Wednesday, 9 August 2017

Alternative Directors

Pursuant to section 201K of the Corporations Act 2001 (C’th), subject to approval by any other directors, a director of a company can appoint an individual to act as an alternate.

Boardroom tableAn alternate might be appointed because the appointing director is temporarily absent or unavailable to fulfil their duties, such as when the appointing director is interstate or overseas.

An alternate must give its consent in writing to act in that capacity (section 201D of the CA).

The appointing director may terminate the alternate's appointment (in writing) at any time.

Under section 205 B (2) of the CA, ASIC must be given notice (using the prescribed Form 484) of the appointment and termination of appointment of an alternate within 28 days of the appointment or termination.

Once appointed, the alternate:
  • is a director in their own right – they are not an agent of the appointing director (accordingly, the appointing director cannot be held responsible for acts or omissions of the alternate);
  • exercise of the powers is just as effective as if the powers were exercised by the appointing director;
  • has all of the duties and liabilities of a director (accordingly, an alternate’s liability is no less than that of the appointing director whilst the alternate is acting as director). And the alternate must:
    • act with reasonable care;
    • act honestly;
    • act in good faith;
    • act in the best interests of the company;
    • not make improper use of information for personal benefit and to detriment of company;
    • not act in conflict;
    • avoid insolvent trading;
    • comply with the law.
The company constitution should have relevant provisions which deal with the process of appointment and termination of alternate directors. This might include:
  • procedure to be followed; 
  • how approval of other directors is obtained; 
  • how long the alternate is to be appointed for; 
  • the specified powers or rights given to the alternate, eg: 
    • attendance at board meetings;
    • receiving notices and documents;
    • power to vote;
    • to sign documents, cheques, etc on behalf of the Company;
    • remuneration;
    • other benefits;
    • general responsibilities and obligations as alternate;
    • any restrictions the company imposes on the alternate.
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The material provided in this document is for general information only and is not to be relied upon as advice. No responsibility is accepted for any loss, damage or injury, financial or otherwise, suffered by any person or organisation acting or relying on this information or anything omitted from it.

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