Ergon Energy Corporation Limited A.C.N 087 646 062 Conflicts of Interests Guidelines This expands upon the Directors’ Code of Conduct . General There are general duties on directors and officers under common law (ie fiduciary duties including the duty of good faith and loyalty), and specific duties under sections 181, 182, 183 and 184 of the Corporations Act. These are summarised in the directors’ Code of Conduct and equally apply to officers (ie executives): A director/executive must act honestly, in good faith and in the best interests of the company as a whole. A director/executive must use the powers of office for a proper purpose, in the best interests of the company as a whole. A director/executive must not make improper use of the information acquired as a director/executive. A director/executive must not take improper advantage of his/her position. Specifically, the directors’ Code of Conduct includes the following in relation to conflicts of interest (which is based on the above duties). The Employees’ Code of Conduct also covers this concept: A director/executive must not allow personal interests, or the interests of any associated person, to conflict with the interests of the company. The key issues here are to identify the potential conflict and decide whether the situation meets the threshold discussed below. If so: • it should be disclosed in a timely manner; and • an appropriate management strategy formulated – which may include refraining from taking part in the activity or decision making (which is required by s195 Corporations Act where the conflict circumstance amounts to a material personal interest). What is a conflict? Conflicts are circumstances where a person’s private interests, or duties to another organisation, are inconsistent with, or diverge from, the person’s duties to Ergon Energy. Private interests are those that can bring a benefit or disadvantage to the person or to others whom they may wish to benefit or disadvantage. (This can include personal, professional or business interests of the person or interests of family or associates, and can be pecuniary or non-pecuniary.) The question of whether a conflict exists is an objective question – ie would a reasonable person consider that a personal interest or a duty elsewhere might motivate the director or executive rather than being solely motivated for Ergon Energy’s benefit. It includes actual, apparent and potential conflicts and direct or indirect conflicts. Ergon Energy Corporation Limited A.C.N 087 646 062 Example - Ergon Energy enters into a contract to buy land from ABC Pty Ltd. An Ergon Energy director owns 50% of ABC. The director’s private interest (as a shareholder of ABC, to maximise the return from the sale of the land) potentially diverges with the director’s duty to Ergon Energy (to select the most suitable land for the best price). Example of an indirect conflict - The board of Ergon Energy is debating whether to enter into a contract to purchase a business owned by ABC Pty Ltd. ABC owes $250,000 to DEF Pty Ltd. The spouse of one of the directors of Ergon Energy owns 50% of the shares in DEF. Responsibility Responsibility for disclosure or avoidance of a conflict of interest and disclosure of a material personal interest rests with the individual director / executive. Materiality threshold Not every personal interest will present a conflict. For companies, the courts have recognised the need for there to be a real possibility of conflict before requiring the director/executive to act. ‘Material personal interest’ is not defined by statute, however it would include an interest that involves a relationship of real substance to a matter concerning the company such that it might, or could be seen to, influence the director’s vote or decision. The Queensland Government’s ‘Statutory Officer Guidelines’ apply a stricter emphasis for statutory office holders, by formulating the test in this way: “In the area of conflict of interest perception is all important…Essentially it means that such reasonable member of the public would conclude that inappropriate factors could influence an official action or decision.” A case by case analysis is usually required. If there is doubt in deciding whether a situation presents a conflict, the matter can be discussed with the Company Secretary or Chairman, or discussed with the Board first, but it is better to err on the side of caution. Examples of investments and interests Some examples of investments and their materiality are discussed here: Blind trusts or Superannuation Funds That is, where the beneficiary of an investment vehicle has no advance knowledge or control over the nature of the investments made. To the extent that the beneficiary has no prior knowledge of an interest, the investment is unlikely to cause a conflict because a reasonable person properly informed would not expect the beneficiary to prefer the interest of an unknown investment to that beneficiary’s duty to Ergon Energy. It needs to be remembered that any investment based on prior knowledge of confidential company information will in any event be a form of insider trading. Ergon Energy Corporation Limited A.C.N 087 646 062 Self managed superannuation schemes Although many beneficiaries under self managed super funds do not ‘control’ the fund in the sense that they do not conduct the day to day management of it, they do have an ultimate say over the investment, even if they choose to delegate the decision to their financial adviser. Given the focus in the Statutory Officer Guidelines on perception, these investments do have the potential to give rise to conflicts of interest and depending on materiality and relevance ought to be disclosed. Spousal and family interests The interest of a person’s spouse, partner or family member may give rise to a conflict if a reasonable person would perceive that the person may prefer their spouse’s or partner’s interest to their own. Therefore, directors and executives should ensure they carefully consider indirect conflicts. It is the director’s/executive’s obligation to identify potential conflicts.