  Subsection 588FG(2)

After “unfair loan to the company”, insert “, or an unreasonable director‑related transaction of the company,”.

 

 

[Minister’s second reading speech made in—

House of Representatives on 16 October 2002

Senate on 3 March 2003]

(219/02)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overview

The Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 was enacted by the Parliament of Australia to address the issue of unreasonable director-related transactions, particularly those involving the repayment of directors' bonuses. This Act amends the Corporations Act 2001 to introduce provisions that target such transactions, ensuring that companies are not unfairly disadvantaged by payments or dispositions made to directors or their close associates under circumstances that a reasonable person would not consider beneficial to the company. The policy objective of this amendment is to protect the interests of creditors and shareholders by preventing transactions that could potentially harm the financial health of the company, particularly in the event of liquidation. This legislative change aims to uphold the integrity and fairness within corporate transactions and to ensure that directors act in the best interest of the company.

Scope and Application

The Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003 is a legislative act that amends the Corporations Act 2001, primarily targeting unreasonable director-related transactions within companies. This Act applies to directors of companies and their close associates, as well as transactions involving these individuals, particularly those that may not be in the best interests of the company. The scope of the Act extends to any company that is incorporated under the Corporations Act 2001, thereby affecting a broad range of industries and entities within Australia. The Act’s jurisdictional reach is Commonwealth-wide, ensuring its application across the entire nation. The Act introduces provisions that allow for the voiding of transactions that are deemed unreasonable, especially if they were entered into within four years prior to the commencement of a winding-up process. Furthermore, the Act specifies conditions under which such transactions can be considered unreasonable, taking into account various factors including the benefits and detriments to the company and other parties involved. The Act does not specify exclusions or exemptions explicitly but operates within the broader framework of the Corporations Act 2001, which may include provisions for certain types of entities or transactions under specific circumstances.

Key Provisions

The Corporations Amendment (Repayment of Directors’ Bonuses) Act 2003, as amended by Schedule 1, modifies the Corporations Act 2001 primarily through the insertion of new definitions and provisions related to unreasonable director-related transactions. The Act introduces the concept of a 'close associate of a director' (section 9) and defines 'unreasonable director-related transaction' (section 9). These terms are essential in understanding the scope of the Act's application. Under section 588FDA, a transaction is deemed unreasonable if it involves a payment, disposition, or issue made by a company to a director or their close associate, and it is not in line with what a reasonable person would have done given the company's circumstances and the benefits or detriments to various parties involved. The obligations imposed by the Act require directors and companies to scrutinize transactions involving directors and their close associates. Specifically, section 588FDA(1) stipulates that if a transaction can be expected to be unreasonable, it falls under the category of unreasonable director-related transactions. This means that directors must ensure that any transactions they are involved in are justifiable in the context of the company's financial health and overall interests. The Act further mandates that such transactions can be voidable if they meet the criteria outlined in section 588FE(6A), particularly if they were entered into within four years before the commencement of the winding-up process or during the winding-up itself. The Act also imposes penalties and consequences for breaches of its provisions. Section 588FE(6A) allows for the voiding of transactions that are found to be unreasonable director-related transactions, with the potential for recovery orders to be made under section 588FF(4). This means that if a transaction is voided, the court may order that the difference between the actual benefits provided and what a reasonable person would have provided be recovered for the benefit of the company's creditors. Additionally, section 588FG(2) indicates that unreasonable director-related transactions can be considered in the context of unfair loans to the company, suggesting that such transactions may also have broader implications under other sections of the Corporations Act 2001. Non-compliance with these provisions can lead to significant financial and legal repercussions for directors and companies alike.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.