Auditing Case

The author's proposed change to the Corporations Act would involve inserting into the Corporations Act a new s 203 EA. It is proposed that the new provision would simply state:

ASIC may exempt a person from s 203D and s 203E above.

An exemption granted under 1 may apply unconditionally or subjected to special conditions.

It is important to note here that the author's proposed relief provision only empowers ASIC to exempt a person from the operation of s 203d and s203e. It doesn't empower ASIC to modify or vary the operation of the provisions like other relief powers in the Corporations Act .

ASIC agrees to a special details to included in the policy statement outlining its approach to s 203EA applications, in particular that ASIC will not grant individual relief from s 203D and s 203E unless the applicant company can demonstrate that:

1.including the assessment criteria used to measure performance.

2.the company's shareholders were reasonably informed as to the detail of the company's performance assessment procedure, including assessment criteria, prior to voting on the resolution to amend the constitution.

The author believes that the first two requirements above are the most important, as they ensure that ASIC's general approach to relief will not be abused by allowing commercial benefits of relief to overshadow any regulatory detriment resulting from public companies being able to remove directors without convening a meeting of members.

First, in order to be entitled to relief, public companies will need to demonstrate that they have an effective procedure for assessing the performance of directors, and that is detailed in its constitution.

Second, the requirement that public companies must detail their performance assessment procedures and assessment criteria in the company's constitution ensures shareholder participation in the process.

The third requirement simply ensures that the company's assessment review mechanism, and specifically the assessment criteria which is utilised to be able to removed on the whim of the board, based on a very vague, subjective understanding of what constitutes 'unsatisfactory' performance. The other important advantage of requiring companies' performance assessment measures are consistent with best practice standards is that it ensures ultimate control of the removal process by shareholders, as a company's performance assessment procedure would need to be as comprehensive and transparent as possible to satisfy best practice.

The fourth requirement, that the removal of director must be due to unsatisfactory performance based on the assessment criteria detailed in the company's constitution, again reinforces ultimate shareholder control of the removal process, by providing the important right of shareholders to