Financial benefit

Financial benefit is not clearly defined in section 9 of the Corporations Act 2001 (Cth) (CA 2001); rather, in section 9, the term refers to the definition "giving a financial benefit", which has a meaning affected by section 229 of the CA 2001. That section sets out how to determine whether a financial benefit has been given to a related party.

A company may require shareholder approval to give a financial benefit to a related party (section 208, CA 2001). Parties must therefore determine whether transactions between related parties involve a company giving a financial benefit to a related party. Whether a company has given a financial benefit to a related party has been broadly interpreted by courts, and depends on the economic and commercial substance of the conduct surrounding the benefit, not just its legal form. For example, the transfer of bare legal title only but not the beneficial interest to a sum of money or parcel of shares could still constitute a financial benefit (see Australian Securities & Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171). The meaning of "financial benefit" is also broad enough to cover benefits that are:

(Section 229(2), CA 2001.)

When considering whether a financial benefit has been given, parties should disregard any consideration given to a company by the related party in exchange for the financial benefit that the related party has received from that company. Even where the company believes that the consideration being given by the related party is adequate for the benefit, the company may still need to seek shareholder approval (section 229(1), CA 2001). There is an exception for transactions with related parties at arm's length (section 210, CA 2001).

The CA 2001 gives the following examples of transactions that may constitute giving a financial benefit:

(Section 229, CA 2001.)

For more information on related party transactions, see Practice note, Related party transactions.