The Reach of Constitutional Conflicts Provisions: How Do Companies Contract out of the General Law Duties?

Abstract

To what extent do companies insert provisions in their constitutions that modify the duties imposed on company directors? This question is of particular significance in relation to conflicts of interest. In this research note, the authors endeavour to answer this question by examining the constitutions of 100 companies listed on the Australian Securities Exchange - 50 large capitalisation companies and 50 small capitalisation companies. Only one of the companies in the sample (a small capitalisation company) did not have a provision in its constitution that modified the duty of directors to avoid unauthorised conflicts of interest. The authors divided the relevant constitutional provisions into six categories (for example, provisions allowing directors to contract with the company subject to disclosure by the director of the interest and provisions allowing directors to hold an office or a place of profit with the company subject to disclosure by the director of the interest) to identify (a) which types of constitutional provisions were most common; (b) whether the type of constitutional provision differed according to the size of the company; and (c) whether the constitutional provisions required authorisation of the conflict by other directors or only disclosure of the interest by the director.