Guide
When a director has a conflict of interest
Being a director of an Aboriginal or Torres Strait Islander corporation and a member of the community it serves is normal, and the CATSI Act is written for it. An interest you hold in common with the other members does not have to be declared. Where you have a material personal interest in something the board is deciding, you must tell the other directors and leave the meeting while it is considered.
Being a member and a director is normal
In most corporations the directors are also members of the community the corporation serves. They buy from it, work for it, have family employed by it, or receive the services it provides. That is how the structure is meant to work, and the Act assumes it.
So the first thing to know is what you do not have to declare.
The interest you hold as a member
What the CATSI Act says
A director does not need to give notice of an interest if the interest “arises because the director is a member of the corporation and is held in common with the other members of the corporation”.
— CATSI Act, section 268-1(3)(a)(i)
What that means
A benefit that reaches you as one of the membership, on the same terms as everyone else, is not a conflict you declare.
The Act also exempts your own remuneration as a director, a proposed contract that binds the corporation to nothing unless the members approve it, and an interest arising merely because you guaranteed a loan to the corporation.
What to do when you do have one
Where the interest is a material personal one, two things follow, and the second is the one boards get wrong.
Telling the other directors, and leaving the room
What the CATSI Act says
“A director of an Aboriginal and Torres Strait Islander corporation who has a material personal interest in a matter that relates to the affairs of the corporation must give the other directors notice of the interest…”
“A director… who has a material personal interest in a matter that is being considered at a directors’ meeting must not: (a) be present while the matter is being considered at the meeting; or (b) vote on the matter.”
— CATSI Act, sections 268-1(1) and 268-20(1)
What that means
Tell the other directors, then leave the meeting while the matter is discussed. Abstaining from the vote while staying in the room is not what the Act asks for.
Both are offences under the Act.
Checked against CATSI Act 2006 (compilation 20 March 2024) — Division 268, .
The Act does not define what makes a personal interest material. Beyond the categories it expressly exempts it is a question of fact, and better settled before the meeting than during it.
If the same interest comes up every meeting
A director who has an interest in a matter may give the other directors a standing notice of its nature and extent, rather than declaring it each time. It may be given at any time. Section 268-10 sets out how it has to be given, and a standing notice that does not meet those requirements is not one.
When the board cannot reach a quorum
On a small board in a small community, one decision can conflict most of the room. The Act provides for it.
- The other directors can let you stay. The directors who do not have the interest may pass a resolution identifying you, the nature and extent of your interest and its relation to the corporation’s affairs, and stating that they are satisfied it should not disqualify you from voting or being present (section 268-20(4)).
- The members can decide instead. Where there are not enough unconflicted directors to form a quorum, one or more directors, including those with the interest, may call a general meeting, and that meeting may pass a resolution to deal with the matter (section 268-20(6)).
- The Registrar can allow it. A director may also be present and vote where entitled to under a declaration or order made by the Registrar (sections 268-20(5) and 268-25).
If your corporation is a registered native title body corporate
A director of a registered native title body corporate who has an interest as one of the common law holders does not have to give notice of it, where the corporation holds that native title in trust for the common law holders or acts as their agent. The interest does not prevent the director being present and voting.
This is specific to registered native title bodies corporate and to that interest, not a general exemption for native title matters. See native title corporations.
After the meeting: the accounts
Disclosing an interest to the board does not finish the job. Transactions with directors and their close family are disclosable in the financial report under AASB 124, and that reaches further than most boards expect. See the financial report.
A separate requirement: benefits to related parties
Declaring an interest and standing out of a decision is not the whole of the Act. Where the corporation gives a financial benefit to a related party, section 284-1 requires members’ approval in the way set out in Division 290, unless the benefit falls within an exception in Division 287. The exceptions include a benefit given to a member that does not discriminate unfairly against the other members, remuneration for an officer or employee, and benefits given to comply with Native Title legislation obligations. “Related party” has its own definition in the Act. Treat this as a separate question from the one this page answers, and take advice before the corporation commits.
When to get help
Ask early where the corporation is about to contract with a director or a director’s business, where most of the board is conflicted on a decision that cannot wait, or where the rule book and the Act appear to say different things. If a director is facing an allegation that a duty has been breached, that is work for a lawyer: these provisions carry penalties, and an accountant is not the right adviser for them.
For the other four duties, see what directors are responsible for. If your corporation needs the related party disclosures in its accounts prepared properly, talk to us.
Frequently asked questions
Most of our directors are related to people who do business with the corporation. Is that a problem?
Not in itself, and it is normal in a community-controlled corporation. The CATSI Act is written on the assumption that directors are drawn from the community the corporation serves. What matters is what happens when a particular decision touches a particular director.
Do I have to declare that I am a member of the corporation?
No. Section 268-1(3) says a director does not have to give notice of an interest that arises because the director is a member of the corporation and is held in common with the other members. A benefit that reaches you as one of the membership, on the same terms as everyone else, is not something you declare.
Can I stay in the room if the other directors say it is fine?
Yes, if they pass a resolution to that effect. Section 268-20(4) allows a director to be present and vote where the directors who do not have the interest have passed a resolution identifying the director, the nature and extent of the interest and its relation to the corporation, and stating that they are satisfied it should not disqualify the director. It has to be an actual resolution, not an understanding around the table.
So many of our directors are conflicted that we cannot form a quorum. What do we do?
Take it to the members. Section 268-20(6) provides that where there are not enough directors to form a quorum because of the restriction, one or more of the directors, including those with the interest, may call a general meeting, and that meeting may pass a resolution to deal with the matter.
Do we have to write it in the minutes?
Section 268-1 requires notice to the other directors. It does not, on its face, require a minute. Your corporation’s rule book may require one, and a record is worth keeping either way, because the corporation may later need to show what was disclosed and who took part in the decision.
What happens if a director votes when they should not have?
The resolution still stands. Section 268-20(7) provides that a contravention by a director does not affect the validity of any resolution. The consequence falls on the director rather than on the decision, and it is a matter to raise with a lawyer rather than an accountant.