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REMOVAL OF DIRECTORS OF
PUBLIC COMPANIES TAKES
CENTRE STAGE IN AUSTRALIA:
AN EXPLORATION OF THE CORPORATE LAW AND
GOVERNANCE ISSUES

JAMES MCCONVILL"

[Increasingattention is being given to the legal and governance issues re-

lating to the removal of directors in Australian public companies. This has
been due mainly to the difficulties experienced by the board of National
Australia Bank in attempting to remove one of its fellow directors, and the
subsequent development of public companies entering into so-called 'pre-
nuptial agreements' with new directors, requiring that the director 're-
sign' if the board pass a vote of no-confidence in the director In this arti-
cle, the author revisits the area of director removal in Australian public
companiesfor two reasons. The first reason, which covers the majority of
the article, is to engage in a detailed analysis of whether the pre-nuptial
agreements which some public companies have indicatedthat they support
using to remove directors, are in fact enforceable under Australia's Cor-
porations Act. The second reason is to outline a law reform proposal to
enable public companies to remove directors without requiringthe vote of
shareholdersat a general meeting. The proposalinvolves providing Aus-
tralia's corporate regulator, the Australian Securities and Investments
Commission (ASIC) with the power to grant relieffrom the statutory re-
moval provisions to public companies, but in a way which balances the
competing objectives of commercial efficiency and shareholderparticipa-
tion and, very importantly, encourages good corporategovernance prac-
tices by companies in relation to the performance assessment of directors.]

. Lecturer in Law, Deakin University Law School.

192 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

It is in the interests of both shareholdersand directors to agree on a set of

ground rulesfor the effective supervision of companies that reconcilesthe
rights of the owners to overall controlwith the much tougher demands on
modern directors.'

I INTRODUCTION
The removal of directors, and more specifically the ways and means that public
companies can remove directors they are unsatisfied with prior to the expiration of
their term of office, has traditionally been one of the sleeper issues in corporate law
and governance- with little in the way of academic commentary, and barely a hand-
ful of significant judicial decisions exploring the scope of the company's power to
remove directors. Since the re-emergence of corporate governance as a hot topic of
debate and law reform as a result of a wave of high-profile corporate collapses both
in Australia and in the United States and Europe, 2 it could reasonably be assumed
that the removal of directors would be an area focused upon by commentators and
law reformers, given that a consequence of corporate collapse is that attention is
drawn to the performance (or lack thereof) of the directors of those companies who
steered the corporate ship into murky territory. Yet for quite some time after these
collapses, the focus was upon tightening the regulation of companies and their
auditors with a view to improving company performance based on governance and
financial criteria, rather than directly considering the performance of boards and
individual directors, and the consequences of a lack of performance by boards and
directors.
Indeed, in an article by Professor Jean Du Plessis and the current author published
in the AustralianBusiness Law Review in August 2003, it was commented that:
Surprisingly, there is a paucity of discussion as to the mechanisms
in place under the CorporationsAct 2001 (Cth) ... to remove a director
of a company before the expiration of his or her term of office. This is
interesting when an obvious practical implication of a director or
directors engaging in acts or omissions which lead to the collapse or
near collapse of the company, is that the company or its members might
seriously wish to remove such directors from the company.?

Editorial, Boards need newguidelines, THE AUSTRALIAN FINANCIAL REViEW, Jul. 18 2004, 86.
2 See JAMES MCCONVILL, AN INTRODUCTION TO CLERP 9, CH I (2004) ('Reflections on Contemporary
Corporate Governance').
3 Jean J Du Plessis & James McConvill, Removal of Company Directors in a Climate of Corporate
Collapses,31 AUSTRALIAN B. L REv. 251, 251 (2003).
 Removal of Directors inAustralia 193

However, all this changed due to a very public boardroom stoush within the Na-
tional Australia Bank, Australia's largest bank, in early 2004 which erupted as a
result of a multi-million dollar foreign currency scandal. The board of the National
Australia Bank sought to remove one of its fellow directors, Catherine Walter, who
had spoken out against the board in relation to its response to the scandal. Due to
the requirements of Australia's CorporationsAct 2001 (Cth), the board had to
organise a general meeting of shareholders of NAB to support a resolution remov-
ing Ms Walter from the board, rather than being able to remove Ms Walter through
a simple vote of no confidence (which would have been possible as 6 out of the 7
directors supported Ms Walter's removal). Ms Walter eventually resigned her
position prior to the special general meeting of NAB being held, however by then
the ability of public companies to remove directors had clearly become one of the
hottest topics in Australian corporate law and governance in 2004. And the heat was
certainly maintained throughout the remainder of the year.
While the NAB drama certainly raised for discussion the topic of board and director
performance, it also became a requirement for Australian Stock Exchange (ASX)-
listed companies to implement (or at least review) performance assessment proce-
dures and policies for the board and individual directors, and to make adequate
disclosure of this to shareholders, in order to comply with the ASX Principles of
Good Corporate Governance and Best Practice Recommendations ('ASX Guide-
lines'), 4 which ASX listed companies need to comply with or explain why not (this
commenced from the financial reporting season being I July 2004). The elevation
of board and director performance to a key corporate governance issue was empha-
sised in an article published in The Australian FinancialReview by Annabel Hep-
worth and Fiona Buffini on 20 August 2004:

Australia's top 200 companies are increasingly demanding that boards un-
dergo performance reviews and also deal with second-rate directors ...
Performance reviews have long been routine at the lower levels in compa-
nies, but now the pressure is mounting to ensure that they are as common
for boardroom executives. There is heated debate over what boards should
do about poor performers in their ranks and who should perform the as-
5
sessment.

Strictly speaking, listed companies are not 'required' to have in place performance assessment mecha-
nisms, however it is a requirement under LR 4.10.3 that companies must either comply with the ASX
Corporate Governance Council recommendations or explain why not in their annual report. Yet see
James MeConvill & John Bingham, Comply or Comply: The Illusion of Voluntary CorporateGovern-
ance in Australia, 22 COMPANY S. L. J. 208 (2004), in which it is suggested that the ASX Recommenda-
tions may (for various reasons) in fact be mandatory obligations.
5 Annabel Hepworth & Fiona Buffini, New Governance Spotlight Turns on Boards of Directors,THE
AUSTRALIAN FINANCIAL REVIEW, Aug. 20 2004, 17.
194 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

With the governance spotlight shifting its attention to board and individual director
performance, and the implementation of policies and procedures to assess this
performance, public companies not only had to consider the performance of the
board and directors, but their directors and advisers had to turn their minds to what
to do with non-performers, and that is where the issue of removal of directors again
became relevant. Building on this, in August 2004, Australia's corporate regulator,
the Australian Securities and Investments Commission (ASIC) issued an Informa-
tion Release, titled 'Removal of Directors of Public Companies', in which it out-
lined its position in relation to so-called 'pre-nuptial agreements' that some public
companies were believed to have negotiated with directors to deal with the situation
where the board considers the director to be performing unsatisfactorily. ASIC's
August 2004 Information Release will be a key point of discussion in this article.
The basic design of the pre-nuptial agreement is that the director agrees to resign if
the board resolves to pass a vote of no-confidence in the director, thus avoiding the
time and expense involved in following the removal procedure in the Corporations
Act- by which shareholders must support a removal resolution at a shareholders
meeting. 6 As will be discussed below, in its Information Release, ASIC considered
the pre-nuptial agreements to be ineffective pursuant to the CorporationsAct, and-
importantly- suggested that rather than using these agreements as a way in which to
get rid of under-performing directors, companies should indeed look to improve
performance, by setting in place (preferably under its constitution) mechanisms for
assessing the performance of directors.
Given the long-overdue attention now being given to the legal and governance
issues relating to the removal of directors, the author considers it to be an opportune
time to revisit the issue of director removal in Australian public companies. The
main feature of the article is an exploration of whether the recent pre-nuptial
agreements are in fact enforceable under the CorporationsAct, which is important
to address given that many companies have obviously contemplated using these
agreements. Another important feature, however, is a law reform proposal by the
author to enable public companies to achieve the dual objectives of designing a
board and director performance assessment mechanism which satisfies the criteria
outlined by ASIC in its Information Release, and to provide companies with an
effective means of dealing with non-performers which is sanctioned by ASIC.
Part two of this article provides further background discussion to the recent debate
on removal of directors resulting from the NAB boardroom battle and the 'pre-
nuptial agreements', and the renewed focus on performance assessment of directors
as a matter of good corporate governance. In part two, the author also looks at the
competing arguments which emerged in relation to the appropriateness of these pre-
nuptial agreements from a corporate governance perspective. It is explained that the
debate over pre-nuptial agreements principally related to differences in opinion over
the importance of shareholder participation in public companies and removal of

6 See s 203D of the Corporations Act, which is discussed in further detail below.
 Removal of Directors inAustralia 195

directors as a corporate governance right for shareholders, and more specifically

whether shareholder participation should bend to commercial considerations (in
relation to the time and cost involved in incurring shareholder meetings) and robust
and effective measures for performance assessment of directors in public compa-
nies.
In Part three, the longest section of the article, the author engages in an in-depth
exploration of whether the 'pre-nuptial agreements' that have been contemplated as
a means to remove non-performing directors are in fact valid under Australian law,
and hence an effective corporate governance measure which would be enforced by
the courts and hence should be supported by ASIC. More specifically, this involves
considering whether the agreements, or the vote of non-confidence triggering the
operation of the agreements, are a 'resolution, request or notice' by the directors
purporting to remove the director from office, and hence void under s 203E of the
CorporationsAct, and whether the agreements are ineffective under s 203D- which
involves reconsideration of the underlying rationale and scope of the statutory
removal procedure under this provision, and whether or not it is intended to operate
as an exclusive code.
Finally, in Part four, the author will outline his proposal for law reform, which is
aimed at satisfying the dual objectives of encouraging public companies to imple-
ment an effective procedure to review the performance of directors, and providing
an effective procedure for companies to remove directors who are not performing
satisfactorily, which meets the objectives raised in ASIC's August 2004 Informa-
tion Release on removal, and which would accordingly be sanctioned by ASIC.

II REMOVAL OF DIRECTORS AND 'PRE-NUPTIAL'

AGREEMENTS: BACKGROUND

A The National Australia Bank Boardroom Battle and 'Pre-

Nuptial'

1 National Australia Bank Boardroom Battle

There is no need to provide a complete rehearsal of the boardroom battle which
erupted within the National Australia Bank (NAB) in the early months of 2004, as
this has already been done elsewhere. 7 It is sufficient to say that the very public
battle inside the board of Australia's largest bank resulted from a $360 foreign
exchange loss by the bank which was exposed in January 2004. This large loss was
7 A useful piece examining the battle within National Australia Bank, is Stephen Bartholomeusz,
NAB's
Boardroom Confrontation is a Battle that no-one Can Win, THE AGE, Mar, 27 2004.
196 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

due to irregular trading in foreign currency options by four 'rogue traders' inside
the bank, highlighting a serious deficiency in the bank's systems of risk manage-
ment and internal control
8
which had not been earlier detected by the bank's direc-
tors and executives.
As a result of the adverse publicity for the bank caused by the foreign currency
scandal, the board of NAB arranged for an independent inquiry into the scandal, to
determine where the bank's risk management and internal controls broke down, and
who within the bank were responsible. The bank appointed professional services
firm PricewaterhouseCoopers (PwC) to conduct the inquiry and provide a full and
frank report of its findings. The PwC inquiry was conducted simultaneously with a
separate inquiry into the scandal conducted by banking regulator, the Australian
Prudential Regulation Authority (APRA).
The appointment of PwC to conduct the independent inquiry was essentially what
sparked the battle within the board of NAB. One of the bank's non-executive direc-
tors, Mrs Catherine Walter, spoke out against the appointment of PwC to conduct
the 'independent' inquiry, given that PwC was reliant on NAB for professional
services fees, NAB being one of PwC's largest clients in Australia. Mrs Walter
argued that PwC was incapable of conducting a truly independent inquiry into
NAB's foreign currency scandal, which was necessary in order to determine what
truly happened and who was responsible, due to the conflict of interest that existed
in PwC being closely connected with the bank's board and management.
With the subsequent release of the PwC report, Mrs Walter went even further in her
attack against fellow directors of NAB, suggesting that a number of drafts of the
PwC report had been sent to NAB directors prior to its public release, and that the
report had underwent "dramatic changes" prior to being publicly released upon
suggestions being made by NAB directors. In response to these public statements
by Mrs Walter about the bank's affairs, the board voted her off the bank's audit
committee (of which she was chairwoman during the foreign currency scandal) and
also resolved that it wanted Mrs Walter to be removed as a director of the bank. In
making this decision, the board issued a statement explaining that Mrs Walter had
lost the trust and respect of her fellow directors due to making unfounded attacks on
the integrity of the PwC report (which also indirectly attacked the integrity of the
NAB directors), as well as for not co-operating with the PwC's investigations, and
for not giving satisfactory assurances to the board that she would oniy act "within
the board".

Indeed, the factual matrix behind the $360 foreign currency scandal in NAB, was strikingly similar to
the scandal within AWA in the early 1990's which resulted in a long series of litigation, and arguably the
most important court judgments on director's duties in Australian history, AWA Ltd v. Daniels tlas
Deloitte Haskins & Sells, (1992) 7 ACSR 759 and (on appeal), Daniels v. Anderson, (1995) 16 ACSR
607.
 Removal of Directors inAustralia 197

Importantly, while the decision of the board to remove Mrs Walter from the audit
committee took effect automatically, under the CorporationsAct in order for the
NAB board to remove a director, a resolution having this effect needs to be ap-
proved by an ordinary resolution of shareholders at a general meeting. Section
203D of the Act is the relevant provision. 9 Subsections (1) and (2) of s 203D pro-
vide as follows:

(1) Resolution for removal of director. A public company may by resolution

remove a director from office despite anything in:
(a) the company's constitution (if any); or
(b) an agreement between the company and any director; or
(c) an agreement between any or all members of the company
and the director.

If the director was appointed to represent the interests of particular shareholders

or debenture holders, the resolution to remove the director does not take effect
until a replacement to represent their interests has been appointed.

(2) Notice of intention to move resolution for removal of director. Notice of

intention to move the resolution must be given to the company at least 2
months before the meeting is to be held. However, if the company calls a
meeting after the notice of intention is given under this subsection, the
meeting may pass the resolution even though the meeting is held less than
2 months after the notice of intention is given.

Section 203D therefore makes it quite difficult to remove directors in public com-
panies, as well as making removal a time-consuming and costly process, due to the
requirement to convene a meeting of shareholders to vote on a resolution to remove.
While many public companies delay a removal resolution to the company's next
annual general meeting to save the cost of organising an extraordinary general
meeting to consider a resolution for removal, in boardroom stoushes like that which
took place within NAB, such a delay can be impracticable and indeed destructive,
making an extraordinary meeting necessary. Hence, in large public companies like
the NAB, in order to get rid of a director and return to business as usual, the process
of removal can cost millions of dollars.

0 Section 203D applies only to public companies. Section 203C, which is a replaceable rule, applies to
proprietary companies and does not make removal by shareholders a mandatory requirement.
198 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

The board of NAB resolved to convene an extraordinary general meeting of share-

holders to vote on a resolution to remove Mrs Walter, and sent out to all NAB
shareholders details of the meeting and its case for why Mrs Walter should be
removed from the board. Due to the requirement in s 203D(2) of the Act that the
general meeting must not (generally speaking) be held within two notices of when
notice to remove is given, what followed during that two month period was the
continuation of the public slanging match between Mrs Walter and her fellow non-
executive directors, which damaged not only the reputation of the bank, but also the
reputation of public company boards generally, at a time when public confidence in
the governance of large corporations was already very low due to a series of high-
profile corporate collapses.
At the end of the day, all of this was for nothing, as Mrs Walter agreed to resign
prior to the extraordinary meeting in return for an undisclosed cashpayment, and
due to the damage caused by the boardroom battle, a number of other directors,
including only recently-appointed chairman Mr Graham Kraehe, agreed to step
down. The point was made in the media that all of the problems that played out
within NAB, once it was decided that Mrs Walter should go, could have been
potentially avoided if Mrs Walter was automatically required to vacate her office
upon the vote of no-confidence by the board, rather than the company having to
follow the procedures in 203D. Ironically, at least from one perspective, it was the
shareholders of NAB who were most adversely affected by the boardroom battle
being drawn out, due at least in part to a statutory procedure- s 203D- ostensibly
designed to uphold and protect the rights of shareholders.
Due to fears expressed by board members of public companies, as a result of the
NAB battle, that they would be unable to get rid of fellow directors considered by a
clear majority of the board (as in NAB) to be incompetent or destructive, public
companies and their advisers looked at ways in which the board could "bypass" the
right of shareholders under s 203D to remove directors. 10 The so-called 'pre-
nuptial' agreement between the company and new directors was subsequently
developed, with companies and their advisers believing that such agreements would
avoid future boardroom battles similar to that which occurred within the NAB.

2 Pre-Nuptial Agreements Concerning Removal

The use of these 'pre-nuptial' agreements by public companies was first reported by
The Australian FinancialReview on 20 July 2004. In its front page piece on that
day, it was explained that these agreements 'typically involve a director, on ap-
pointment, agreeing to resign voluntarily if presented with a no-confidence motion

10Geoffrey Newman, Prenup deals 'won't work, TitE AUSTRALIAN, Aug. 18 2004.
 Removal of Directors inAustralia 199

from the remainder of the board'.' 1 For the purposes of the remainder of this article,
when referring to a 'pre-nuptial agreement', the present author means an agreement
structured in this typical manner, with a director's resignation required upon a vote
of no-confidence by the board.
According to the Australian FinancialReview report, some big public companies
had these individual agreements with directors under consideration to avoid the
need to obtain shareholder approval to removal them prior to the expiration of their
term of office. The agreements were intended to be used if there were differences
between directors, or if disputes arose. The arrangements were not specifically
limited to performance issues, however for the purposes of this article it is assumed
that most if not all pre-nupfial agreements, to be a legitimate mechanism, would
relate to the performance of the director, even if 'performance' is defined widely in
relation to a particular director to include a breakdown in relationship between the
board and director, similar to what occurred in relation to Catherine Walter.

The report also explained that some law firms were advising clients on ways that
boards can removal directors without shareholder approval either by individual
agreements, or by including provisions in the company's constitution to allow this.
The main focus was the individual agreements as they could be negotiated behind
closed doors without any form of shareholder involvement or communication. The
report noted that Coca-Cola Amafil had already entered into agreements with new
non-executive directors, National Australia Bank had them under 'active considera-
tion' and Wesfarmers and BHP Billiton were also considering these agreements.
The report in the Australian FinancialReview made clear that the impetus for the
agreements, and the particular manner in which the agreements were drafted, was
the need to avoid any repeat of the NAB stoush, where the board had passed a vote
of no-confidence in Ms Walter, but Ms Walter could not be removed without the
approval of shareholders by ordinary resolution at a general meeting. As commenta-
tor Stephen Bartholomeusz subsequently wrote in an article in The Age newspaper:

In the aftermath of the gruelling and damaging stoush between Catherine

Walter and the other National Australia Bank directors, it isn't surprising
that boards are considering how they might deal with dissident directors in
future....
The Walter imbroglio has undoubtedly caused boards, and their chairmen
in particular, to consider how they could avert a similar episode. That is
2
why the concept of pre-nuptials is getting so much airplay, 1

11Stewart Oldfield, Boards seek power to sack directors, THE AUSTRALIAN FINANCIAL REVIEW, Jul. 20
2004, I.
12See Stephen Bartholomeusz, Directorpre-nuptials probe pointless, THE AGE, Aug. 3 2004.
200 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

However, the report also pointed to the possibility of the agreements being chal-
lenged under the corporations law, and noted in particular s 203E of the Corpora-
tions Act which provides that any resolution, request or notice of any or all of the
directors of a public company is void to the extent that it purports to remove a
director from office. The author will come back to this issue regarding the legal
validity of the agreement in the next section.

B ASIC Information Release on DirectorRemoval and Per-

formance Assessment
On 17 August 2004, ASIC issued an Information Release, titled 'Removal of Direc-
tors of Public Companies',13 which was intended to 'clarify the effect of agreements
for the removal of directors of public companies'.
In addition to the need to resolve the uncertainty regarding the enforceability of the
'pre-nuptial' agreements, there were also reports in the media that ASIC's decision
to make a statement in relation to the pre-nuptial agreements was due to calls by the
federal Labour Party (ALP) and shareholder advocates for ASIC to make clear that
the agreements were unlawful and an undesirable corporate governance mechanism.
The ALP's corporate governance and financial services spokesman, Senator
Stephen Conroy, had apparently written to ASIC, seeking an investigation into the
use of the agreement as a mechanism for performance assessment, as well as the
legal validity of these agreements. Senator Conroy was concerned about the aim
behind the agreements of avoiding the need for shareholder appmval to sack indi-
vidual board members, believing that they eroded shareholders' rights and were 'the
last desperate 1attempt
4
by the directors' club to keep power at the expense of the
shareholders'.

1 Removal of Directors
In its Information Release, in commenting specifically on the position of pre-nuptial
agreements pursuant to the CorporationsAct, ASIC stated that:
The Corporations Act 2001 says that only the shareholders can remove a
director of a public company and that attempts by directors to remove an-
other 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 ineffective.

"3ASIC Information Release 0440. Available on-line at:

<[Link]
40+Removal+of+directors+of+public+companies?open Document>
14See Michelle Grattan, ALP seeks probe into director 'prenuptials',THE AGE, 2 August 2004.
 Removal ol Directors inAustralia 201

The above statement by ASIC really represents a literal reading of s 203D and s
203E of the CorporationsAct, without indicating whether this rather straight-
forward position presented was the result of detailed research on the actual opera-
tion of these provisions and case law exploring their scope, or whether it was a
simple paraphrasing from the provisions. There was some concern expressed that
this statement, while making clear ASIC's attitude towards the pre-nuptial agree-
ments, didn't really resolve the uncertainty as to how a court would view the pre-
nuptial agreements, given that the statement appears to be a simple paraphrasing of
the relevant provisions only. The author agrees, and will therefore return to the
question of the enforceability of the pre-nuptial agreements in part three below.
Importantly, the Information Release went beyond merely outlining the legal posi-
tion with respect to the pre-nuptial agreements. In the Release, ASIC also recog-
nised that it is important that public companies establish 'robust and effective'
measures for assessing the performance of individual directors and the board, and
encouraged public companies to develop transparent and legally enforceable
mechanisms for assessing the performance of directors. ASIC set out its position on
performance assessment in the Release as follows:

ASIC encourages discussion about, and the development of, mechanisms

for assessing the performance of directors ... This is a valuable contribu-
tion to the necessary and ongoing review and improvement of corporate
governance standards. ASIC urges companies to adopt the following two
principles in designingsuch standards:

" the arrangements, criteria, and process should be transparent

andfully disclosed;
" the arrangements should be clear and legally enforceable.

These two principles can be achieved by setting out the arrangements in

the company's constitution. This has the added advantage of allowing
15
shareholdersa vote on the arrangementsthemselves.

The author will return to the emphasised parts of the statement above in part four of
this article when outlining his proposal for law reform.

" Emphasis added.

202 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

3 Performance Assessment of Individual Directors

What is also significant about the above statement by ASIC, dealing comprehen-
sively with performance assessment in an Information Release concerning 'Re-
moval of Directors of Public Companies', is that it provides a clear indication that
ASIC views the removal of directors as being an integral component of the emerg-
ing corporate governance area of performance assessment of directors. This is, of
course, a natural fit because (as already discussed) a consequence of focusing on
performance assessment is that measures need to be implemented to deal with non-
performers. As Stephen Bartholomeusz has commented, 'There is no point in even
considering the performance of directors ... if there isn't some accepted mechanism
of last resort for speedily removing under-performers'.' 6 Removal, as the author has
previously discussed, is obviously one option if the board believes that an individ-
ual director has underperformed for whatever reason(s).
Commentaries in relation to ASIC's Information Release suggested that what ASIC
was saying is, in light of the boardroom battle within the NAB, public companies
need to have in place improved and more transparent mechanisms to monitor the
performance of directors, and that any decision to remove directors by the board as
a result of performance review processes would be unenforceable without first
seeking the approval of shareholders. 17 As discussed in the introduction to this
article, quite recently the corporate governance 'spotlight' has turned from the
structure and composition of boards, to specifically look at the performance of
boards and individual directors, and mechanisms that companies can implement to
assess the performance of boards and directors in a transparent and effective man-
ner.
This shift in attention from form and structures to actual performance is a world-
wide phenomenon in corporate governance, perhaps connected with another area of
scrutiny in corporate governance in relation to the link between the salaries of
directors and executives, and the performance of the company. If we are already
looking at company performance with a view to determining whether remuneration
is sufficiently linked to performance, then the natural next step is to dig deeper and
look at the performance of, first, the board, and second, individual directors, who
are ultimately responsible for the operation and strategy of the company.' 8 Perform-
ance assessment is not necessarily a new phenomenon; a number of companies have
had in place policies and procedures to review the performance of the board, board
committees, individual directors and executives for some time.

16Bartholomeusz, supra note 12.

17See Annabel Hepworth & Stewart Oldfield, ASIC wants a better watch on directors, THE AUSTRALIAN
FINANCIAL REVIEW, Aug. 18 2004, 3.
) See the comments of Professor ]an Ramsay in Hepworth and Buffini, supra note 5:
Directors are being paid more; we see instances of non-executive directors earning
several hundreds of thousands of dollars a year (and) it seems completely inappropriate
not to have some kind of performance review for that. ... How can you have
accountability if there are no performance reviews?
 Removal of Directors in Australia 203

However, in the past there was no real regulation of performance assessment

mechanisms; it was simply up to companies to have in place such mechanisms if
they wanted them, and procedures varied- often quite dramatically between compa-
nies. In some companies, an external facilitator has been used to objectively meas-
ure the performance of the board, while in other companies, performance
assessment was conducted 'in house' by fellow directors (a system referred to as
'peer review', believed to be the more common approach to performance
assess-
ment of boards and directors'). 20 Furthermore, in some companies the performance
criteria by which directors were judged has been expressed very widely, to cover a
diverse range of governance and business matters which are the responsibility of the
board directors, whilst other companies have used more specific criteria.21
But the corporate governance bandwagon has now rolled on to pick up performance
assessment, with the review of individual director and board performance being
reformed from a casual affair discussed over lunch and a Friday drink, to an impor-
tant governance practice of companies- perhaps 'the' most important practice. In
Australia, this change in the dynamics of performance assessment in public compa-
nies has been a very recent occurrence, resulting from the Guidelines of the ASX
Corporate Governance Council coming into effect from the financial reporting
season beginning I July 2004. Under ASX Listing Rule 4.10.3, as alluded to in the
introduction, listed companies are required to comply with these recommendations,
or provide shareholders with a full explanation as to why they haven't complied
with one or more recommendations in their annual report.
The ASX Guidelines contain 10 Principles of corporate governance, and 28 Rec-
ommendations (plus Commentary on each Recommendation), which put flesh on
the bones of each of the ten principles. Importantly, Principle 8 of the ASX Guide-
lines is 'Encourage Good Performance', and indicates that individual and collective
performance should be regularly and fairly reviewed. Recommendation 8.1 then
provides that to adhere to this principle, companies should 'disclose the process for
performance evaluation of the board, its committees and individual directors, and
key executives'. By having to disclose to shareholders its process for performance
evaluation, companies are accordingly expected to not only have in place mecha-
nisms to deal with performance assessment, but also to have formal and objective
procedures to review performance to satisfy shareholders, as opposed to having in

19See Bartholomeusz, supra note 12.

20Another variant is the National Australia Bank's mechanism for performance assessment, which
includes a '360-Degree Feedback' process, by which the Board receives feedback from shareholders and
executives on the performance of the Board.
21According to a publication by the EMD Group, 'Board Performance- Who Cares?', common criteria
for performance assessment typically include:
I. How well board members understand the company's strategy;
2. Whether members stay abreast of current trends and issues impacting on the industry
and their company; and
3. A board member's meeting attendance record and their contributions to discussions.

The EMD Group is available on its website at: <[Link]

204 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

place 'casual' procedures which satisfy the directors whose performance is being
reviewed.
The Commentary to Recommendation 8.1 then builds on the recommendation,
stating that, 'the performance of the board and key executives should be reviewed
regularly against both measurable and qualitative indicators, and that the nomina- 22
tion committee should take responsibility for evaluating the board's performance.'
The ASX Guidelines follow similar attention given to performance assessment of
directors as a good corporate governance practice in (particularly) the US and UK.
In the US, the New York Stock Exchange (NYSE) included a requirement in its
Corporate Governance Rules (which came into effect in late 2003, and are included
as Rule 303A of the NYSE's Listed Company Manual), requiring the boards of
NYSE-listed companies to conduct self-evaluations of performance at least annu-
ally, to be overseen by the company's Nominating Committee. Rule 4 of the NYSE
Corporate Governance Rules provides that companies must have a nominating
committee of the board, which is required to have a charter addressing a number of
matters, including the committee's purpose and responsibility-23and specifically
mentions overseeing the evaluation of the board and management.
In the UK, the revised 'Combined Code', which was issued in July 2003 in re-
sponse to the Higgs Report on non-executive directors and corporate governance,
also includes a requirement in relation to performance assessment.24 The Combined
Code applies in the same way as the ASX Guidelines in Australia, in that listed
companies are required to comply with the recommendations and guidance detailed
in the Combined Code or explain why not. Under Recommendation A.6 of the
Combined Code, 'Performance Evaluation', it is stated that 'the board should un-
dertake a formal and rigorous annual evaluation of its own performance and that of
its committees and directors'. A.6.1 then specifically states that 'the board should
state in the annual report how performance evaluation of the board, its committee
and its individual directors has been conducted'- thus also emphasising the impor-
tance of fully disclosing to shareholders the company's performance assessment
measures. The Combined Code also states that one of the functions of the nominat-
ing committee of the board is to review on an annual basis the performance evalua-
tions of directors to consider the time required from a non-executive director to
perform their function, and to determine whether each individual director is spend-
ing enough time to fulfil their duties.

22 The Commentary refers to the CCH Publication, DIRECTORS' PROFESSIONAL EDUCATION PACKAGE:
BOARD COMPOSITION AND CONDUCT (2002), which provides guidance on performance evaluation
processes for companies.
3The NYSE's Corporate Governance Rules are available on-line at:
<[Link]
24The Combined Code is available on-line at: <[Link]
The Higgs Report is available on-line at:
<[Link]
 Removal of Directors in Australia 205

In returning to ASIC's Information Release, the regulator's view of the connection

between measures for assessing the performance of individual directors, and the
development of mechanisms to deal with removal for non-performance, as an
emerging, integrated area of governance was made clear in the following statement
in the Release:
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 shareholderswho ultimately decide whether a director
is to remain in office.' (emphasis added)

What is important to emphasise here is that the tying in by ASIC (and commenta-
tors) of the arrangements for removal of directors as part of the important area of
corporate governance regulation focusing on performance assessment of directors,
means that legal questions to do with the removal of directors of public companies
naturally emerge as emerging issues in corporate law and governance as opposed to
returning to corporate law's sleepy hollows where issues to do with removing
directors laid dormant for so long. The call by ASIC for public companies to de-
velop effective policies to review the performance of directors was certainly what
business focused on the most out of ASIC's statement, with many leading business
figures supporting more rigorous and transparent assessment measures 25
as a way in
which to encourage improved performance and governance practices.
The statements and suggestions of ASIC contained in its Information Release are
fundamentally important to this article, and will be returned to later on, particularly
when outlining the author's law reform proposal in part four below.

C Removal of Directors- A Corporate Governance

Perspective
Now that we have considered the background to the introduction of pre-nuptial
agreements to remove public company directors, it has been discussed how the pre-
nuptial agreements generally operate, and ASIC's position in relation to removal of
directors and the enforceability of the pre-nuptial agreements, it is worthwhile to
also explore the arguments for and against pre-nuptial agreements from a corporate
governance perspective. It is submitted that, after reviewing the debate that played

25 Id. Hepworth and Oldfield, supra note 17, note in their article that following ASIC's Information
Release, Australian Institute of Company Directors chief executive Ralph Evans called for performance
reviews of directors to be conducted on an annual basis, and National Australia Bank chairman Graham
Ksaehe explained that the bank had already implemented a policy of sending a letter to all new directors
asking them to note that the bank had implemented a comprehensive process to review the performance
of directors.
206 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

out in the media over the appropriateness of pre-nuptial agreements to deal with the
problems experienced by the National Australia Bank, there are two main argu-
ments that shape one's views towards pre-nuptial agreements: one is that the re-
moval of directors in public companies is a right belonging to shareholders (and
thus the pre-nuptial agreements are bad), the other is that removal of directors can
be a matter of commercial necessity (and thus the pre-nuptial agreements, in mak-
ing removal easier, are good). These arguments are explored in more detail below.

1 Removal of Directors as a Shareholder Right

The statutory removal procedure under s 203D of the CorporationsAct expressly
recognises the traditional governance right that shareholders have exercised of
removing company directors, as a consequence of injecting share capital into the
company. In providing an excellent account of the division of power between
directors, management and shareholders, Paula Darvas explains how director re-
moval fits in to shareholders' exercise of power:
Managerial powers are clearly defined, and can be exercised in "a
domain ... constitutionally off-limits to shareholders". The role of the
board of directors is ongoing direction and supervision of the management
of the affairs of the company. Day-to-day affairs are the responsibility of
the company's management who are guided and monitored by the board of
directors. Shareholderscan only make decisions by resolution in a general
meeting on a limited range of issues, such as: appointment or removal of
directors; amendment to the company's organic documents; and manda-
tory shareholder approval of certain management decisions that affect the
company,

Darvas also emphasises the importance of the removal power in terms of the artil-
lery of shareholders:
The primary role of the shareholder is one of monitoring management and
taking part in "strategic management decisions". This role appears to be
theoretically grounded in the status of shareholders as "owners" of the
share
capital of the corporation, the interests of whom the board of directors is to
serve as a collective body. ... However, shareholdersas a body are the
ultimate repositoriesofpower in a corporation only to the extent that they
can vote in a meeting to change management that they consider is not
satisfactory. This primacy of the will of the shareholdersis therefore27
theoreticalonly, because of this separationof ownership and control.

2 See Paula Darvas, Section 249D and the "Activist" Shareholder: Court Jester or Conscience of the
Corporation?,20 COMPANY S.L.J. 390, 392-3 (2002).
 Removal of Directors inAustralia 207

UK academic J E Parkinson similarly emphasises the importance of director re-

moval being a right of shareholders in public companies, explaining how this right
of shareholders provides for an important control over the exercise of director's
powers as agents of the company, and makes sure that these powers are exercised
for the benefit of shareholders.
Technically the directors are agents of the company rather than of the
shareholders, but the shareholder-director relationship is sufficiently close
to one of agency to make analysis in those terms illuminating for some
purposes. Thus, while the corporate constitution invariably vests the au-
thority to manage the business in the board, to the exclusion of the share-
holders, the shareholdersappoint and are entitled to remove the directors
from office, the directors' fiduciary duties require them to act in the share-
holders' interests exclusively, and the directorsare obliged to report to the
shareholderson their stewardship of the business. The shareholders' rights
of participation conferred by company law, which are exercised by voting
in generalmeeting, are designed principally to ensure that the directors ex-
2A
ercise their powers for the shareholders' benefit.

The recently-revised OECD Principles of Corporate Governance (published in

April 2004), which acts as an important guide for countries and non-government
organisations on what constitutes best practice in terms of corporate governance
standards, also emphasises that the ability to remove directors is one of the funda-
mental rights of shareholders. This is made clear in two key statements of the
OECD. In Part 1, Chapter 1 of the OECD Principles, 'The Rights of Shareholders
and Key Ownership Functions', it is explained that:
Basic shareholder rights include the right to: 1) secure methods of owner-
ship registration; 2) convey or transfer shares; 3) obtain relevant and mate-
rial information on the corporation .on a timely and regular basis; 4)
participate and vote in general shareholder meetings; 5) elect and remove
members of the board; and 6) share in the profits of the corporation. 2 9

Then later, in Part II (Annotations to the Corporate Governance Principles), it is

noted that:

"' Id. at 392-4.

21 See J E Parkinson, Participationand CorporateGovernance in, PROMOTING PARTICIPATION: LAW OR
POLITICS? 321-2 (N Douglas Lewis & David Campbell ed., 1999) (emphasis added).
29OECD PRINCIPLES OF CORPORATE GOVERNANCE, 18 (emphasis added). The OECD document is
available on-line at: <[Link] 8/[Link]>
208 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

Equity investors have certain property rights.... [O]wnership

of an equity share provides a right to information about the corporation
and a right to influence the corporation, primarily
30
by participationin
generalshareholdermeetings and by voting.

In light of this position of removal of company directors being an important right of

shareholders in corporate governance, a number of people spoke out against the use
of pre-nuptial agreements on the basis that they undermined the rights of sharehold-
ers, and worked against recent initiatives in corporate governance intended to
increase shareholder participation in the corporation. The most outspoken critic of
the pre-nuptial agreements was ALP Senator Stephen Conroy who, as discussed
earlier in this part of the article, argued that they significantly undermined the
fundamental right of shareholders to vote on a director's removal at a general meet-
ing. A similar view was expressed by John Curry of the Australian Shareholders
Association:
Ultimately, shareholders are the ones responsible for removing directors.
Other directors can't say you have to go. All they can say is, are you going
to leave the board or do we take it to shareholders?'. 3'

In reflecting on this position expressed by shareholder advocates against the pre-

nuptial agreements, The Australian FinancialReview expressed a similar view in an
editorial published in late July 2004, in perhaps the best account of the shareholder-
based argument against pre-nuptial agreements:
[Shareholders] believe directors' contracts [ie the pre-nups] strike at the
heart of the public company compact: that shareholders provide the capital
and hire directors to safeguard their interests. It also strikes at the notion-
implicit in all corporate law and governance reforms- that individual
directors must stand up and be counted. Having directors serve at the
pleasure of their board colleagues runs the risk that dissidents will toe the
line to preserve their jobs, leading to "lowest common denominator"
decisions and problems left to fester.

Silencing the new Catherine Walter would be an inadequateexcusefor

32
shifting the balance ofpower between directors and shareholders.

"oId. at 32.
31Oldfield, supra note I1, at 3.
32 Editorial, supra note I, at 86 (emphasis added).
 Removal of Directors in Australia 209

Due to these concerns expressed about pre-nuptials taking away important govern-
ance rights of shareholders, in August 2004 Coca-Cola Amatil backed away from
introducing pre-nuptial agreements, instead introducing a policy that if the board
believed that the performance of a fellow director was unsatisfactory, a resolution
seeking their removal would be put to the next annual general meeting.33 This
policy obviously saves the company the cost of convening an extraordinary general
meeting to vote on removal, but it doesn't overcome the conflict on the board up to
the time of the annual general meeting, or the public humiliation of removal that an
individual director might experience.

2 Removal of Directors and Commercial Necessity

While it is been traditionally accepted that the removal of directors is a matter for
the company's shareholders, which is why Australia and other countries have in
place a statutory removal provision expressing this right, it is also recognised that
placing this power in the hands of shareholders, with a meeting of members needing
to be called to approve a resolution to remove a director, can become inconvenient
due to the time and energy, and cost, involved for public companies in putting a
removal resolution to shareholders. The NAB boardroom battle made this very
clear.
With news of companies entering into pre-nuptial agreements with new directors to
essentially 'opt out' of the statutory removal procedure and allow for removal by
the board if the director is underperforming, it was considered by some, particularly
company directors and their advisers, that this arrangement was a good corporate
governance initiative, and reflected the realities of the boardroom.3 Probably the
most convincing defence of the pre-nuptial agreements came from Colin Carter, an
adviser to The Boston Consulting Group, who suggested that arguments by share-
holder advocates and some politicians against the pre-nuptial agreements were
misguided and, indeed, naive. In an important opinion piece published in The Aus-
tralian Financial Review titled 'Boards Alone Know Who's Fit to Serve', Colin
Carter outlined the commercial reasons supporting his view that the pre-nuptial
agreements are a positive governance initiative, and should be encouraged. It is
worthwhile extracting some statements from this opinion piece. According to
Carter, pre-nuptial agreements should be encouraged because:

" Hepworth, Coke cans pre-nuptials for directors, THE AUSTRALIAN FINANCIAL REVIEw, Aug. 10 2004,
at 8. See also Katherine Jimenez, Coke ditches 'pre-nuptials, THE AUSTRALiN, Aug. 10 2004.
34 See the Editorial, supra note 1: 'Supporters of such lie pre-nuptial] contracts argue
that they reflect
reality. It's impossible for shareholders to hand-pick appropriately skilled directors for complex modem
public companies. In practice, new directors are invited by the board, and confirmed by shareholders; if
so, they should be willing to step down if the invitation is revoked. This would also destroy the idea that
directors have their jobs until they turn 72 or the company blows up.'
210 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

... they move us closer to accountable, high-performing boards. That's be-

cause they enable directors to address difficult performance issues inside
the team.
Shareholders can't do this. Of course, shareholders have the right to sack
boards when companies fail, but they can't see inside the 35
boardroom and
they can't judge the performance of individual directors.

The above statement again emphasises how the removal of directors is naturally
being associated with the emerging corporate governance area of performance
assessment. But Carter went further than this, arguing that the traditional govern-
ance right of shareholders to remove directors should be abandoned in favour of
board control of removal. In Carter's view, there is simply no practical justification
for shareholders having the sole power to remove directors of the company.

In theory, the appointment and removal of directors is solely a matter for

the shareholders. But this isn't what happens in the real world. Virtually no
public company director is selected by the shareholders- nor can they be.
... If we accept that the existing directors almost always invite candidates
onto the board- and that they are the only people really in a position to do
so- it's a small step to accept that they are also best placed to disinvite
them. And while there are many reasons why a board might want to re-
move a colleague, none of them is best left to the shareholders' meeting.

Carter then builds on this last point, commenting that:

Consider a breakdown in trust between directors- one of them might be

suspected of leaking confidential information or mishandling a conflict
of interest. Left to fester, this will paralyse the board's decision-making.
Theoretically, the problem should be taken to the shareholders. But what
if the aggrieved directors can't disclose their suspicions under threat of
legal action? They'll waffle on about "incompatibility" and the matter will
drag on as the shareholders are left to speculate about what's really
happening.

Sometimes even a good director should move on, perhaps because the
board's skill mix is no longer appropriate for the business. But what if that
director doesn't want to resign? Few boards feel able to force the issue if

35Colin Carter, Boards Alone Know Who's Fit to Serve, THE AUSTRALIAN FINANCIAL REvIEW, Aug. 12
2004, at 63.
 Removal of Directors inAustralia 211

that means exposing them problem to public debate. In none of these

ciTcumstances will going to the shareholders help.

Colin Carter concludes by emphasising that the pre-nuptial agreements are an

important initiative to deal with performance issues relating to directors, and in
actual fact do not undermine the interests of shareholders.

Boards have long been criticised as being slack on poor performers but
there are few examples where the shareholders have shown they can deal
with the problem ...

If we want boards to address performance issues there is a practical path

forward. Because the other directors also represent the shareholders, it is
legitimate to give them the responsibility of addressing the calibre of their
team. It's ironic that pre-nups, supported by directors who want to accept
greater accountability, are so strongly opposed by the people whose
interests they want to protect.

The commentary provided above by Carter highlights that what the author believes
to be an important development in corporate law and governance, that the removal
of directors has been incorporated has been included as part of the emerging area of
corporate governance concerning performance assessment of directors (and, of
course, the board). Despite the mixed opinions regarding the efficacy and appropri-
ateness of pre-nuptial agreements which the author noted in this section, the pre-
nuptial agreement is obviously one of the 'mainstream' mechanisms that companies
have considered and will in future consider to empower the board to deal with a
situation where a fellow director is not performing to their satisfaction. As men-
tioned above, however, part of the debate surrounding the pre-nuptial agreements
specifically has been whether they are in fact enforceable, or whether the Corpora-
tions Act renders them unenforceable and therefore useless. Accordingly, with this
question mark over the enforceability of pre-nuptial agreements, at the same time as
companies are considering the integration of these agreements and similar mecha-
nisms in developing their policies and procedures for assessing the performance of
directors, a detailed exploration of the legal position in relation to these agreements
(beyond the statement in ASIC's Information Release) has become necessary.

III REMOVAL OF DIRECTORS- THE CORPORATE LAW POSITION

In the analysis below, the author explores the much-vexed issue of whether the pre-
nuptial agreements recently drafted are in fact enforceable under the Corporations
Act. This involves the consideration of two important and inter-related questions: I.
Are the agreements void under s 203E of the CorporationsAct?, and 2. Are the
212 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

agreements ineffective due to s 203D of the Act? Each question will now be ad-
dressed in turn.

A Are The Agreements Void under s 203E?

It has been said that the key legal barrier standing in the way of the pre-nuptial
agreements for removal of directors being enforceable is s 203E of the Corpora-
tions Act, which (as mentioned above) provides as follows:
A resolution, request or notice of any or all of the directors of a public
company is void to the extent that it purports to:
(a) remove a director from their office; or
36
(b) require a director to vacate their office.

Accordingly, if it could be said that the pre-nuptial agreements fall within the scope
of s 203E, the effect is that they are void and cannot be enforced. The reason for
including this provision, and predecessor provisions, in the CorporationsAct is to
make it clear that removal of fellow directors can never be a power assumed by the
board- and it therefore complements (or reinforces) s 203D (discussed below) in
terms of ensuring that removal of directors remains a matter for the company to be
decided by a general meeting of shareholders.

In approaching the question of whether a pre-nuptial agreement is made void by s

203E of the Act, the actual phraseology of the provision needs to be appreciated.
The provision speaks of a "resolution, request or notice" of all or any of the direc-
tors, it does not expressly cover an "agreement" between the company and a direc-
tor relating to removal or vacation from office. While there is a possible argument
that the pre-nuptial agreement for which an individual director enters into when
commencing office could potentially be interpreted to be a "resolution" or possibly

36 In discussing the rationale for the predecessor to current s 203E, being s 227(12) of the former Corpo-

rations Law, Professor Jean J Du Plessis commented in his excellent article, Some Peculiarities Regard-
ing the Removal ofCompany Directors, 27 AUSTRALIAN B. L. REV. 6, 21 (1999):
A public company may, apart from one important exception, exhaustively
provide for the removal of its directors in its constitution. The exception deals
with the power of the board of directors to remove a director. Under s 227(12),
the board of directors is prohibited to remove or to require a director to vacate
her or his position by way of a board resolution, a request by the board or a
notice by the board to the director. Any provision in the company's constitution
conferring any of these rights on the board may simply be ignored.

While the practical purpose of s 227(12) is no longer relevant now that a public company, by s 203 D, is
no longer permitted to exhaustively provide for the removal of its directors in its constitution, the
underlying rationale for s 227(12)- now s 203D- continues.
 Removal of Directors inAustralia 213

a "notice" by that particular director to the company (which would be covered by s

203E), it is submitted that the stronger position is that the omission of "agreement"
between the director and the company or the director and shareholders is deliberate.
The reason why s 203E does not make reference to an "agreement" is because such
agreements are covered under s 203D. As will be discussed further below, s
203D(1) provides that a public company may by resolution remove a director from
office despite anything in, inter alia, an agreement between the company and the
director, or an agreement between any or all members of the company and the
director. That is, s 203E does not need to state that such agreements are void, be-
cause they are already made ineffective by s 203D. Accordingly, as will be ex-
plored further below, the question becomes whether the vote of no confidence by
the board triggering the operation of the pre-nuptial agreement is void.
Another preliminary issue which requires addressing is the meaning of 'vacation of
office' under paragraph (b) in s 203E. This is because if 'vacation of office' en-
compasses simple resignation by a director, it will be unnecessary to explore
whether the pre-nuptial agreements or votes of no confidence in fact deal with
removal of a director, as the board's vote of no confidence would be void and
unenforceable due to expressly requiring a director to resign from office.
The author was unable to find any case law directly on point to clarify the meaning
of 'vacate their office' in the context of s 203E, yet the logical conclusion is that a
resolution, request or notice relating to a director's resignation is made void under s
37
203E as it is clear that by resigning, the director quite literally vacates their office.
They no longer perform the role of director by resigning their post, so how could
resignation be anything other than an example of a director vacating their office?
Therefore, a board's vote of no confidence triggering the operation of a pre-nuptial
agreement would be void under s 203E.
However, this very wide meaning of a director 'vacating their office' does create
some difficulties when considering the wording of s 203E closely, as well as keep-
ing in mind the replaceable rule in s 203A that authorises a director to resign from
their position at any time by providing written notice to the company at its regis-
tered office.38 According to Ford's Principlesof CorporationsLaw, s 203A reflects
the position at common law that '[s]ince a director is an agent of the company and
an agent can renounce agency the resignation is not dependant on any acceptance

37 The most recent edition of the Oxford English Reference Dictionary defines 'vacate' to mean (at
1595):
1. leave vacant or cease to occupy 2. give up tenure (a post etc...)

Consider also s 157 of the New Zealand Companies Act 1993, 'Director ceases to hold office', which
states that 'the office of director of a company is vacated if the person holding that office-
(a)Resigns in accordance with subsection (2).' (emphasis added).
38 Although a director may still be sued for breach of a contract of service if they resign before the expiry
of their term of office.
214 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

by the company unless the constitution requires it: Marks v Commonwealth (1964)
111 CLR 549 at 57 I'.39
When looking first at s 203E, it provides that a 'resolution, request or notice' of all
the directors, or any one of the directors, is void to the extent that it deals with a
director's removal from office, or vacation from office. There is no indication that s
203E is excluded from operating in relation to a director's own vacation from office
(vacation only, as presumably a director would not try and remove themselves from
office), even though the original purpose for s 203E (and predecessor provisions)
was to ensure that the board did not assume control of the removal of fellow direc-
tors without shareholder input. Therefore, when reading s 203E literally, a written
'notice' by an individual director informing the company of their intention to resign
is void. This is obviously a preposterous situation, and thus requires reconsideration
of whether 'vacate their office' in s 203E really does extend as widely as suggested
above.
Indeed, the situation is even more preposterous when it is considered that s 203A
provides that resignation is a matter for the individual director, and resignation can
be achieved through providing written notice to the company, with consent of the
company not being a requirement. Thus, written notice of resignation by a director
is authorised under s 203A, yet made void under s 203E. Fortunately, an important
rule of statutory interpretation, 'generaliaspecialibus non derogant', that (in the
absence of any express reference to the contrary) the operation of a specific provi-
sion is to take precedence over a general provision 4° saves the CorporationsAct
from such a preposterous situation. As s 203A specifically deals with resignation,
yet s 203E deals more generally with a director's removal and vacation from office,

"9H A J FORD, R P AUSTIN AND I M RAMSAY, FORD's PRINCIPLES OF CORPORATIONS LAW [7.220] (11
ed. 2003).
' See HALSBURY'S LAWS OF AUSTRALIA, 385-Statutes, [385-2701- 'Conflict Between A General and
Specific Provision'. The operation of the principle of interpretation generaliaspecialbus non derogant is
best explained by Deane J in the High Court of Australia decision of Refrigerated Express Lines A'asia
Pty Ltd v. Australian Meat and Live-stock Corp., (1980) 29 ALR 333, 347:

As a matter of general construction, where there is repugnancy between the general provision
of a statute and provisions dealing with a particular subject matter, the latter must prevail and,
to the extent of any such repugnancy, the general provisions will be inapplicable to the sub-
ject matter of the special provisions. "The rule is, tha wherever there is a particular enact-
ment and a general enactment in the same statute, and the latter, taken in its most
comprehensive sense, would overrule the former, the particular enactment must be taken to
be operative...": per Romilly MR, Pretty vSolly (1859) 26 Beav 606 at 610. Repugnancy can
be present in cases where there is no direct contradiction between the relevant legislative pro-
visions. It is present where it appears, as a matter ofconstruction, that special provisions were
intended exhaustively to govern their particular subject matter and where general provisions,
if held to be applicable to the particular subject matter, would constitute a departure from that
intention by encroaching on that subject matter. A morefundamental example of such repug-
nancy is where the particularprovisionsprescribeor encourage conduct which the general
provisions would renderprimafacie,though not irremediably,unlawful or where the particu-
larprovisions assume to be lawful conduct which the generalprovisions would renderprima
facie unlawful, (Emphasis added)
 Removal of Directors inAustralia 215

it is arguable that this rule of statutory interpretation operates so that 'resignation' is

excluded from the scope of 'vacate their office' under s 203E. It is unclear, how-
ever, how far this rule of statutory interpretation actually extends in the context of
the meaning of 'vacate their office' in s 203E.
In looking at s 203A, it is clear that the provision only expressly deals with a writ-
ten notice of resignation provided by a director. It does not expressly authorise, or
in fact deal in any way with, a resolution of the board that (either explicitly or
implicitly) requires the director to resign. Accordingly, on a narrow, black-letter
reading of s 203A, the rule of statutory interpretation would only operate to the
extent of not rendering void a written notice of resignation by an individual direc-
tor. On this narrow application of the interpretation rule, however, a resolution of
the board which purports to require a director to resign from office would still be
void under s 203E. Hence, we would be left with a rather odd situation that direc-
tors are specifically authorised to resign from their position at any time, yet any
form of resolution or request by the board indicating that this is what the director
should do, would be void. Given this possibility, a court may be inclined to read s
203A widely as covering the field in relation to the resignation of directors, and
apply the rule of statutory interpretation so that any form of resolution, request or
notice relating to the resignation is excluded from the scope of s 203E.
Although resignation logically involves a director's vacation from office, as resig-
nation has always been a matter for the individual director concerned rather than
requiring the approval of shareholders, the obvious policy behind s 203E of ensur-
ing that shareholder control of a director's removal or vacation from office is not
undermined by generally excluding resignation from the scope of the provision, and
hence applying the rule of statutory interpretation in this broad manner may indeed
be a sound approach. Vacation from office would only include 'resignation' for the
purposes of 203E if a company has (unusually) included a provision in its constitu-
tion providing which takes away from an individual director their right to resign
from office.
If this approach is to be applied, excluding from the scope of s 203E any resolution,
request or notice dealing with resignation, the question therefore becomes whether a
vote of no confidence would be void under s 203E due to dealing with a director's
'removal'. It is to this question that we now turn.

There has been some uncertainty regarding whether the pre-nuptial agreements are
invalid by dealing with removal, with some old case law and commentary on provi-
sions preceding s 203E suggesting that the pre-nuptial agreements may indeed not
be invalid, as the vote of no confidence triggering the operation of the agreement
only deals indirectly with removal.
The two cases that continue to be cited in Ford's Principles of CorporationsLaw
(as well as other sources) as highlighting the scope of s 203E are Maloney v NSW
216 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

National Coursing Association Lid (No 2),41 and Re EPHS Ltd; Stavrou & Anor v
EPHS Lid & Ors.42 Given that these cases continue to be referred to in the commen-
taries to highlight the scope of s 203E, it is worthwhile exploring the facts and
reasoning in these cases in a little detail, as they do provide some support for the
proposition that the present pre-nuptial agreements, encompassing a vote of nto
confidence by the board, would not be void under s 203E.
Maloney is the leading case exploring the scope of s 203E (in fact, a predecessor
provision, s 120(8) of the Companies Act 1961 of NSW),The case involved a sum-
mons brought by a director of a racing club incorporated as a public company
challenging a resolution made by his fellow directors to expel him from member-
ship of the club. The director was accused of conduct unbecoming a member,
namely using obscene language to another member of the club. The resolution to
expel the director from membership was made under article 10(a) of the company's
articles of association, which provided that the company could expel a person from
membership due to unbecoming conduct, and have their name expunged from the
register. Importantly, the effect of the resolution being passed under article 10(a)
was that the member ceased to be a director of the company. Article 41(b) of the
company's articles provided for automatic vacation of the office upon certain spe-
cific events, one being that the office holder had ceased to be a member for what-
ever reason, and had not been reinstated as a member within one month.
Accordingly, while a resolution was passed under article 10(a) which had the sub-
sequent effect that the member also ceased to be a director of the company, vaca-
tion from the office as director was a direct result of the operation of article 41(b),
not article 10(a)- which dealt with membership, not the office of director. That is,
the removal of the member from the office of director was an indirect consequence
of a resolution under article 10(a), rather than a direct effect. The expelled the
resolution under article 10(a), on the ground that s 120(8) of the Companies Act
excluded any power in the directors to pass a resolution which directly or indirectly
had the effect of removing a director from office.
The New South Wales Court of Appeal (Equity Division) held in favour of the
company, finding that s 120(8) of the Companies Act dealt with resolutions directed
to the question of continuance in office of a director as such and did not forbid
resolutions regarding other matters whereby the holding of the office of director
may be incidentally or consequentially affected. In other words, s 120(8) was held
not to extend to resolutions which only indirectly had the effect of removing a
director from office. According to Holland J:
Article 10(a) is concerned with membership of the company, not with the
office of director. The resolution was passed in pursuance of that article
and its purpose was to terminate the plaintiff's membership of the com-
pany. The effect of the resolution if valid, was that the plaintiff ceased to

41(1978) 3 ACLR 404; 11978) 1 NSWLR 161.

4
(1983) 2 ACLC 101.
 Removal of Directors inAustralia 217

be a member. The resolution itselfwent no further than that. Vacation o"

ffce did not automaticallyfollow.
Article 41 brought out vacation of the office only if after a month from
cessation of membership the member was not reinstated.43

The position taken in Maloney regarding indirect or consequential removal was

highlighted by the subsequent decision of Murphy J of the Supreme Court of Victo-
ria in Re EPHS Ltd. The factual scenario was similar to Maloney, yet distinguish-
able. The articles of EPHS Ltd provided that the office of a member of the
committee of the company, which was equivalent to the board of directors of the
company, would become vacant if the member was proved to the satisfaction of the
committee to have acted in a manner contrary to his duties, inter alia, under the
articles. The committee was satisfied, by resolution, that the plaintiffs- as members
of the committee- had acted in a manner contrary to their duties, and were accord-
ingly removed and replaced by new members. The resolution was challenged, and
held by Murphy J to be void. The effect of the resolution was the removal of the
plaintiffs as directors.
Murphy J decided that while Maloney involved similar facts, in the present case it
was clear that the resolution had the automatic effect of the member also being
removed as director, removal was not contingent on the operation of a separate
provision in the company's articles of association, as was the case in Maloney.
According to Murphy J:
It is, I think, simply a matter of construction of s 225(8) and its application
to the facts as I have set them out. In this particularcase, the effect and
purpose ofthe particular resolution was the removal of the plaintiffs as
directors. In such circumstances, and having regard to the resolution which
was passed, it appears to me that the plaintiffs have been required to vacate
their office by reason of the resolution which was in fact passed and, if this
be so, then the resolution was in conflict with s 225(8) of the Companies
(Vic) Code. 44
It could be suggested that the reasoning in Maloney and Re EPHS is very relevant
to the question regarding the validity of a vote of no confidence by the board,
triggering the operation of the pre-nuptial agreement. This is because while the
ultimate purpose of a vote of no confidence may be the removal of a particular
director or directors from the company, this is not the direct effect of such a vote
from a legal perspective. There is a contingent factor- a director's vacation of office
depends on his or her decision to resign and uphold the agreement, or the board
seeking an order of the court to enforce the agreement.

43(1978) 3 ACLC 404, 406 (emphasis added).

" (1984) 2 ACLC 101, 103 (emphasis added)
218 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

The author's view about the effect of a vote of no confidence is derived from the
main case in Australia looking at votes of no confidence by the board, Stanham v
National Trust of Australia (NSW) 4 5 In this case, members of the National Trust
sought to propose a resolution at a general meeting of members that a motion of 'no
confidence' be passed in the management and council of the National Trust. The
court held that, for various technical reasons which it is not necessary to explore in
this article, that the plaintiffs did not have any contractual right to have the National
Trust comply with their request to have their motion considered at the meeting of
members. The court, in dismissing the plaintiffs application, also held that a mo-
tion of no confidence is not a matter which can be validly passed by a meeting, as
there is no convention in corporations law that a board of directors (and, by exten-
sion, an individual director based on a vote of no confidence by the board) against
whom a no confidence motion is passed must resignt 6 It was held by Young J that:

No confidence motions are often considered by Houses of Parliament,

though rarely carried. If carried, there is a constitutional convention that
the Government resigns. Although there is no substantive law on the mat-
ter, because of the constitutional convention a no confidence motion has
meaning. There is no convention in corporation law that a board of direc-
tors against whom a no confidence motion is passed must tender their res-
47
ignations.
Based on the position in Stanham, it cannot be said that a vote of no confidence has
the effect of removing a director from office. At law, a vote of no confidence
merely expresses dissatisfaction in an individual director or the board. The vote of
no confidence simply provides a basis upon which a director then decides whether
to fulfil a contractual obligation to resign, something they are perfectly entitled to
do under s 203A of the Act, unless the particular company provides otherwise in its
constitution. There is no inherent requirement that once a vote of no confidence is
passed, directors must tender their resignations. The vote of no confidence only
becomes enforceable through the pre-nuptial agreement, which is outside the scope
of s 203E. Thus, it is reasonable to argue on this basis that s 203E does not make
void these votes of no confidence.
However, the important point which the author must strongly make here is that,
while these cases continue to be referred to in commenting on the operation of s
203E, there is a fundamental difference between the operation of s 203E now and
the predecessor provisions under which these cases were decided. The rationale
behind the decision in Maloney, and subsequently in Re EPHS, was that the courts
considered that the relevant provision required an analysis of the actual effect of the

4' (1989) 15 ACLR 87.

46 In consideration of Cli fon v. Mount Morgan Lid, (1940) 40 SR (NSW) 31.
41(1989) 15 ACLR 87, 91.
 Removal of Directors in Australia 219

resolution, request or notice. This was because the provision was traditionally
expressed to read as follows:
A director of a public company shall not be removed by, or be required to
vacate his or her office because of, any resolution, request or notice of the
directors or any of them notwithstanding anything in the constitution or
any agreement.48

It was therefore appropriate to distinguish between the direct and indirect effect of a
particular resolution or agreement. This, however, is no longer a relevant approach.
Under the CorporateLaw Economic Reform ProgramAct 1999 (Cth), for a reason
which is not explained at all 49 in either the explanatory memorandum or the second
reading speech (of either the 1999 Bill, or its predecessor, the Corporate Law
Economic Reform Bill 1998), 50 the wording of the provision was altered when its
location in the CorporationsLaw (now the CorporationsAct) was changed from s
227(12) to s 203E as part of a rewrite of Parts 2D and Part 2E of the legislation.
This rewrite was undertaken to incorporate a number of changes in the regulation of
directors' duties and corporate governance in response to the recommendations
contained in Treasury's CLERP 3 document, 'Directors' Duties and Corporate
Governance- Facilitating Innovation and Protecting Investors' released in 1997.5
Section 203E now expressly provides that a resolution, request or notice is void to
the extent that it purports to remove a director from office.5 2 The most recent
edition of the Oxford English Reference Dictionary provides the following defini-
tion of 'purport':

I. profess; be intended to seem 2. (of a document or speech) having as its

meaning; state. [Link] ostensible meaning of something; 2. the sense or

48 See, for example, s 227(12) of the Corporations Law prior to the changes to Parts 2D and 2M of the

Act brought about by the Corporate Law Economic Reform Program Act 1999 (Cth)on 13 March 2000.
49The Explanatory Memorandum to both the 1998 and 1999 Bills simply stated that the relevant Bill
intended to 'rewrite' the Part of the Law including this provision, 'without substantial change'.
5 The author also looked at the statutory removal provisions under the US Revised Model Business
Corporations Act (8.08, 'Removal of Directors by Shareholders', the New Zealand Companies Act 1993
(s 156), the UK Companies Act 1985 (s 303), and the Canadian Business Corporation Act 1985 (s 109),
and the term 'purports' is not used in any of those provisions.
51This document is available on-line at: <[Link] The
main changes recommended were the introduction of a business judgement rule to protect directors who
make decisions in good faith from liability for breaching their duty of due care and diligence (see now s
180(2) of the Act), and the introduction of a statutory derivation action to enable shareholders to bring an
action against a director(s) on behalf of the company mainly for breaches of directors duties (see now
Part [Link] of the Act).
52 Immediately prior to the CLERP amendments to s 227(12) of the CorporationsLaw, the provision
simply stated that: 'A director of a public company shall not be removed by, or be required to vacate his
or her office because of, any resolution, request or notice of the directors or any of them notwithstanding
anything in the articles or any agreement.' See Quinn v FBG Superannuation Ltd (1998] VSC 173 (8
December 1998, Gillard J).
220 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

tenor.

The definition of 'purport' in the on-line version of the Cambridge English Dic-
tionary is 'to pretend to be or to do something'.
For reasons that will now be explored, the incorporation of the word 'purports' in s
203E is troubling (especially when nothing has been prepared highlighting the
actual reason for the change), creates a legal minefield in terms of the operation and
scope of the provision. The trouble with introducing 'purports' as the benchmark
requirement in s 203E for a resolution, request or notice is that, as seen when look-
ing closely at the Oxford and Cambridge definitions above, 'purports' can have two
different meanings. It can mean (1) what the actual person professes the resolution,
request or notice to be, even if they are merely pretending; or (2) what an observer
considers the resolution, request or notice to be or what thcy consider it to do- that
is, 'the meaning' of the resolution etc, or the 'sense' of it- what some lawyers
familiar with the classic Australian movie, The Castle, may describe as "the vibe".
When exploring the validity of a vote of no confidence by the board triggering the
operation of a pre-nuptial agreement, this problem with the word 'purports' is
exemplified.
If it is taken that the word 'purports' in s 203E applies according to meaning (1)
above, a vote of no confidence is more likely to survive legal challenge, as the
board would simply professes (whether based on actual intention or pretend) that
the purpose of the vote is for an individual director to volunteer their resignation in
accordance with a separate agreement which expressly provides for 'resignation'. It
is submitted that a inquiry into the 'direct' or 'indirect' effect would not be relevant
under this approach, as the intention of the board is expressly contained in the pre-
nuptial agreement itself- the vote of no confidence is to trigger 'resignation' only.
However, if 'purports' is instead taken to having meaning (2), the opposite outcome
is likely to occur. If the test is what an observer would consider to be the meaning
or intention of the vote of no confidence by the board, considered in light of the
context for developing the pre-nuptial agreements which was to make it easier for
public companies to get rid of unsatisfactory directors, it is submitted that 99 times
out of 100, it would be determined that the vote of no confidence is connected with
the ultimate removal (used loosely) of the director from office.
Given that meaning (1) would allow the board to say anything, and hastily prepare
and present documentation to support what they are saying, to avoid the operation
of s 203E, it is reasonable to assume that a court when faced with a question requir-
ing interpretation of the provision, would place greater reliance on meaning (2),
meaning that the vote of no confidence triggering a pre-nuptial agreement would
ordinarily be rendered void. Clearly, while the vote of no confidence is of no effect
in and by itself, when attached to the pre-nuptial agreement it obviously follows
that the director will resign, or be ordered to resign by the court to enforce specific
performance of the contract. Everyone knows this. Thus, it would not take much
 Removal of Directors inAustralia 221

consideration at all to determine that "the vibe" of the vote of no confidence relates
to the removal of a director from office.
Notwithstanding that courts would probably lean towards meaning (2), there is
nothing in the case law which confirms either way the meaning of 'purports' ap-
plied by the courts for the purposes of s 203E. Accordingly, given the uncertainty
highlighted above due to the different conceptions of what 'purports' means, an
appropriate response could be law reform, perhaps replacing 'purports' with a
statement that a resolution, request or notice is void under s 203E to the extent that
an honest and intelligent observer believes it relates to removal from office.
In any event, if a board's vote of no confidence is not rendered void due to the
application of meaning (1), the question then becomes whether the pre-nuptial
agreements encompassing a vote of no confidence are ineffective due to s 203D of
the Act.

B Are The Agreements Ineffective under s 203D?

As explained above, when considering that s 203E now applies to resolutions that
"purport" to remove a director or require a director to vacate office, it is most likely
that the vote of no confidence by the board triggering the operation of the pre-
nuptial agreement would be void and thus unenforceable. This being the case, it is
unnecessary to explore whether the pre-nuptial agreements are ineffective in light
of the statutory removal procedure in s 203D, given that the agreement is already
unenforceable in any event.
Notwithstanding this, there is still the possibility that a court could find that the
scope of s 203E does not extend to cover a vote of no confidence by the board
triggering a pre-nuptial agreement. This could be due perhaps to the court continu-
ing to adhere to the approach to s 203E applied in Maloney and Re EPHS- due to a
misunderstanding of the 'purports' test now applying, or possibility due to a belief
that the current wording of s 203E does not necessarily exclude the operation of the
effects test, or perhaps because of a view that the vote of no confidence of the board
should not be treated separately to the pre-nuptial agreement itself, and as s 203E
does not apply to 'agreements', the pre-nuptial agreement cannot be made void by
the provision. It is therefore prudent to explore whether the pre-nuptial agreements
would be considered to be legally effective or not under s 2030, assuming that a
court finds that s 203E is no barrier to the operation of the pre-nuptial agreements.
When exploring both the underlying rationale for s 203D (and predecessor provi-
sions) along with the case law exploring the nature and scope of the provision, it is
submitted that the pre-nuptial agreement providing for removal would most likely
be deemed ineffective, however as s 203D does not talk of 'purported' removal, but
rather strictly 'removal', the pre-nuptial agreement could be taken literally to deal
with resignation only, not removal, hence falling outside the scope of s 203D. The
author will first discuss whether the pre-nuptial agreements are ineffective pursuant
222 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

to s 203D(l), which requires an assumption that the pre-nuptial agreement can be

taken to deal with 'removal' by forcibly requiring the director to vacate their office.

Section 203D(l) relevantly provides as follows:

A public company may by resolution remove a director from office despite
anything in:
(a) the company's constitution (if any); or
(b) an agreement between the company and the director; or
(c) an agreement between any or all members of the company and the di-
rector.

Section 203D follows a long line a statutory removal provisions, going right back to
the Joint Stock Companies Act 1856 in the UK, 53 recognising the important corpo-
rate governance right of shareholders to have ultimate control of the composition of
the board.54
Originally, statutory removal provisions stated that companies could include a
provision in the constitution allowing removal of a director prior to the end of their
contractual term. To amend the constitution required the approval of a special
resolution of members, which was a difficult threshold requirement to meet if
shareholders could not organise themselves effectively, or indeed if the directors
owned a sizeable number of shares in the company, meaning directors were virtu-
ally irremovable if a resolution to amend the constitution was not approved. The
Companies Act 1948 in the UK changed this, however, with new s 184 providing
that a company (both public and proprietary) could remove a director by ordinary
resolution, providing for greater shareholder control of the removal process. The
rationale for introducing s 184 in the 1948 Companies Act was explained by Lord
Upjohn in Bushell v Faith:

My Lords, when construing an Act of Parliament it is a canon of construc-

tion that its provisions must be construed in the light of the mischief which
the Act was designed to meet. In this case, the mischief was well-known; it
was common practice, especially in the case of private companies to pro-
vide in the articles

51Reg 62 of Table A of that Act provided that: 'The company, in General Meeting, may, be special
Resolution, remove any Director before the Expiration of his Office.'
'ASee, for example, REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT, Cmd 6659 (HMSO,
1945) (Cohen Report). para 130, commenting on the justification for the forthcoming Companies Act
1948 (UK) s 184; also Du Plessis, supra note 36, at 19.
2005 Removal ot Directors in Australia 223

that a director should be irremovable or only removable by an extraordi-

nary resolution; in the former case the articles would have to be altered by
special resolution before the director could be removed and of course in ei-
ther case a three-quarters majority would be required. In many cases this
would be impossible, so the Act provided that notwithstanding anything in
the articles an ordinaryresolution would suffice to remove a director."5

This approach remains in the UK under the present s 303 of the Companies Act
1985, and was adopted by Australia and other jurisdictions, although Australia is
the only jurisdiction to have separate removal procedures for public and proprietary
companies,56
with the removal power for proprietary companies being a replaceable
rule only.
The importance of the underlying rationale for the modem statutory removal provi-
sion, being shareholder control over the process for removing directors, cannot be
underestimated. This is reflected in the only case to consider the scope of the cur-
rent statutory removal provision in Australia, Allied Mining & Processing & Anor v
Boldbow Pty Lid57 (a 2002 decision of the Western Australian Supreme Court).
In Allied Mining, the court was asked to determine an application under s 1324 of
the CorporationsAct, in which an injunction was sought to stop the holding of a
special meeting to remove directors from Allied Mining, a public company. Bold-
bow, the registered holder and beneficial owner of more than 5% of Allied Mining
shares, sought to convene a general meeting of Allied Mining shareholders under s
249F to consider resolutions to replace the existing board of directors. Allied Min-
ing believed that in doing so, Boldbow had not complied with s 203D of the Corpo-
rations Act. This was because Boldbow was not relying on s 203D to remove, but
rather Article 21.8 of Allied Mining's Constitution (inserted in November 1999,
that is- prior to the CLERP changes) which relevantly provided:

The company may (in addition to any powers conferred by the Corpora-
tions Law) by Ordinary Resolution remove a director (other than an Alter-
nate Director) and by Ordinary Resolution appoint a person as a
replacement Director but only where the Director the subject of the re-
moval resolution, not less than five Business Days before notice of the
General Meeting at which the resolution is to be considered is dispatched,
has been given notice by the company of the proposed resolution ... "8

" Bushell v. Faith, (1970) 1 All ER 53, 55.

56 See Du Plessis, supra note 36, 20-2.

" [20021 WASC 195 ('Allied Mining').

5"Allied Mining, paragraph [1 6].
224 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

The emphasised parts of the above restatement indicate that the company's indi-
vidualised removal procedure still maintained shareholder control by requiring the
company (that is, the shareholders in general meeting) to pass an ordinary resolu-
tion, rather than excluding shareholders from the process and leaving the decision
to remove with the board. The importance of this point will be discussed further
below.
The company, Allied Mining, took the position, through advice, that s 203D pro-
vided the only means for removing a director by ordinary resolution, and hence
Allied sought Boldbow to withdraw its Notice of Meeting to Shareholders until
such time as the provisions of s 203D were complied with. Justice Roberts-Smith
considered that the main question that had to be decided was whether s 203D pro-
vided an 'exclusive means' for the removal of directors of a public company. In
determining this issue, Justice Roberts-Smith turned to some earlier cases decided
under predecessor provisions to s 203D- namely s 227(11) of the Corporations
Law, and s 120(7) of the Companies Act 1961 of NSW. Roberts-Smith J ultimately
decided that in answer to the first question, s 203D did not provide an exclusive
means for removal. According to His Honour:

The first question I think is whether the principle embodied in s 203D is to

set a minimum standard. I think not ....
In my opinion, it is to do no more than prevent directors becoming en-
trenched and to ensure that even though a company's constitution may
contain articles which would have that effect the shareholders could al-
ways in the last resort have recourse to s 203D which could never be
excluded but may be supplemented by constitutional articles providing al-
ternative ways, whether more or less rigorous than s 203D, by which
shareholders may remove directors. 59

Further on, His Honour also stated that:

A constitutional article which provides for an alternative means of remov-
ing a director does not in my view displace or modify s 203D. It still re-
mains to fulfil its legislative function, namely to ensure that despite the
provisions of the constitution, the shareholders will always retain the
ultimate right to remove directors. 60

59Allied Mining, paragraph [461.

60 Allied Mining, paragraph [561 (emphasis added).
 Removal of Directors inAustralia 225

Justice Roberts-Smith's comments above make it quite clear that according to His
Honour: (1) s 203D accommodates alternative means to remove directors, provided
that (and most importantly), (2) it is the shareholders that maintain the right to
remove directors through a meeting of members. Nowhere in the judgment does
Roberts-Smith J suggest that s 203D could accommodate alternative means of
removal by which shareholders do not have any role in the removal process, and the
board maintain the ultimate decision as to who stays and who goes. But it is quite
clear that an alternative removal mechanism which meant that shareholders did not
maintain the Tight to remove directors due to the board excluding them from the
process, would not find support under s 2030.
What Justice Roberts-Smith specifically stated in Allied Mining was that public
companies are free to individualise its removal procedure via the company constitu-
tion, so long as this individualised procedure did not entrench the directors' posi-
tion. it could therefore be argued that the pre-nuptial agreements that have been
drafted would be upheld under s 203D in that the agreements do the very opposite
of entrenching directors' position- they in fact provide for earlier removal triggered
by a vote of no-confidence, rather than going through the long and drawn out proc-
ess of convening a general meeting of shareholders to vote on a removal resolution,
which may not even succeed. However, when we look at Justice Roberts-Smith's
statement above that the function of s 203D is to ensure that shareholders retain the
ultimate right to remove directors, it is most likely that this argument would not
succeed.
In his judgment in Allied Mining, Roberts-Smith J cites with approval a number of
previous decisions based on earlier versions of s 203D, where specific statements
were made that the legislative provision expressly provides that removing directors
is to remain a corporate governance right of shareholders. The main decision cited
by His Honour was Link Agricultural Pty Ltd v Shanahan & Others,6 1 in which
Kenny JA (in upholding a more onerous procedure for removal under the com-
pany's constitution), provided that:

Section 227 of the Corporations Law' [a predecessor to s 203D] confers a

right on a public company constituted by the members in general
meeting, to remove a director by ordinary resolution, The importance of
the statutory right is that it is to be enjoyed by the members 'notwithstand-
ing anything in its articles or in any agreement between it and the director
,62

"' [1999] I VR 466.

6' [ 1999] i VR 466, 485.
226 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

His Honour also cited with approval an earlier statement by Street J in Holmes v
Life Funds of Australia Ltd, commenting on s 120 of the NSW Companies Act
(another predecessor to s 203D):

Section 120 is intended to confer a statutory right on shareholders in a

public company to remove a director by ordinary resolution. ... The
importance of this section is that the statutory right is available to share-
holders 'notwithstanding anything in the articles ... 63

In a recent co-authored article, the present author strongly disagreed with Roberts-
Smith J's interpretation that s 203D was not an exclusive code for removal, and His
Honour's utilisation of earlier decisions to support his position. 64 It was explained
that the judge was misguided in utilising these decisions as the present s 203D is
different in one important respect to the previous provisions. It was explained that
the key difference between s 203D and the previous provisions was that s 203D no
longer states:

Nothing in the preceding provision ... derogates65from any power to remove

a director that may exist apart from this section.
Accordingly, it was felt that it was incorrect to state that s 203D still accommodates
alternative means for removal of directors now that that this statement is excluded
from the operation of the provision. It was argued that this statement had influenced
the approach of the judges in earlier cases decided under those provisions, but the
same approach was no longer appropriate.
On reflection, however, after following the recent debate concerning removal and
the lawfulness of the so-called 'pre-nuptial agreements', and reconsidering Roberts-
Smith J's decision in Allied Mining in light of this debate, the author now believes
that His Honour's decision was correct. The author's change in position is based on
a reconsideration of the underlying rationale of s 203D, which- as already stated- is
to provide shareholders with a statutory right to remove directors, by way of voting
on removal at a general meeting of members. The provision reaffirms that the
ability to remove directors is an important corporate governance right belonging to
shareholders. Accordingly, it is correct to say that s 203D does accommodate public
companies adopting individualised removal procedures in their constitution, so long
as the alternative removal procedure does not in any way undermine the rights of
shareholders in relation to removal. That is, rights must not be taken away. Share-

63Holmes v. Life Funds of Australia Lid, (1971) 1 NSWLR 860, 862 cited in Allied Mining, paragraph
1481.
64See Du Plessis and McConvill, supra note 3, at 256-8.
6 See previous s 227(11i)(b) of the Corporations Law as an example.
 Removal of Directors in Australia 227

holders must still vote on the removal of a director at a general meeting of mem-
bers. The right to vote on removal of meeting of members cannot be taken away,
even if there is an alternative procedure which still provides for some form of
shareholder involvement in the removal process.
This view of s 203D can be justified by returning to and reviewing closely
the actual wording of subsection (1) of the provision, which states that 'a
public company may by resolution remove a director from office despite
anything in:
(a) the company's constitution (if any); or
(b) an agreement between the company and the di-
rector; or
(c) an agreement between any or all members of the
company and the director.
When reviewing s 203D with the ultimate rationale for the provision, being to
provide an express statutory right for shareholders, in mind, the provision can best
be understood as not excluding any alternative means for removing a director from
the company, but rather stating that at all times the company (being the sharehold-
ers in general meeting) must have the ultimate right to remove a director by ordi-
nary resolution- and that this right cannot be taken away or in any way undermined
by (a) a provision in the company's constitution; (b) an agreement between the
company and the director; and (c) an agreement between any or all members of the
company and the director. It is submitted that what each of (a), (b) and (c) are
referring to are procedures for removal providing for board or director control of
the removal process, rather than shareholder control via a general meeting.6
Thus, while s 203D is different to earlier provisions in not including the statement
regarding derogation from other powers to remove directors, and the cases relied
upon in Allied Mining were decided under these earlier previously, a consistent

66In support of this position of the underlying rationale for s 203 D determining the scope of the provi-
sion, see FORD, AUSTIN AND RAMSAY, supra note 39, at [7.2301:
In companies in which the public are invited or may be invited to invest, the ideal of share-
holder control is thought to require that members should have power to remove directors. ...
[t]he statutory power in s 203D does not replace any other power of removal possessed by the
company.... Where a public company has a provision in its constitution providing for the
removal of a director by shareholders and the requirements in the constitution are different to
those in s 203D, it is a matter for the shareholders whether they proceed to use the provision
in the constitution or s 203D.
See also CCH AUSTRALIAN CORPORATIONS COMMENTARY, on-line, at [41-675l:
A director of a public company cannot be removed by the board. The power to remove a di-
rector of a public company vests exclusively in the company acting in general meeting.
And at [41.680]
.. [The phrasel "despite anything in the company's constitution" [in s 203D1 does not mean
that an alternative removal procedure is not available under the company's constitution ...
The phrase "despite anything in the company's constitution" seems to mean that the com-
pany's constitution cannot deprive the members of their right to remove a director
by ordinary resolution ic it cannot remove a right conferred on members by statute.'
228 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No I

feature throughout the life of the statutory removal provision is that the sharehold-
ers, rather than the board, have the ultimate right to decide whether the company's
directors are to be removed or not. Roberts-Smith J himself made this point clear in
his judgment:

[Notwithstanding the difference between s 120 of the Companies Act and

s 203D of the CorporationsAct] ... I consider the legislative intent and ra-
tionale and rationale as expressed in that portion of the judgment of Street
J [in Holmes] ... has as much application to s 203D ... as it did to s 120.

The overriding interest of the Corporations Act [in building up the

contractual relationship between the directors and shareholders] is to
67 control of the company and the
ensure that shareholders retain ultimate
appointment or removal of directors.

Based on this view of s 203D and the reasoning of Roberts-Smith J in Allied Min-
ing, it is submitted that the pre-nuptial agreements would be ineffective under s
203D if the agreements are characterised as dealing with 'removal' (as opposed to
mere 'resignation' which is not the concern of s 203D, but rather s 203A). This is
simply because the pre-nuptial agreement by definition takes away the right of
shareholders to vote on the removal of a director at a general meeting of members.
With the agreements, shareholders are no longer in control of the removal process,
but rather the board maintains control- with the vote of no-confidence providing the
trigger for a particular director to depart.
As stated earlier, however, the effectiveness (or lack thereof) of the pre-nuptial
agreements pursuant to s 203D is not such a cut and dry issue. There is in fact a real
question mark over whether s 203D would apply at all to the pre-nuptial agree-
ments, given that the agreements refer expressly to the director 'resigning' rather
than being 'removed'. Unlike s 203E above, s 203D merely refers to 'removal', not
to 'purported' removal, and hence it is possible that a court simply could say that as
the agreements deal with 'resignation', which is dealt with separately to 'removal'
under the CorporationsAct (see s 203A), resignation also should be treated differ-
ently to removal for the purposes of s 203D of the Act.
The other point is that the reasoning above in relation to 'direct' and 'indirect'
effect of a resolution (in the context s 203E) could be applied to s 203D, given that
s 203D speaks specifically of 'removal' like the old predecessor provisions to s
203E considered in Maloney and Re EPHS. Hence, it could be said that notwith-
standing the purpose of the agreements, removal is at most an indirect or conse-
quential effect- probably arising when there is enforcement of the contract. In other
words, the agreement is directly dealing with resignation rather than removal, and
should be treated as such.

67 Allied Mining, paragraphs [50]-[52] [author's interpolations].

 Removal of Directors inAustralia 229

There is an argument here that such a narrow, literal reading of the pre-nuptial
agreements would make a mockery of s 203D, as if the 'purported' meaning of the
agreements is irrelevant, agreements or arrangements could be dressed up as 'resig-
nations' even though in reality they are removals due to being forced. So long as the
direct effect of the pre-nuptial agreements is resignation as opposed to removal,
they remain outside the scope of s 203D and hence are not ineffective. The mockery
argument is a particularly strong one of course, and one which a judge could easily
adopt if he or she is in a particularly assertive mood. According to the author,
however, there are two main ways in which to counter this argument.
The first involves looking at the actual wording of s 203D and its association with
other provisions of the Corporations Act, in particular s 203A. Section 203D spe-
cifically refers to the removal of a company director from office; it does not cover
forced resignations or a purported removal, it deals with actual removal from of-
fice. Accordingly, it can be viewed that pre-nuptial agreements providing for a
director's resignation from office upon a board's vote of no confidence do not make
a mockery of s 203D, because if it was the intention of the legislature that share-
holders should also have the ultimate decision over whether directors can resign
from office (forced or otherwise), this should have been made expressly clear in the
provision. This is particularly so considering that s 203A already expressly states
that resignation is a matter for the individual director, by simply providing written
notice to the company (unless the company's constitution provides otherwise).
This first view is strengthened by considering the classic decision of the House of
Lords in Bushell v Faith. The case dealt with the question of whether s 184 of the
Companies Act 1948 (UK) (the UK's statutory removal provision, applying to
public and proprietary companies) made ineffective a weighted voting system
included in a company's articles of association, which had the effect of making the
removal of a director by ordinary resolution more difficult.
The relevant provision, Article 9, of the company's articles of association relevantly
provided that:
In the event of a Resolution being proposed at any General Meeting of the
Company for the Removal from office of any Director, any shares held by
that director shall on a poll in respect of such Resolution carry the right to
three votes per share ...

According to Lord Upjohn, the appellant argued before the House of Lords that the
weighted voting system for directors in relation to a resolution to remove them from
office was directed to frustrating the whole object and purpose of s 184, so that it
can never operate where Article 9 operates and the director in fact becomes irre-

SBSee H LEIGH FRENCH, GUIDE TO COMPANY LAW 133 (2d, ed, 1987) fora short discussion of the case.
230 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

movable. Therefore, the appellant submitted that having regard to the clear words
'notwithstanding anything in the articles' in s 184, Article 9 should be rejected and
treated as void. The trial judge had at first instance agreed with the appellant, stat-
ing that: 'It would make a mockery of the law if the courts were to hold that in such
a case a director was to be irremovable.'69
The House of Lords, however, rejected the appellant's argument, approaching s 184
of the Act, and Article 9 of the company's articles of association, in a practical and
logical manner. The reasoning of Lord Upjohn in his judgment is important in the
present context, and requires some exploration. In rejecting the appellant's perspec-
tive of Article 9, Lord Upjohn relied on another important provision (Article 2 of
Table A, which companies could comply with or replace) in the Companies Act
accompanying s 184, and also considered the rationale and wording of s 184. In
relation to Article 2 of Table A, he stated that:

I venture to think that Ungoed Thomas J overlooked the importanceof

article 2 of Table A [in the CompaniesAct] which gives the company a
completely unfettered right to attach to any share or class of shares special
voting rights on a poll or to restrict those rights as the company may think
0 7
fit.

Then, looking specifically at s 184, Lord Upjohn commented that:

Parliamenthas never sought to fetter the right of the company to issue a
share with such rights or restrictionsas it may think fit. There is no fetter
which compels the company to make the voting rights or restrictions of
general application and it seems to me clear that such rights or restrictions
can be attached to special circumstances and to particular types of resolu-
tion. This makes no mockery ofs 184; all that Parliament was seeking to do
thereby was to make an ordinary resolution sufficient to remove a director.
Had Parliamentdesired to go further and enact that every share entitled to
vote should be deprived of its special voting rights under the articles, it
should have1 said so in plain terms by making the vote on a poll one vote
7
one share.

In relation to the first statement in relation to Article 2 of Table A, it is submitted

that an analogy can be drawn with s 203A of the CorporationsAct in the context of
discussing the effectiveness of pre-nuptial agreements pursuant to s 203D. Just as
the weighted voting system was not held to be ineffective under s 184 in Bushell v
Faith due to being authorised under a separate provision of the Companies Act, it
could similarly be argued that s 203D cannot operate to make ineffective an ar-
69See Bushell v. Faith, [ 1970] 1 All ER 53, 55 (emphasis added).
70 Bushell v. Faith, [1970] 1 All ER 53, 57 (emphasis added) [author's interpolation].
"1 Id. (emphasis added).
 Removal of Directors inAustralia 231

rangement for a director to resign under particular circumstances, when s 203A

provides directors with a 'completely unfettered right' to resign (unless excluded
under a company's constitution). In relation to Lord Upjohn's second statement in
relation to s 184, it could similarly be argued that just as there was no indication
that with s 184 Parliament intended to fetter the company's power to issue shares
with special tights or restrictions, there is also no indication that with s 203D of the
CorporationsAct, Parliament intended to fetter the director's statutory right, under
s 203A, to resign from his or her office by giving written notice to the board- how-
ever the resignation comes about. Given that s 203A operates separately to s 203D,
meaning that resignation is treated differently to removal under the Act, if Parlia-
ment intended for s 203D to in some way fetter the ability of directors to resign by
providing some control over the process to shareholders, it needed to make this
expressly clear. As s 203D has not done so, it cannot be said the pre-nuptial agree-
ments make a mockery of s 203D. In fact, the stronger argument is that the opera-
tion of the pre-nuptial agreements clearly recognise the separate treatment of
resignation and removal under the CorporationsAct.
This last point leads to the second way to counter the mockery argument raised
against the effectiveness of pre-nuptial agreements under s 203D. To argue that
bypassing s 203D through using the word 'resignation' rather than 'removal' makes
a mockery of the statutory removal provision due to ignoring the real operation of
the agreement, itself fails to ignore the realities of the corporate world. In practice,
apart from possible consequences in terms of damages and so forth, there is not a
major difference between resignation and removal from office. In fact, it is submit-
ted (although without the benefit of empirical research) that certainly a majority of
resignations are not purely voluntary decisions of the individual director concerned,
but rather are forced either by the board or by the company's shareholders. As
Australian Institute of Company Directors chief executive, Ralph Evans, has com-
mented: 'If a director is told that they are not really wanted, I'm sure 99 times out
of 100 they will just quietly disappear'. 72 Indeed, in recent times, much has been
written in the financial press, both in Australia and overseas, about the common
practice of directors 'resigning' following on from poor company results, to entitle
them to exuberant 'golden parachute' payments which may not have been available
if they were 'removed'.73
In drafting s 203A of the CorporationsAct, there is every reason why Parliament
was well aware of 'resignations' often being forced rather than being truly volun-
tary, yet was still prepared to treat 'resignation' separately to 'removal', with resig-
nation being a matter for the individual director under s 203A, while (at least for
public companies) removal is a matter for the company's shareholders at a general
meeting of members. Accordingly, to subsequently state that a 'resignation' is in
fact a 'removal' on the slightest indication that some force or persuasion by the

72Newman, supra note 10.

73See, for example, Lisa Murray, Frayed Cuffe Stands by $33m Payout, THE AUSTRALIAN FINANCIAL
REVIEW, Mar. 1H2003; MCCONVILL, supra note 2, Ch 8.
232 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

board was involved, would mean that the clear majority of resignations would
instead come under the realm of s 203D. Not only would this make a mockery of s
203A as the provision would be essentially useless (particularly given that at com-
mon law there is a right of agents to resign in any event), but would also in fact
make a mockery of s 203D- by placing an incredible burden on public companies
and their shareholders. A director could not simply provide written notice of his or
her resignation if there was some pressure from the board to do, as this pressure
would colour the resignation as in fact amounting to 'removal' for the purposes of s
203D. Rather, every such occasion of 'coloured' resignation would need to go to a
meeting of shareholders to be voted upon in accordance with s 203D. Surely this is
not what the legislature had in mind when originally introducing a statutory re-
moval provision, or perhaps to put it another way, this could be precisely why there
is clear right of directors to resign under s 203A of the Act.
Hence, when looking at the above reasoning as to why pre-nuptial agreements
requiring the director to resign do not necessarily make a mockery of s 203D, it is
quite possible that these agreements could be held to operate outside the web of s
203D and hence are indeed effective. That all said, the author remains of the ulti-
mate view that the pre-nuptial agreements are not enforceable, as it is submitted that
s 203E extends to indirect or consequential means of removal, including agreements
which expressly refer to 'resignation' only, and therefore the agreements are made
void due to this provision. It therefore does not matter whether the agreements are-
not made ineffective due to s 203D, because the agreements are clearly unenforce-
able in any event.
With this ultimate view of the author, it is appropriate to now proceed in outlining a
law reform initiative which addresses the problems encountered with the pre-nuptial
agreements for removal, and (as will be discussed) will improve the corporate
governance practices of public companies.

IV A PROPOSAL FOR REMOVING DIRECTORS: BALANCING

CORPORATE GOVERNANCE OBJECTIVES, AND PROMOTING
GOOD CORPORATE GOVERNANCE

As explained in part three above, the stronger view is that the pre-nuptial agree-
ments for removal are unenforceable, due to being void under s 203E. That said,
there are a number of arguments that can be raised to support a view that the
agreements are enforceable, and companies may therefore be inclined to rely on
these arguments and use the pre-nuptial agreements.
The problems encountered by the NAB in seeking to remove one of its directors in
early 2004 shows that there is a commercial justification for pre-nuptial agreements
which dispense with the requirement for a meeting of shareholders to be convened
 Removal of Directors inAustralia 233

to approve a resolution to remove a director. At the same time, it must be kept in

mind that the removal of directors has traditionally been an important corporate
governance right of shareholders, as the ultimate owners of the company, a right
which is reinforced by the statutory removal provision- currently s 203D of the
CorporationsAct. Furthermore, as already discussed, ASIC is of the view that the
pre-nuptial agreements are ineffective, yet recognises that mechanisms to assess the
performance of directors are important, and should be made as transparent as possi-
ble.
Taking all this into account, in this final section of the article the author would like
to outline a proposal for reform of the removal provisions in the CorporationsAct
applying to public companies, which it is submitted effectively balances the com-
peting objectives of providing for shareholder participation in the removal process
whilst facilitating a flexible and efficient removal procedure which dispenses with
the need to convene a meeting of shareholders every time removal is contemplated.
In addition, the proposal also accommodates the recent change in the corporate
governance landscape, by encouraging public companies to set in place an effective
and transparent mechanism to assess the performance of directors.
In short, the proposal involves amending the Corporations Act to provide ASIC
with the power to provide an exemption to companies from the operation of s 203D
and s 203E of the CorporationsAct, on the condition that the public company has
put to shareholder vote a resolution to insert in the company's constitution a system
for performance assessment of directors, including objective performance assess-
ment criteria, and the removal is based on unsatisfactory performance according to
this performance assessment regime. What follows is the author's justification for
approaching law reform in this way, that is, by providing ASIC with a further
power to grant modifications or exemptions from the CorporationsAct, then a more
detailed explanation of the contents of the author's law reform proposal.

A Extension of ASIC's Modification and Exemption Powers

to Removal Provisions
Although there is very little written about ASIC's modification and exemption
power ('relief power'), this power is a very important feature of the Corporations
Act. 74 The Act provides ASIC with a number of specific powers to grant relief (in

1 In the most recent High Court of Australia decision to consider ASIC's power to modify or exempt,
Australian Securities and Investments Commission v DB Management P/L & Others (2000) 33 ACSR
447, the court stated (at 454) in relation to the power to exempt or modify under the takeovers chapter
This represented a legislative response to a problem of policy concerning regulation of take-
overs. It involved a compromise between the technique of general legislative prescription ap-
plying inflexibly to all cases, and that of administrative discretion addressing issues on a case
by case basis.
234 THE CORPORATE GOVERNANCE LAW REvIEw VOLUME I No 1

the form of exemption and/or modification of a provision(s)). For example, s 340

provides ASIC with the power to grant relief from the financial reporting provisions
under Chapter 2M of the CorporationsAct, s 655A empowers ASIC to grant relief
from the Chapter 6 takeover provisions, s 742 gives ASIC a relief power with
respect to the Chapter 6D fundraising provisions, and s 1075A provides ASIC with
a relief power in relation to the financial services and markets provisions contained
in Chapter 7 of the Act. Ford's Principles of Corporations Law provides the
following explanation of the nature of ASIC's relief power:
... Some are powers to grant an individual dispensation, while others may
be exercised in favour of a class. Some are powers to exempt conditionally
or unconditionally, while others are powers to vary or modify the Act in
its application to a case or a class of cases. No two powers are the same.
They may differ 75
as to time of exercise, scope of possible relief and in
other respects.

Similarly, Professor Stephen Bottomley, in the only recent academic exploration of

ASIC's relief power, explains ASIC's power as follows:
Another example of delegated rule-making is found in the powers given to
ASIC to modify the application of, or grant exemptions from, aspects of
the Corporations Act without the need for parliamentary approval or
notification. This includes exemptions from (and in most cases, modifica-
tions to) the enhanced disclosure provisions (s 111 AT), the restriction on
directors' voting (s 196), the financial reporting and audit provisions (ss
340-342), the takeovers provisions (s 655A), and the fundraising provi-
sions (s 741).
According to the Senate Scrutiny of Bills Committee, the exercise of such
powers is tantamount to an exercise of legislative power. Depending upon
the specific section, these exemptions or modifications may apply to a
specified person, company or thing, or to a whole class; the relief may be
general or specific; conditional or unconditional. To this picture we can
add the many Policy Statements and Practice Notes which ASIC issues to
indicate how it will exercise these discretionary powers. The importance of
these changes can be gauged from the observation of the Parliamentary
Joint Committee on Corporations and Financial Services that [t]he regula-
tions and ASIC's discretionary
76
powers are a central feature of the new [fi-
nancial services] regime.

In light of the relief power, and other forms of non-statutory rules and codes of
conduct, Bottomley indicates that, '[t]he general picture of contemporary corporate

75See FORD, AUSTIN AND RAMSAY, supra note 39, [3.220].

76 Stephen Bottomley, Where did the law go? The delegation of Australian corporate regulation, 15
Australian Journal ofCorporate Law 105, 107 (2003).
 Removal of Directors inAustralia 235

regulation, therefore, is a complex- and still developing- interplay of different forms

of classic governmental regulation, co-regulation and self-regulation.'77
As indicated in the first quote above from Bottomley, ASIC publishes a number of
'policy statements'. These policy statements are very important, as they outline the
principles upon which ASIC believes it should respond to applications for relief,
and are applied on a day-to-day basis by ASIC officers when considering relief
applications. These policy statements are found in ASIC looseleaf services (ASIC
Digest and ASIC Releases), and are also published on ASIC's website. 78 Policy
Statement 51, 'Applications for Relief contains ASIC's general policy in relation
to applications for relief, with the statement providing that:

When considering new policy applications the [ASIC] attempts to weigh

the commercial benefit and any net regulatory benefit or detriment which
would flow from granting the sought relief on the conditions proposed.
The [ASIC] will grant relief where:

(a) it considers that there is a net regulatory benefit; or

(b) the regulatory detriment is minimal and is clearly outweighed
79
by the resulting commercial benefit.

According to Ford's Principlesof CorporationsLaw, ASIC relief power and policy

statements comprise an "essential supplement" to the "black letter" of the Corpora-
tions Act, CorporationsRegulations and case law, particularly in the area of fund-
raising and takeovers?80 Although commentary and material is available to explain
how ASIC's power operates, the author was quite surprised to find little in the way
of detailed exploration of the rationale for having a relief power vested in ASIC, the
desirability of the power from both a normative and practical perspective, why the
relief power only applies to specific provisions of the CorporationsAct rather than
having a broad-ranging power which applies to all the provisions of the Corpora-
tions Act, and whether a more expansive relief power should be something to be
considered. These questions are particularly relevant in the present context given
that ASIC is not given a relief power in relation to the statutory removal provisions
in s 203D and s 203E of the Act.

" Id. 108.

78To obtain ASIC policy statements or practice notes on-line, go to:
<[Link]
ment>
9
ASIC, [PS51.41].
'0 See also ASIC, [PS 51.21, 'The discretionary powers of the [ASICI which are most frequently exer-
cised affect the provisions in the Law concerning accounts, takeovers, prospectuses ... '. FORD, AUSTIN
AND RAMSAY, supra note 39, at [3.141] also contains a table of statistics showing that in 2000-01, ASIC
considered 320 equity findraising relief applications, and 638 takeover relief applications.
236 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

Due to the complexities and compliance costs associated with the financial report-
ing, fundraising and takeover provisions of the Act, the author understands why
ASIC has been given a power to grant modifications and exemptions for applicants
in relation to these provisions, and it also explains why applications for takeovers
and fundraising relief also forms a significant component of ASIC's work, It is
quite clear that on many occasions the regulatory detriment of granting relief is
minimal and is clearly outweighed by the commercial benefit of companies not
being faced with the commercial burden of having to comply with the provision. 81
However, this does not mean that companies are not encountered with similar
difficulties in relation to other provisions of the CorporationsAct where there is not
a relief power attached, and where the commercial benefits of providing relief
would clearly outweigh the regulatory detriment involved in providing an exemp-
tion or modification to the provisions of the Act. The author believes that the statu-
tory removal provisions are one such example, and accordingly it would be
desirable to amend the CorporationsAct to provide ASIC with a power to grant
exemptions to public companies from the operation of the CorporationsAct.
It should be said at this point that the author recognises that up until now a relief
power has not been provided to ASIC in relation to CorporationsAct provisions
providing corporate governance rights to shareholders, even though enormous
burdens may be placed on companies in complying with the provisions.8 2 It is
submitted that the reason why the relief power has not been extended to encompass
these provisions is because of the importance traditionally placed on these govern-
ance rights in recognition of the paramount status of shareholders as the owners of
the corporation, and as a form of exchange for the capital invested in the company
by the shareholders (especially pertinent in the larger public companies). In consid-
ering ASIC's general policy in relation to approaching relief applications, of deter-
mining whether the commercial benefit would outweigh the regulatory detriment, it

SI One example is relief from s 661A which essentially provides that if a party (and their 'associates')
has a relevant interest inat least 90% of securities ina company, they can acquire the remaining shares
for fair value. If shareholders are still to receive a fair price for their shares notwithstanding the compul-
sory acquisition threshold being below 90%, then it could be argued that the regulatory detriment in
terms of the impact on shareholder rights is minimal. See for example Australian Securities and Invest-
ments Commission v. DB Management Pty Lid, (2000) 199 CLR 321. Note also that under s 661A(3), a
court also has the power to change the 90% threshold.
82 As to the corporate governance rights of shareholders in public companies included in the Corpora-
tions Act, a June 2000 Final Report of the Companies and Securities Advisory Committee,
SHAREHOLDER PARTICIPATION IN THE MODERN PUBLICLY LiSTED COMPANY, provided a very useful
summary (in relation to the then Corporations Law). According to the CASAC, certain "key decisions"
which require the approval of shareholders (either by way of ordinary or special resolution) under the
Act, include: (a) alterations to a company's constitution (s 136); (b) related party transactions (Chapter
2E); (c) transactions affecting share capital (Chapter 25); appointment and removal of auditors (ss 327,
329), adoption of a scheme of arrangement (under Part 5.1), and the appointment and removal of direc-
tors (see s 201 E, s 201G, s 203D). See CASAC Report, at 2, fn 8. Importantly, these requirements reflect
the 'fundamental core issues' mentioned in the OCED's Revised PRINCIPLES OF CORPORATE
GOVERNANCE, released in April 2004 (that is, shareholders should have the right to vote on the election
of board members, or other means of influencing the composition of the board, amendments to the
company's organic documents, approval of extraordinary transactions, and other basic issues as specified
in company and internal company statutes). See OECD, supranote 29, at 18.
 Removal of Directors inAustralia 237

would be very rare that ASIC would be prepared to grant relief from these provi-
sions, as the regulatory detriment involved in undermining important governance
rights of shareholders, would generally outweigh significantly the commercial
benefits enjoyed by the company in granting relief.
In the author's opinion, however, it is certainly possible to structure new relief
powers for ASIC in relation to these shareholder corporate governance rights provi-
sions so that companies can enjoy the commercial benefits of an exemption or
modification declaration by ASIC, but in a way that does not involve such a de-
monstrable regulatory detriment that ASIC would not be inclined to grant relief due
to its general policy on relief applications under Policy Statement 51. In other
words, introducing commercial flexibility in relation to the operation of these
shareholder-orientated provisions does not have to come at the expense of share-
holder democracy. This is particularly the case given the assiduousness that ASIC
has demonstrated recently in terms of enforcement action taken against corporate
transgressors in order to protect and uphold the rights of company shareholders and
other stakeholders. 3
For example, the author believes that it is possible for public companies to be
provided with an exemption from the operation of s 203D and s 203E (so that
removal of a director can occur through a resolution of the board and without
shareholder consent at a general meeting), in a way that actually has positive regu-
latory benefits by maintaining ultimate shareholder control over the process for
removal and encouraging the implementation of best-practice performance assess-
ment mechanisms for directors, so that ASIC could feel comfortable providing
exemptions using this new relief power (on the basis that it would not be acting
contrary to its general policy on relief). This proposal for corporate law reform is
explored in detail in sub-part (b) below. Another example of where a relief power
could be appropriate is in relation to s 249D(l)(b) of the Act, which provides share-
holders with the power to requisition a general meeting of members if a minimum
4
of 100 shareholders support the holding of the meeting?8 This provision has pre-
sented many large public companies, most notably the NRMA, with a huge problem

83The best account of this has been provided by Professor Jean J Du Plessis in his article, Reverberations
after the HIH and other recent corporate collapses: The Role ofASIC, 15 Australian Journal of Corpo-
rate Law 225 (2003).
"Section 249D(l)(b) provides that 'Ithe directors of a company must call and arrange to hold a general
meeting on the request of ... at least I00 members who are entitled to vote at the general meeting.' It is
important to note that s 249D(IA) already enables Regulations to be passed to prescribe a different
number of members for the purposes of s 249(I)(b) in relation to a particular company, or a particular
class ofcompany, however the author believes that it is more appropriate for ASIC to provide relief from
the 100 member rule, as ASIC would need to be satisfied that there is a commercial benefit of relief
outweighing the regulatory detriment involved in altering the right under s 249D(1)(b), thus providing
some level of protection for shareholders. For a discussion of s 249D and the 100 member rule, see
Simon Milne & Nicola Wakefield Evans, Shareholder Requisitions- The 55/100 Member Provision,31
AUSTRALIAN B. L. REV. 285 (2003). Note also that at the time of writing, the Australian Government had
released an Exposure Draft of a Bill proposing to abolish the 100 member rule under s 249D, however
there was opposition to the proposal and it was unclear whether the proposal would in fact be imple-
mented.
238 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

given that 100 shareholders constitutes only a fraction of the total number of these
companies' shareholders, yet companies have to incur all the costs involved in
holding a meeting and informing all its shareholders of the meeting.85 Accordingly,
if ASIC could be given the power to relieve public companies, particularly larger
public companies, from the 100 member rule, perhaps by modifying the provision
on a case-by-case basis to provide for a higher threshold requirement, it is submit-
ted that companies would benefit from the relief, and this would not be outweighed
by a regulatory detriment as the right of shareholders to requisition a meeting would
not be taken away, simply just modified so that they have to obtain greater support
to call the meeting.
The author hopes that a new relief power in relation to s 249D, and other share-
holder-oriented provisions of the Act, is something that is considered in future
commentaries and waves of corporate law reform. However, for the time being, the
author would like to come back to the statutory removal provisions under the Act.

A Detail of Law Reform Proposal

The author's proposed change to the CorporationsAct would involve inserting into
the CorporationsAct a new s 203EA, which would be expressed to apply only in
relation to s 203D and s 203E of the Act. It is proposed that the new provision
would simply state:

(1) ASIC may exempt a person from s 203D and s 203E above.
(2) An exemption granted under (1) may apply unconditionally or subject to
special conditions.

It is important to note here that the author's proposed relief provision only empow-
ers ASIC to exempt a person (namely a director or a public company) from the
operation of s 203D and s 203E. It does not empower ASIC to modify or vary the
operation of the provisions like other relief powers in the CorporationsAct enable.
The reason for this is that the author's reform proposal is merely intended to ac-
commodate board resolutions to remove a director(s) without having to convene a
general meeting of shareholders, which companies have recently been trying to
achieve through negotiating pre-nuptial agreements with directors.86 That is, it is
not intended to extend to deal with the situation where a public company actually

"5See,for example, NRMA v Snograss (2002)42 ACSR 371; NRMA Ltd v Parin (2004)49 ACSR 485.
See also Darvas, supra note 26.
" Relief from both s 203D and s 203E of the Act is required to enter into these agreements, as companies
are avoiding the requirement to convene a meeting of shareholders under s 203D of the Act, and the
agreements involve the board passing a resolution concerning removal which would otherwise be void
under s 203E.
 Removal of Directors inAustralia 239

goes ahead and convenes a meeting of shareholders to vote on a removal pursuant

to s 203D, but wants to have one or more of the requirements in s 203D modified or
varied. However, the author is not philosophically opposed to providing ASIC with
a modification power in relation to s 203D and/or s 203E, and therefore would
support a change to the proposed provision above so that it also includes a modifi-
cation power if this is considered to be desirable.
Another feature of the proposed new relief power is that it would only provide
ASIC with the power to provide relief to public companies on a case-by-case basis,
rather than providing class order relief to certain public companies or public com-
panies as a whole. This is appropriate given that, as explained below, ASIC needs
to be satisfied that each company that is relieved from s 203D and s 203E each time
it wishes to remove a director has in place appropriate mechanisms in its constitu-
tion.
Proposed s 203EA is of course lacking in detail as to how the new relief power
would otherwise operate, as, like for other ASIC relief powers, it is intended that
the detail about how ASIC would approach applications under s 203EA would be
included in an ASIC Policy Statement (the title of the new Policy Statement could
perhaps be 'Removal of Directors of Public Companies'). It is submitted that a
Policy Statement, as opposed to the Corporations Regulations, is the more appro-
priate venue for specifying the requirements needed to be satisfied for relief to be
granted, both because this is the usual approach, and because the author believes
that this approach provides greater protection for shareholders due to ASIC being a
proven advocate for shareholder rights.
While the specific content of the Policy Statement will be a matter for ASIC
through a process of professional and public consultation, it is suggested that
Treasury and ASIC should enter into an understanding that when new s 203EA is
introduced, ASIC release a corresponding Policy Statement outlining its approach
to granting relief under the new provision. It is submitted that as part of this under-
standing, ASIC agrees to special details to be 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:
I. The company has amended its constitution to include a provision
detailing the company's procedure for assessing the performance
of its directors, 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, in-
cluding assessment criteria, prior to voting on the resolution to
amend the constitution. The applicant company will need to dem-
onstrate that in informing shareholders of the company's per-
formance assessment procedure, it was made clear to shareholders
that as part of this procedure, the board is empowered to remove a
240 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

director by passing a resolution that the director has performed

unsatisfactorily according to the assessment criteria in the consti-
tution.
3. The company's policies, procedures and criteria relating to per-
formance assessment are consistent with best practice.
4. The proposed removal of the director or directors is strictly due to
unsatisfactory performance determined according to the assess-
ment criteria detailed in the company's constitution.
5. The company furnishes to ASIC, 14 days prior to the director be-
ing removed, a copy of the company's written reasons why the di-
rector is to be removed, so that ASIC can be satisfied of point 4
above.

The Policy Statement would go on to include extra details in order to clarify each of
the above requirements, and would presumably include procedural matters in terms
of applying for relief and so forth. This would all be fleshed out during the process
of drafting the Policy Statement and consulting with the public.
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 this is detailed in its constitution. The beauty of this requirement
is that it responds to ASIC's comments in the August 2004 Information Release
regarding the importance of effective performance assessment mechanisms, and the
need to make these mechanisms as transparent as possible, with inclusion in the
constitution being the best way to achieve this. 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 proc-
ess, as under s 136(2) of the CorporationsAct a constitutional amendment requires
the approval of at least 75% of shareholders, and it will be necessary for sharehold-
ers to be given full details prior to the resolution.
Accordingly, while on the one hand there may be a regulatory detriment in granting
relief as shareholders are deprived of the right to vote on the removal at a meeting
of members, it is submitted that this is more than made up by the regulatory benefits
of companies being encouraged to implement effective performance assessment
mechanisms, and shareholders retaining involvement by approving the constitu-
tional amendment to incorporate a performance assessment regime under which
directors can be removed by the board if there is unsatisfactory performance.
 Removal of Directors in Australia 241

The third to fifth requirements to which reference is made above really build on the
first and second requirements in terms of encouraging the developing of mecha-
nisms for assessing the performance of directors, and also still providing for effec-
tive shareholder involvement in the process of removing directors of public
companies while relieving companies of the burden of having to convene a general
meeting of members to remove a director. The third requirement simply ensures
that the company's assessment review mechanisms, and specifically the assessment
criteria which is utilised to be able to remove a director is objectively reasonable, so
that directors cannot simply be 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 as-
sessment procedure would need to be as comprehensive and transparent as possible
to satisfy best practice, with shareholders approving of the constitutional amend-
ment to include this procedure.
With listed companies in Australia now being expected to have in place mecha-
nisms for assessing the performance of directors under the ASX's Guidelines, 87 and
many other public companies implementing mechanisms to review the performance
of directors as a matter of good corporate governance, there are sufficient number
of examples (usually available on the company's website under 'Corporate Govern-
ance' or 'Shareholder Information'), and sufficient material available, to assist
companies in setting in place mechanisms for performance assessment that is con-
sistent with best practice,88 It is not intended that performance assessment proce-
dures and assessment criteria will be 'set' by ASIC in its Policy Statement, however
ASIC could possibly make use of the material that has been published to date on
performance assessment, as well as investigate the policies and procedures adopted
by companies who already have in place mechanisms for assessing the performance
of directors, to provide some 'guidance' to companies on what constitutes 'best
practice' as far as performance assessment mechanisms are concerned. This still
provides companies then with some degree of flexibility to develop a performance

8' As discussed earlier in the article, Principle 8 of the ASX Guidelines is 'Encourage Good Perform-
ance', and indicates that individual and collective performance should be regularly and fairly reviewed.
Recommendation 8.1 states that to achieve this principle companies are to 'disclose the process for
performance evaluation of the board, its committees and individual directors, and key executives.
BaFor example, as noted in part two of this article, in the Commentary to Recommendation 8.1 of the
ASX Guidelines relating to performance review, it is stated that 'the performance of the board and key
executives should be reviewed regularly against both measurable and qualitative indicators, and the
nomination committee should take responsibility for evaluating the board's performance'. The ASX
Guidelines also refers to the CCU publication, DIRECTORS' PROFESSIONAL EDUCATION PACKAGE:
BOARD COMPOSITION AND CONDU;CT (2002), which provides guidance on performance evaluation
processes. There are a number of companies that have in place procedures for assessing the performance
of the board and individual directors which are useful. See, for example, Alumina's system of board
performance review which states that the performance criteria is designed to measure performance on a
diverse range of pertinent business and governance topics that are the responsibilities of board directors,
with an external facilitator used to objectively measure performance.
242 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME 1 No 1

assessment procedure for directors which meets the particular needs of the com-
pany.
The fourth requirement, that the removal of a director must be due to unsatisfactory
performance based on the assessment criteria detailed in the company's constitu-
tion, again reinforces ultimate shareholder control of the removal process- by pro-
viding that the important right of shareholders to vote on removal at a general
meeting can only be dispensed with if the removal is strictly in accordance with an
alternative procedure for removal which shareholders have approved by a special
resolution. If the board wishes to remove a director simply due to a clash of person-
alities or for some other trivial issue which is not accommodated by the company's
performance assessment regime and not detailed in the company's constitution,
then relief will not be available, and a meeting of members will need to be con-
vened under s 203D to remove the director.
The fifth requirement really just corresponds with the fourth requirement, by ensur-
ing that the company actually puts in writing its reasoning as to why the removal is
in accordance with the performance assessment procedure detailed in the com-
pany's constitution. In making it a requirement that the company provide ASIC
with a notice of its reasons for removal 14 days prior to a final resolution to remove
the director, ASIC is given sufficient time to be able to carefully review and assess
the reasons why the board believes that there has been unsatisfactory performance
by the director justifying removal, and determine whether relief from s 203D and s
203E is warranted. The 14 day period also gives the relevant director that the com-
pany proposes to remove, and the company's stakeholders, an opportunity to pro-
vide their views to ASIC. This fifth requirement would not impose an undue burden
on companies, as the written notice of reasons would simply form part of its relief
application, just as companies now are required to go into some detail as to why
relief should be granted, when making an application for relief under the existing
relief provisions.
Overall then, we see that this proposal for reform, involving both statutory amend-
ment and the introduction of a new ASIC Policy Statement dealing with the re-
moval of directors, would facilitate public companies entering into pre-nuptial
agreements with directors, so long as it is explained in the agreement that the vote
of no confidence by the board needs to be based on the director's unsatisfactory
performance according to performance assessment criteria approved by sharehold-
ers and included in the company's constitution. This responds favourably to recent
events by appreciating the commercial benefits involved in public companies being
able to dispense with the requirement to convene a general meeting of members to
approve the removal, and also has two important regulatory benefits- (1) it encour-
ages public companies to implement arrangements, criteria and processes for as-
sessing the performance of directors which are transparent and legally enforceable-
thus embracing the suggestions in ASIC's August 2004 Information Release, and
(2) it ensures that shareholders maintain ultimate control of the procedure for re-
moving directors in public companies- thus respecting this important corporate
governance right of shareholders.
 Removal of Directors in Australia 243

While, as discussed above, there are obviously some substantive and procedural
issues that still require determination if the author's proposed new relief power is
introduced,8 9 there are important regulatory and commercial benefits which more
than justify this proposed relief power in the CorporationsAct, and thus the author
recommends that the proposed power be incorporated into the Act as soon as possi-
ble.

V CONCLUSION
For the first time, issues relating to the removal of directors have taken the centre
stage of commentary on corporate law and governance in Australia. While it has
long been recognised that the removal of directors is one of the more important
powers of shareholders, recent events have subjected this traditional power to
criticism and scrutiny. There is growing consensus, highlighted by the emergence
of so-called 'pre-nuptial agreements', that it may not be appropriate for sharehold-
ers to be vested with this power, and that there may in fact be significant commer-
cial benefits in enabling the board to determine whether directors should be
removed from their post or not. This emerging view on how directors should be
removed has come at a time when public companies across the common law world
are being asked to consider and develop mechanisms for assessing the performance
of directors. ASIC recently stated that '[t]his is a valuable contribution to the neces-
sary and ongoing review and improvement of corporate governance standards'.90 In
tuning their collective minds to implementing mechanisms to review how directors
are performing, it also becomes necessary for public company directors and advis-
ers to consider the consequences of non-performance, and therefore it is submitted
that the removal of directors will certainly remain an important issue in corporate
regulation for some time to come.
In this article, the author has gone to some length to explore the much-vexed issue
of whether recent pre-nuptial agreement negotiated between public companies and
individual directors are in fact enforceable under the CorporationsAct. With the
removal of directors now at the forefront of corporate law and governance dis-
course, and mechanisms being developed to deal with performance assessment
(and, by implication, non-performance), the enforceability of these agreements has

89One issue is whether contingent relief from s 203D and s 203E could be granted, to enable a company
to apply for relief in advance of a general meeting which is called to vote on an amendment to its
constitution to incorporate mechanisms for the performance assessment of directors. The reason for this
advanced relief would be to enable companies to hold the one meeting to vote on the proposed constitu-
tional amendment, and if that rails, to vote in favour of the removal of a director in accordance with s
203D at the same meeting. This would obviously save the cost of holding two separate meetings. It is
submitted that advanced relief could be provided if the proposed removal is still strictly due to unsatis-
factory performance in relation to assessment criteria incorporated into the company's constitution which
have been approved by shareholders at a general meeting.
9
o See ASIC, supra note 13.
244 THE CORPORATE GOVERNANCE LAW REVIEW VOLUME I No 1

become one of increasing importance. The author has resolved that these agree-
ments would not be enforceable due to falling foul of s 203E (and possibly s 203D)
of the Act, however has suggested that there are question marks hanging over this
position, and a court may in fact uphold such an agreement as being enforceable.
Regardless of the enforceability of these agreements, however, the author believes
that law reform is necessary in this area, and has outlined a proposal which balances
the competing objectives of shareholder participation and commercial flexibility in
the context of the statutory removal provisions, and also encourages companies to
implement transparent performance assessment mechanisms in their constitution.
The proposal involves providing ASIC with a new relief power, proposed new s
203EA, under which it can provide exemptions from the operation of s 203D and s
203E for public companies, if the applicant company can satisfy certain require-
ments to be included in a new ASIC Policy Statement.
As consideration and debate on issues to do with the removal and performance
assessment of directors in public companies continues, the author hopes that the law
reform proposal outlined in this article is given serious attention and eventually is
implemented.