The interpretation of Section 75
Section 75 requires directors that have a personal financial interest in a matter to be considered at a meeting of the board, or who know that a related person has a personal financial interest in the matter, to, amongst other things, disclose such interest to the board and to recuse himself/herself from voting on the relevant matter. In interpreting the applicability of section 75, it is important to note that a –
- “director” includes an alternate director, a prescribed officer as well as a person who is a member of a committee of the board;
- “personal financial interest” is defined as a direct material interest of a person, of a financial, monetary or economic nature, or to which a monetary value may be attributed. The aforementioned interest is confined to one which is “direct and material” and therefore it is necessary to further consider the definition of “material” in section 1 which would include interests that might reasonably affect a person's judgment or decision-making in the matter; and
- “related person”, in addition to the meaning set out in section 1, includes a second company of which the director or related person is also a director, or a close corporation of which the director or related person is a member. In other words, a director will be deemed to be related to another company merely because such director sits on such other company’s board, regardless of whether or not the director controls such other company.
The purpose of requiring directors to disclose their personal financial interest in a matter, in accordance with the provisions of section 75, is to, amongst other things, ensure that directors act bona fide and avoid a conflict of their interest and that of the company.
Section 75 does, however, provide a few exceptions, and accordingly, does not require a director to disclose his/her personal financial interest –
- if company only has one director and such director is also the company’s sole shareholder;
- in respect of a decision which may generally affect all of the directors in their capacity as such, or, if the decision relates to a class of persons even if the director belongs to that class; or
- in respect of a proposal to remove such director from office.
It has been argued that, in addition to the aforementioned exceptions, foreign companies are excluded from the extended definition of a “related person” in section 75 on the basis that the term “company” does not include a foreign company, and accordingly, a director who is also a director of a foreign company would not be required to comply with the provisions of section 75.
The consequence of failing to comply with the provisions of section 75 would trigger the decision, transaction or agreement approved by the board being void unless such matter has subsequently been ratified by way of ordinary resolution of the shareholders following the disclosure of that interest, or, if a court otherwise directs.