Board membership and other corporate roles

11.61 Board participation is one of the areas listed in the Terms of Reference. In the Issues Paper, the ALRC asked in what ways the Commonwealth laws and legal frameworks relating to membership of, or participation on, boards diminish or facilitate the equal recognition of people with disability before the law and their ability to exercise legal capacity. Stakeholders expressed concern about under-representation of people with disability on corporate, government and non-government boards; and about the operation of legal provisions allowing the removal of directors or board members because of intellectual disability or mental illness.[69]

11.62 The Mental Health Coordinating Council submitted that the language of laws should change to ‘eradicate any stigmatising and discriminating practice towards people with a mental health condition’—including in relation to some provisions concerning board membership.[70]

11.63 For example, the Associations Incorporation Act 2009 (NSW)applies model rules to the constitutions of associations, if appropriate provision is not otherwise made.[71] These default rules provide that a casual vacancy in the office of a member of the committee occurs if the member ‘becomes a mentally incapacitated person’.[72] In turn, the Interpretation Act 1987 (NSW) defines the term ‘mentally incapacitated person’ to mean a person who is ‘an involuntary patient or a forensic patient or a correctional patient within the meaning of the Mental Health Act 2007, or a protected person within the meaning of the NSW Trustee and Guardian Act 2009’.[73]

11.64 Such a broad provision seems inconsistent with the National Decision-Making Principles because it makes status-based assumptions about decision-making ability, and does not recognise that ability may fluctuate over time.[74] The fact that someone is briefly an involuntary patient, or is subject to some form of administration or guardianship order, should not automatically require them to vacate a position on an association’s committee.[75] In this Inquiry the ALRC proposes to move away from a status-based approach.

11.65 At a Commonwealth level, a number of provisions in the Corporations Act 2001 (Cth) apply tests of capacity in relation to acting in various corporate roles, including as a director, auditor, liquidator and financial services licence holder:

  • Directors. If a person who is the only director and the only shareholder of a proprietary company ‘cannot manage the company because of the person’s mental incapacity’, the person’s personal representative or trustee may appoint another person as director.[76]

  • Auditors and liquidators. The Companies Auditors and Liquidators Disciplinary Board must, on an application by ASIC or APRA, cancel the registration of an auditor or liquidator if the person ‘is incapable, because of mental infirmity, of managing his or her affairs’.[77]

  • Financial services licence holders. ASIC may suspend or cancel an Australian financial services licence held by a person who ‘becomes incapable of managing their affairs because of mental or physical incapacity’.[78]

Proposal 11–2 Sections 201F(2), 915B and 1292(7)(b) of the Corporations Act 2001 (Cth) should be amended to provide that a person is incapable of acting in the particular role if they cannot:

(a) understand the information relevant to the decisions that they will have to make in performing the role;

(b) retain that information to the extent necessary to make those decisions;

(c) use or weigh that information as part of the process of making decisions; and

(d) communicate the decisions in some way.

11.66 The existing tests of a person’s capacity to act in roles regulated by the Corporations Act are inconsistent with the principles of supported decision-making. In particular, they are status-based—referring to concepts such as ‘mental infirmity’ and ‘mental incapacity’. Further, the functional aspect of some of the tests refers broadly to a person’s ability to manage ‘their affairs’ rather than to make particular categories of decision or perform particular duties.

11.67 Such tests, to the extent they are necessary, should be based on a person’s decision-making ability in the context of a particular role or duties. In the ALRC’s view, the Corporations Act should be amended to introduce provisions based on the National Decision-Making Principles and Guidelines.