Under the EP Act, DEHP may decide that a person has a “relevant connection” with a company if it is satisfied that:
- the person is capable of significantly benefiting financially, or has significantly benefited financially, from the carrying out of a relevant activity by the company; or
- the person is, or has been at any time during the previous 2 years, in a position to influence the company’s conduct in relation to compliance with its obligations under the EP Act (including by giving a direction or approval, or by making funding available).
Note that a person need only satisfy one of the above criteria in order to have a “relevant connection”.
DEHP may consider a number of factors when deciding whether a person has a relevant connection with a company, including:
- the extent of the person’s control of the company;
- the extent of the person’s financial interest in the company (i.e. a direct or indirect interest in shares in the company, the income or revenue of the company, or a mortgage, charge or other security given by the company); and
- the extent to which dealings between the person and the company are at arm’s length, on an independent, commercial footing, for the purpose of providing professional advice, or for the purpose of providing finance (including the taking of security).
The draft Guideline clarifies which of these matters relate to the above “significant financial benefit criteria” and/or “position to influence criteria” and the evidence that DEHP may collect and consider (Appendix 4).
Significant financial benefit
The draft Guideline states that the significance of any financial benefit will be considered within the context of the specific circumstance of each case and may be considered in relation to:
- the proportion of the benefit relative to the total assets or benefit available from the activities carried out under the EA; or
- the proportion of the benefit, relative to the costs of restoring or rehabilitating of the environment, or protecting the environment from harm.
Specific examples are provided, including for:
- Financial institutions:
- although the Guideline mentions only “banks” it is likely from the context that relevant guidance will apply also to other (non-bank) financial institutions who provide relevant services;
- a bank would not be regarded as having a relevant connection on the sole basis that it provided banking products and services to a company for a fee;
- a bank would not be regarded as having a relevant connection on the sole basis that it provided credit to a company under a lending agreement on arm’s length commercial terms and receives financial benefits (e.g. interest and the repayment of the loan) at commercial market rates;
- a bank may be regarded as having a relevant connection to a company where it “enters into a lending agreement with a company becoming a major investor in the company and deriving significant dividends and capital gains from the company”. This is somewhat confusing; even if a lender may be described as a “major investor”, a “lending agreement” does not normally deliver dividends or capital gains
- Third party suppliers:
- a supplier would not be treated as having a relevant connection with a company on the sole basis of having received a significant financial benefit from the sale of goods to the company through an arm’s length transaction;
- a shareholder with a substantial shareholding and dividends received from the company may be considered to be a related person where the financial benefit received is significant having regard to the net profit of the company.
Position to influence
The draft Guideline states that person will be in a position to influence if the person is capable of influencing the decisions or actions of the company in relation to its compliance with the EP Act whether in an official (e.g. appointed company director) or unofficial capacity (e.g. someone acting as a shadow director).
Again, specific examples are provided, including for:
- Financial institutions:
- a bank would not be regarded as having a relevant connection with a company on the sole basis that it provided information about its banking services and possible options which may suit the company’s objectives and requirements (for example loan arrangements) on arm’s length commercial terms, as this would be considered professional advice provided for commercial purposes;
- a bank would not be considered as having a relevant connection solely on the basis of engaging in debt-restructuring discussions or negotiations with a company related to and for the purpose of providing finance to the company;
- a secured creditor who decides to appoint a receiver would not be considered to have a relevant connection on the basis of a position to influence where it does not exercise influence or control over the business of the company or direct the receiver (in this respect, no distinction is made between publically listed and private companies);