"In 2015, Recce Pharmaceuticals Ltd (Recce) issued performance shares to specific directors and key management personnel. After the conversion of the two classes of performance shares in 2016, some of the holders ceased to hold their respective roles at Recce. In 2017, Recce achieved the milestones relevant to the remaining two classes of shares and released an announcement asserting that there was an implied term that they would only be eligible for conversion if the holder continued to hold office when the relevant milestone was achieved and materially contributed to achieving the milestone. The former directors and key managers sought orders in the WA Supreme Court requiring the conversion of the performance shares and rejecting that implied term. The WA Supreme Court ruled in their favour. Recce brought an appeal in the WA Court of Appeal which upheld the original decision and dismissed the appeal. The Court of Appeal in Recce Pharmaceuticals Ltd v Brown [2022] WASCA 66 held that ordinary principles of construction should apply to the terms of issue of the performance shares and that the term ‘performance’ did not refer to the individual’s performance, but performance of the company. There was also nothing on the face of the clause to suggest that the holders needed to remain in office, and therefore such a term should not be implied. The decision highlights the importance of thorough forward-thinking when issuing performance-based incentives, and ensuring the terms of those incentives accurately reflect the intentions of the company, especially around the impact of ‘good leavers’ or ‘bad leavers’."
RCE Price at posting:
76.5¢ Sentiment: Buy Disclosure: Held
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