The Federal Court has delivered a warning to company office holders about the high governance standards they need to maintain, after stripping the former company secretary of Perth-based Biodiesel Producers Ltd of his entitlement to performance shares.
The board of Biodiesel Producers, which is developing a biodiesel plant in Victoria, had approved the performance shares in 2004.
Dennis Barron, who established the unlisted company, was awarded nine million performance shares and company secretary Tony Stewart was awarded 5.5 million shares.
Following a boardroom coup in 2005, after which Mr Barron resigned from the company and Mr Stewart’s appointment was terminated, the new directors, led by chairman Curt Leonard, commenced legal action to rescind the original board approval.
The dispute with Mr Barron was settled prior to the court case but the dispute with Mr Stewart went through full hearings.
In a judgement handed down last month, Justice Lander was highly critical of Mr Stewart, who was found to have failed to communicate relevant advice to board members.
This included advice from Hardy Bowen lawyer Grant Paterson on a shareholders’ agreement and from former Biodiesel director John Pearce on an executive service agreement.
Mr Stewart testified that he and Mr Barron had made commercial judgements about the kind of detail that needed to be communicated to the board.
In one case, he said the advice was not passed on to the board because he received an instruction from Mr Barron. On another matter, Mr Stewart said the advice was copied to another non-executive director.
Justice Lander said the awarding of performance shares was reasonable in the circumstances of the company.
However, he concluded that Mr Stewart “preferred his interests to that of the applicant”.
“There can be no doubt, on my findings, that (Mr Stewart) has acted improperly and in breach of his statutory and fiduciary duties,” Justice Lander concluded.
“He consciously failed to bring to the attention of the board material information which would have impacted upon the board’s decision to pass a resolution to issue shares to him.”
Mr Stewart told WA Business News he would be appealing the judgement.
