CORPORATION ACT

Corporation Act

Corporation Act

Case Intro

AgChem Pvt Ltd is interested in acquiring a factory owned by Black Pty Ltd. Black Pty Ltd is a wholly owned subsidiary of Grain Ltd. Black is proposing to sell the land to AgChem at a 10% discount to its market value. Is the approval of Agco's shareholders is required under Ch 2E of the corporation Act? Is the approval of Grain Ltd's shareholders required?

Ch 2E of Corporations Act

Chapter 2E of the Corporations Act requires public companies to disclose and seek member approval of transactions involving related parties. Related party is broadly defined to include, for example, spouses of company officers. If the public company is listed on the ASX, also consider Chapter 10 of the ASX Listing Rules.

The purpose of Chapter 2E of the Corporations Act is to protect a public company's resources available for distribution to its creditors; and the interests of the members of a public company by requiring that proposed related party transactions, which could adversely affect those resources or interests, be disclosed and approved by members in a general meeting before such beneficial transactions are entered into.

Section 208 provides that for a public company or an entity controlled by a public company to give a financial benefit to a related party of the public company:

(a) the public company or controlled entity must:

obtain the approval of the members of the public company as provided in sections 217 - 227; and

give the benefit within 15 months of obtaining such approval; or

(b) the benefit must fall within one of the exceptions set out in sections 210 - 216.

Related party

Section 228 outlines who and what are taken to be related parties of a public company for the purposes of Chapter 2E of the Corporations Act:

(a) an entity that controls a ...