Director terms exemption

Information for corporations

The Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) specifies terms for corporations’ directors.

The CATSI Act says that a director should not be appointed for more than 2 years (subsection 246-25(2)). This is for a term of appointment, with directors able to be reappointed by members for more than one term.

Corporations can apply for an exemption from this requirement so that directors can have longer director terms. 

Corporations need to provide the reason(s) for seeking an exemption to the 2 year director terms requirement in the CATSI Act.

When applying for an exemption, corporations need to specify how long they are seeking them for and the reasons they are seeking that length of exemption period. Exemptions are not granted in perpetuity and will have a timeframe for which they apply, along with other conditions if required. Generally, ORIC will grant an exemption for a maximum of 2 director terms.

Members of a corporation hold the right to appoint and remove directors. The length of director terms is also a matter for members and as such exemption requests need to show evidence that members have agreed to director terms greater than 2 years.

Director terms also need to be reflected in a corporation’s rule book. Changes to the corporation’s rule book are approved by members. 

It is ORIC’s preference for corporations to submit a rule book change request when they are seeking an exemption to 2 year director terms and provide evidence that members have agreed with the longer director terms. The rule book should specify the length of director term being sought as well as the timeframe for which the exemption will apply. 

ORIC is unlikely to grant an exemption to director terms for corporations to apply at a future date. Corporations should apply for director term exemptions if they intend on implementing those terms as soon as practicable following approval (if granted). 

The Registrar of Aboriginal and Torres Strait Islander Corporations (the Registrar) can vary or revoke an exemption. ORIC may contact corporations with existing exemptions to the 2 year director term to check if the exemption remains appropriate for the corporation. 

ORIC’s consideration of exemption requests

The CATSI Act says that when the Registrar is granting a director term exemption, they need to believe that 2 year director terms would be inappropriate for the corporation or would impose an unreasonable burden (section 310-20(1)).

When considering unreasonable burden, the CATSI Act says that the Registrar (or their delegate) should think about:

• the costs to the corporation of having 2 year director terms
• the expected benefits for the corporation of having 2 year director terms
• any practical difficulties the corporation may have with 2 year director terms
• any other matters they consider to be relevant.

This means that the Registrar (or their delegate) must weigh the costs and practical difficulties experienced by the corporation against the benefits of 2 year director terms.

Below is more detailed information regarding these considerations. Consideration of an exemption request will be on a case-by-case basis and take into account the specific circumstances of that corporation. Consideration of a corporation’s request for an exemption which is based on one held by another corporation, will be given no or very little weight. This would be because the reason provided does not relate to the specific circumstances of the requesting corporation. If the referenced exemption is held by a related entity, little weight will be given unless other reasons are provided that are relevant to the considerations set out in the CATSI Act. A reason of simply seeking the alignment of director elections between 2 corporations is not generally in and of itself sufficient to satisfy the statutory test.

When reviewing an exemption request, the Registrar (or their delegate) will give considerable weight to whether members have indicated support for longer director terms.  

When assessing the reasons provided by a corporation for seeking an exemption to 2 year director terms, consideration may also be given to whether there are alternative options available to the corporation. For example, corporations that find it difficult to hold director elections due to a geographically dispersed membership base could use technology if provided for in their rule book.  

Corporations that provide one or more of the reasons outlined below should not assume that their application for an exemption from the 2 year director term will be granted. The Registrar (or their delegate) will assess the reasons provided by the corporation when considering an exemption application and balance these with the expected benefits of the corporation having a 2 year director term as well as any other relevant matters. 

Cost to the corporation of 2 year director terms

The cost to the corporation of having 2 year director terms may be prohibitive when the corporation:

• generates little or no income 
• carries on little or no activities
• has rules specified in its rule book regarding the appointment of directors which means that there will be no change to the individuals who hold directorships even if an election is held.

Expected benefits of 2 year director terms 

The Registrar’s Position Statement on director terms as well as this webpage outlines the benefits of 2 year director terms including that they provide a more frequent opportunity for members to make an informed decision about the performance of directors and whether they are meeting their expectations. Frequent elections are an opportunity for members to reassess and indicate their trust and confidence in directors. Information is also provided below regarding the difficulty of removing directors outside of an election – which is a frequent complaint received by ORIC.

Practical difficulties of 2 year director terms

Practical difficulties could include where the corporation conducts Annual General Meetings (AGM) that do not align with 2 year director terms, such as if it has an exemption in place which means that it only has an AGM every 3 years. 

Any other matters

The Registrar’s Position Statement outlines other matters that the Registrar (or their delegate) will consider noting that this is not an exhaustive list.

An important matter of consideration is the rights of members. The appointment, removal and reappointment of directors is a key right of members under the CATSI Act and the Registrar prioritises members’ ability to exercise this right. 

Another important matter is cultural considerations. The Registrar (or their delegate) will take into consideration where corporations have included traditional lore and custom into their director appointment processes and what this means for 2 year director terms.  

The Registrar or their delegate may also have regard to, including when looking at varying or revoking an existing exemption:

• the length and purpose of the exemption
• whether exemption conditions have been complied with
• the history of complaints and disputes related to the corporation
• changes to the corporation’s activities, assets or income
• the corporation’s compliance history.

Information for members

Director terms need to be specified in a corporation’s rule book and so, members need to agree to directors having terms longer than 2 years. There are a number of matters that members should consider as part of agreeing to longer director terms.

If directors are meeting members’ performance expectations, they can be reappointed when their 2 year term is up to enable them to continue to serve the corporation. This is subject to the wishes of members as expressed through director elections.

If directors are not meeting the expectations of members – that is, they are not performing well, are not making decisions in the best interests of the corporation, or they have lost the trust or confidence of members – shorter director terms provide an earlier and easier opportunity to remove those directors. For example, a director who has a 2 year director term would not expect to be reappointed at the next AGM. 

However, if directors have longer director terms and are not performing well or have lost the trust and confidence of members, it is more difficult for members to remove them because they are unable to use an existing mechanism (or opportunity) to do so.

How members can remove directors 

Under section 249-10 of the CATSI Act, members can remove directors during their term if they are not meeting expectations. Members can take this action regardless of any contrary:

• conditions in the corporation’s rule book
• agreement between the corporation and the director
• agreement between any or all of the members and the director.

This means that even if the corporation’s rule book says that directors can only be removed in certain circumstances, members can take the action explained below to remove director(s).

The CATSI Act says that a minimum number of members is required to take action to remove a director. The mechanism for members to do this would be by resolution at a general meeting which could be through:

• proposing a resolution at the next general meeting
• requesting directors call a general meeting.

Propose a resolution at the next general meeting

Members can propose a resolution at a general meeting to remove a director or directors. Under the CATSI Act there is a minimum number of members’ requirement to propose a resolution which is set out in the table below. You must meet the minimum members’ requirement to take this action.

Notice of the members’ intention to move the resolution to remove the director(s) must be given to the corporation at least 21 days before the meeting. But if the corporation calls the meeting after receiving the resolution, and the meeting is scheduled less than 21 days from the notice, the meeting can still consider the resolution.

The corporation is required to give the director(s) a copy of the notice of intention to remove them as soon as practicable after it is received.  

The director has a right to respond to the proposed resolution by:

• providing the corporation with a written statement which it is required to distribute to members AND
• speaking to the motion at the meeting.

Members request directors call a general meeting 

Members can request directors call a general meeting. Under the CATSI Act, a minimum number of members is required to request directors to hold a general meeting which is the same as the requirement to propose a resolution at a general meeting.

The request to hold a general meeting must be made to the directors of the corporation in writing, and: 

• state any resolutions to be put to the meeting 
• be signed by the required number of members 
• nominate a contact member on behalf of the members making the request. 

If the request for a general meeting is not in a valid format, the directors can deny the request. 

If the request is in a valid format, the directors have 21 days to consider it, and then can either: 

• call a general meeting providing 21 days' notice of the meeting to all members 
• seek permission from the Registrar to deny the request because it is frivolous or unreasonable; or not in the best interests of the members, in their opinion. 

If the request has been made in good faith, the directors should consider whether denying the request is in the best interests of the corporation i.e. that it is likely to escalate a situation.

If directors do seek permission from the Registrar to deny the request, they need to advise the contact person nominated for the members requesting the meeting. 

The Registrar has 21 days to consider the request, and can deny the directors’ request in which case the general meeting must be called 21 days after the corporation is advised that the request has been denied. 

The Registrar can also approve the request, in which case the general meeting will not be held.

How directors can remove another director

The CATSI Act says that directors can only remove another director if he or she fails without reasonable excuse to attend 3 or more consecutive directors’ meetings. Removal of an individual as a director does not remove them as a member. The CATSI Act sets out the process for taking this action.