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11-65MR New guidance aimed at improving disclosure and decision-making in related party transactions

Wednesday 30 March 2011

ASIC has released today new guidance that is aimed at bringing a substantial improvement in disclosure by public companies and registered managed investment schemes (MISs) about related party transactions.

ASIC's guidance is in revised Regulatory Guide 76 Related party transactions (RG 76). Regulatory Guide 111 Content of expert reports released today also addresses expert reports on related party transactions.

ASIC Deputy Chairman Belinda Gibson said ASIC believes directors must pay close attention to the quality of information that members receive about the commercial involvement of directors and other related parties in the company – both in meeting materials for approval of proposed related party transactions and in other disclosure documents offering securities or managed investment products.

'By definition, many related party transactions involve a conflict of interest. Related parties are often in a position to influence the decision on a proposal, the terms under which it might proceed, and the sharing of economic benefits between stakeholders.'

Investors who are making decisions about whether to acquire a security, or a managed investment product, are entitled to be fully informed about all ongoing related party arrangements with the entity. As part of this decision, they can then assess whether directors’ or other related parties’ interests may not be fully aligned with their own.

Belinda Gibson said that investors should have information about related party dealings, even for dealings that may be considered insignificant on their own. What may be material to members is the fact of the dealing with a related party, or the combined value of related party dealings.

The Corporations Act requires directors to seek shareholder approval unless a transaction is at arm's length or another exception applies. Prudent directors should be confident that a transaction is genuinely on arm’s length terms when relying on this exception. In ASIC’s view, it is insufficient for directors to rely on the exception if it is merely arguable that the transaction is on arm’s length terms. In the guidance, ASIC sets out criteria for assessing whether a proposal is at arm’s length.

In summary, the guidance in RG 76 covers:

What decision is being madeWhat ASIC guidance covers (RG 76)Where to find it (RG 76)
Whether to enter into a related party transactionVoting restrictions for directors at directors’ meetings and when ASIC may give relief from these restrictionsSection B
Whether to seek member approval The ‘arm’s length’ exception in Corporations Act 2001 s210, including factors to consider when applying this exceptionSection C
What to include in notices of meeting and explanatory statements (meeting materials) if member approval is soughtThe requirements of s218 and 219, the focus of our review of meeting materials and the exercise of our powers to shorten the 14-day review period or issue comments on the meeting materialsSection D
What votes to count at a members’ meeting Voting exclusions for related parties at members’ meetings and when we may give relief from the relevant provisionsSection D
What to include about related party transactions in other disclosuresThe content of other disclosures to investors (in prospectuses, Product Disclosure Statements (PDSs) and takeover documents)Section E

Copies of regulatory guides and reports can be found on the ASIC website at www.asic.gov.au/rg. Copies of pro forma relief instruments (Pro Forma 90 Voting by interested directors and Pro Forma 113 Related parties or associates—voting) which have also been updated can be found at www.asic.gov.au/pro-formas.

For further information:
ASIC Media Unit
Telephone: 1300 208 215
Email: media.unit@asic.gov.au


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