To minimise the risk that the integrity and effectiveness of the corporate structure are undermined, directors of holding companies and subsidiaries need to be aware of the duties that they must fulfil in respect of their companies. Failure to comply with the duties imposed by statute and common law can result in the directors facing a number of potential liabilities, including criminal and civil penalties and personal liability.

Directors who are on the board of a company within a corporate structure are typically exposed to more risks than directors who are on the board of a single stand-alone company and particularly where they are at risk of being considered de facto directors of another company within the corporate structure. Further, directors who are on the board of the holding company and a subsidiary, or the boards of two or more subsidiaries, would have a more onerous task of discharging multiple sets of duties in respect of all of their companies.

See Risks.

Given the responsibilities, duties and obligations associated with each directorship, and the exposure to potential liabilities which may be extensive, directors of companies within the corporate group should seek to obtain three main protections available to directors, including deeds of access, indemnity and insurance, amendments to the constitution of wholly owned subsidiaries and procuring appropriate directors’ and officers’ insurance policies to be acquired and held by the appropriate company.

Deeds of access, indemnity and insurance extend the statutory rights of access to the books of the company and provide for the indemnification and insurance of directors and may be given by different companies within the group. Typically, some of these protections are given by the subsidiary and others are given by the holding company. Generally, the subsidiary is the company that provides a deed of access and indemnity to the director, and the holding company provides a deed of indemnity and insurance (regardless of whether the director is director of the holding company). In addition to considering which protections should be given and which company is the appropriate company to be giving the protections, there are additional considerations if the companies are located in different jurisdictions.

The constitution of the wholly owned subsidiary should also be reviewed to ensure that it expressly authorises directors of the subsidiary to act in the holding company’s best interests.

Directors’ and officers’ insurance policies with appropriate and sufficient cover should be sought, and consideration should be given to consulting an insurance broker and understanding the relevant exclusions that may be applicable. However, de facto directors should be aware that coverage under these insurance policies is unlikely to be extended to them.

See Protections.

As with any transaction, the entry into a deed of access, indemnity and insurance, amendments to the constitution and taking out insurance must be approved by the board of the company. In those circumstances, and particularly in the context of corporate groups, there is a risk that related parties with an interest in the transaction may be accused of improperly influencing the decision-making of directors to the detriment of the interests of members. This issue is particularly prevalent, for example, where there are multiple directors who will be offered protection under the deeds of access, indemnity and insurance, and the decision of each director to approve a transaction in respect of another director may influence the second director to approve a transaction that relates to the first director. Such an accusation is not likely to be made at a time when the protections are needed or being relied upon and it is at that point in time that the approval process is most likely to be scrutinised.

Where a director has a material personal interest in a matter, he or she has a duty to notify the other directors of the interests. In some circumstances, the interested director may be restricted from voting on the matter or attending the directors’ meeting while the matter is being considered. While this issue is relevant to all companies, material personal interests may arise more frequently in the context of corporate groups where there are intra group transactions and/or common directorships.

Additionally, member approval may also be required where some financial benefit is given by a public company, or an entity controlled by a public company to a related party, subject to certain exceptions.

See Approvals.