AUSTRALIA Law and Practice Contributed by: Alberto Colla, Keith Tan, Hugh McDonald and Dean Zinn, MinterEllison
8. Duties of Directors 8.1 Principal Directors’ Duties
to the underlying value of the target com - pany); • the degree of certainty that the transaction will complete (having regard to regulatory approvals, funding and other execution risks); • the appropriateness of deal protections sought by each party, including in the case of deal protections for the acquirer ensuring that their parameters comply with Takeovers Panel guidance (see 6.7 Types of Deal Security Measures ); • whether the transaction is otherwise the most favourable course of action for the company having regard to the opportunities and risks of not undertaking the transaction; and • ensuring that actual or potential director conflicts of interest are identified and appro - priately managed (see 8.2 Special or Ad Hoc Committees ). 8.2 Special or Ad Hoc Committees A company board may delegate authority regard - ing a business combination to a sub-committee, which has the authority to convene and respond to material developments in relation to a trans - action. According to guidance issued by the Takeo - vers Panel, a target company should establish an independent board committee (IBC) as soon as the board becomes aware of an actual or potential business combination which involves or is likely to involve “participating insiders” . For example, a director of the target will likely be “participating insider” if they are offered a sig - nificant new employment or other agreement with the bidder (on more favourable terms than existing arrangements with the target) or if they are offered an opportunity to acquire a material equity stake in the target, the bidder or the bid vehicle that is not available to other sharehold - ers.
Directors of Australian companies have statuto - ry duties under the corporations legislation and fiduciary duties under the common law. These duties require directors to: • exercise due care and diligence; • act in good faith, in the best interest of the company and for a proper purpose; • not make improper use of their position or information acquired through that position to gain an advantage for themselves or any other person or to cause detriment to the company; and • avoid any actual or potential conflict between the obligations they owe to the company and their personal interests or other duties to which they may be subject. These duties are principally owed to company shareholders as a whole (not external stakehold- ers, such as employees, customers, suppliers or even creditors), except where a company is insolvent or nearing insolvency, in which case, the directors’ duty to act in the company’s best interests also includes a duty to consider the interests of the creditors. In an M&A setting, these duties require direc - tors to make an informed assessment of whether or not the transaction is in the best interests of the company’s shareholders, having regard to all of the circumstances. In practical terms, this requires the directors of the acquirer and target companies, respectively, to consider: • the material terms and conditions of the transaction (including whether the considera - tion offered is fair and reasonable with regard
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