This document is rules for nominee directors.
Directors and officers
A director is a person who is appointed to the position of director. This can include the following:
- appointed directors;
- governing directors;
- nominee directors;
- alternate directors;
- associate directors;
- de facto directors and shadow directors; and
- executive, non-executive and independent directors, including managing directors and chairmen.
Generally, the process for appointing directors is governed by the company's constitution. The constitution may give the general meeting power to appoint directors, and may also confer power on the directors to fill casual vacancies and appoint additional directors. A public company must have at least three directors (not counting alternates). A proprietary company must have at least one director.
A director can be appointed by a particular shareholder or class of shareholders to represent them. These directors are usually expected to act generally in the interests of their nominator, but may not always do so. In the circumstances where there is a conflict between the interests of the nominator and the company, the nominee director is required to act in the interests of the company.
If one investor holds more shares in the company than the other investors respectively and is entitled to appoint two directors to the board, it may be necessary to alter this rule to reflect that fact.
A nominee director is subject to the same duty of confidence to the board that applies to all directors.
Directors of wholly owned subsidiaries who are appointed as nominees by holding companies are permitted to act in the best interests of the holding company if, among other things, the constitution of the subsidiary so permits: section 187 of the Corporations Act 2001 (Cth) (Act). However, this provision does not entitle directors of a subsidiary to disregard the subsidiary's position entirely. Consideration must still be given to the subsidiary's solvency as a separate entity, see section 187(c) of the Act.
The company’s constitution should clarify the rights and responsibilities of nominee directors. Regardless, the company should adopt rules which govern how nominee directors operate within the board of directors. The operation of other standard rules in the constitution may also need to be considered. For example:
- should a chairman have a casting vote?
- should the investors' directors be entitled to remuneration?
- should alternate directors be permitted?
Practitioners should consider section 1322 of the Act.
- Rules providing for removal and appointment of nominee directors
- Rule providing for appointment by general meeting
- Rules for alternate directors
Rules for governing directors
This document has been updated for LexisNexis by Jane Garber-Rosenzweig, Partner, Gable Lawyer. Previous versions of this were authored by Kate Mills, Peter Richard, Robert D Jeremy, Robert M A Mangioni, Kathleen H Clothier and Amanda Beattie.
This document is prepared with the assistance of Specialist Editors Karen Lee and Geoff Geha.