Dual listed companies: understanding conflicts of interest for directors


III DIRECTORS OF DUAL LISTED COMPANIES



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III DIRECTORS OF DUAL LISTED COMPANIES


The unique position of directors of dual listed companies has already been alluded to above. The boards of directors in such companies are identical — they are ‘twin boards’. These twin boards are established and maintained according to provisions in the constitutions of the dual listed companies, provisions in the contractual dual listed company structure, or a combination of both. The twin boards meet separately but simultaneously. Separate notices of meetings are sent to directors in respect of each board on which they sit, and separate sets of board papers and minutes of meetings13 are kept by the company secretaries of the respective companies.14 Notwithstanding this, the business of the meetings of each board is often identical, and where this is the case, minutes of meetings often record that one board relies upon the handling of that business by the other board. The procedures that govern the conduct of meetings of directors of dual listed companies reflect the tension inherent in the concept of dual listed companies — each company has independent legal existence but the two companies together operate as a single economic entity. That dual listed companies operate as a single economic entity also explains why the executive management of such companies is invariably in the hands of the same persons. Twin executive management teams and twin boards act as a link between two separate legal entities and the aim of one merged economic entity.

The tension that arises in dual listed company structures, where there is a single economic entity that is nonetheless comprised of two entities with separate legal existence, is reflected not only in the procedures that govern the conduct of directors’ meetings, but also in relation to directors’ duties. Consider the position of the directors of an Australian dual listed company (say, DLC 1 Ltd) which has brought itself within a dual listed company structure with a foreign company (say, DLC2 plc).15 These directors have duties — under statute, at common law and in equity — to DLC 1. Among these duties is the statutory duty to act at all times in the best interests of DLC116 and the equitable duty not to be in a position where the interests of the directors conflict with their duty to act in the best interests of DLC1 (the ‘no conflict’ rule). The directors’ interests for the purpose of this rule include their duties to act in the best interests of other companies of which they are directors, including DLC2. However, notwithstanding their duties to DLC1, the directors are authorised under DLC 1’s constitution to take into account the interests of DLC 1 and DLC2 as a whole when discharging their duties to DLC1.17 It is here that the tension in dual listed company structures manifests itself in connection with directors’ duties — the directors of DLC 1 are obliged to look to the interests of DLC 1, but also to the interests of the dual listed companies as a whole, in discharging their duties to DLC1 under the law and under DLC1 ’s constitution.

This appears to be unproblematic at first glance. There is no doubt that directors of one company may properly take into account the interests of that company and its dual listed counterpart as a whole if they are authorised to do so by the company’s constitution. Such authorisation can be analysed in two ways. First, it can be regarded as a form of prospective ratification by shareholders of breaches of the duty to act only in the company’s best interests. Prospective ratifications of breaches of directors’ duties have been recognised in a number of cases, including the recent case of Pascoe Ltd (in liq) v Lucas.18 Secondly, it can be regarded as narrowing the scope of the duties owed to a company by its directors, in which case there can be no question of breach of those duties just because the interests of the dual listed companies as a whole are taken into account. This second analysis recognises that the scope of directors’ duties can be narrowed with the consent of those to whom the duties are owed.19

Furthermore, as the interests of dual listed companies will usually coincide given that the companies operate within a dual listed company structure, it will normally be the case that what is in the best interests of the two companies as a whole will also be in the best interests of each company taken separately.

However, the position of the directors of dual listed companies as described above is not without difficulties. Must the directors, as directors of one such company, take into account that company’s interests alone, as well as the interests of the dual listed companies as a whole, when making decisions? Is it sufficient to have regard only to the dual listed companies as a whole? A more vexing question is what the directors of dual listed companies should do where the interests of those companies conflict. At this point, it is worth remembering that the directors of a dual listed company are also the directors of its dual listed counterpart and will be considering any state of affairs in which the companies’ interests conflict from their position in each company’s boardroom. Should they subordinate the interests of one to those of the other (or vice versa) or should they take a decision in the interests of the whole? In the latter case, how do they weigh the interests of each in determining the interests of the whole? After all, the dual listed companies are independent legal entities and the directors do owe duties to each separately. These difficult issues must be explored further, and answered, before the unique position of the directors of dual listed companies can be declared unproblematic.

Directory: journals -> UNSWLJ -> 2002
UNSWLJ -> Time and money under workchoices: understanding the new workplace relations act as a scheme of regulation
UNSWLJ -> The principle of open justice: a comparative perspective
UNSWLJ -> A voice for whom? Employee representation and labour legislation in australia
UNSWLJ -> Capturing crims or capturing votes? The aims and effects of mandatories neil morgan
UNSWLJ -> Civil prudence, sovereignty and citizenship in the justification of civil forfeiture
UNSWLJ -> The reform of labour laws: an international comparison
UNSWLJ -> Internment during the great war a challenge to the rule of law dr peter m mcdermott rfd
2002 -> An alternative voice in and around corporate governance
2002 -> Corporate law and ownership structure: a darwinian link?
2002 -> Case note hired guns and smoking guns: mc

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