Related-Party Disclosure

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ASICIs ASIC on the Right Track?

The Australian Securities & Investments Commission’s (“ASIC”) findings in their consultation papers released yesterday will come as no surprise to any company directors. ASIC have suggested that boards should disclose all dealings between a company and someone with a close personal interest known as a related-party.  Sensible, ridiculous or somewhere in between?

As a board member I have found it easy for me to make disclosure but some board members have a more complex and far-reaching series of relationships to deal with. I have personal experience of providing governance and secretarial support services to boards and I have found it an almost impossible and almost certainly thankless task to track and be certain of compliance.

It is very difficult, time consuming and sometimes adversarial to try and track related-party transactions of board members. Another grey area is what the board perceives as material, anything deemed not material does not have to be reported to shareholders. Then there is the further complication of transactions conducted at “arms-length” which again do not have to be reported to shareholders.

ASIC is suggesting that every related-party and arms-length transaction be reported but that would create a practical compliance problem bigger than Ben Hur. Whilst legal teams and compliance consultants might be celebrating this news, directors and shareholders will suffer if this was made compulsory.

ASIC are doing the best they can, they are simply not able to de-risk the boardroom and prevent corporate collapses through over compliance. Instead, they should be working to establish ethical practices, better education for new board members and increased surveillance operations.

Motherhood statements like those made in the consultation papers simply damage their credibility but I do sympathise with ASIC.

Do you think that related-party transactions and arms-length transactions can be managed effectively?  Is ASIC on the right track or asking the impossible?  Would you like our help and advice on matters of this nature? Please call on +61 2 9258 1972 or go to our Contact page.

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