ASIC Rules That Corporate Pre-Nuptial Deals Are Legally Void

by Mary Swire, for LawAndTax-News.com, Hong Kong

19 August 2004

The Australian Securities and Investments Commission (ASIC) on Tuesday issued a clarification with regard to the effect of so-called 'pre-nuptial' agreements for the removal of directors of public companies.

According to ASIC, The Corporations Act 2001 says that only the shareholders can remove a director of a public company and that attempts by directors to remove another director from office are void. This means that an agreement (or any other arrangement) that says that a director can be removed from office if the other directors decide is legally ineffective.

The Commission therefore announced that:

"Companies that have these arrangements in place and present them as if they are binding create a real risk that shareholders will believe that directors do have this power and will be misinformed. ASIC is concerned to ensure that shareholders are not misled in this way."

It went on to add:

"ASIC recognises that companies and their boards want to be free to establish robust and effective measures for assessing the performance of individual directors, and of the board as a whole. Good governance often involves assessing the performance of individual directors and holding each director to real account for their performance. Measures can include peer review mechanisms, where directors comment on and assess the contribution of other directors. But it must be the shareholders who ultimately decide whether a director is to remain in office."

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