Generally speaking, the formal written record of decisions by a Board of Directors is the signed Minutes of a Board Meeting.
WAIT… I know this sounds dull but bear with me, it’s important. Sure, you may be thinking: complete snoozeville… who can be bothered, we have more important things to worry about… like actually running our business!
Whilst perhaps true, by failing to give adequate care to the preparation of Minutes of Board meetings, directors could potentially expose the company to risks of claims by shareholders later on and potentially even regulatory penalties. Further, some agreements a company enters into may in fact require formal ratification by a company’s board of directors, and thus failing to attend to this matter could place the company in breach of its contractual obligations. Failing to attend to such formalities may also (in some circumstances) be in breach of a company’s constitution.
In our experience, whilst most directors are quite diligent in ensuring their contractual arrangements with outsiders are properly prepared and maintained, many boards don’t fully appreciate the importance of keeping accurate and carefully prepared minutes of meetings which properly recording resolutions as well as things considered at such meetings.
The requirement for companies to keep a “book of minutes” recording resolutions is a set out in the Corporations Act (see section 251A) and should therefore be taken seriously. That section, among other things, requires resolutions at Board meetings to be recorded within one month of the meeting.
The Australian Institute of Company Directors and Governance Institute of Australia have recently collaborated to produce a helpful a joint statement outlining their perspective on current issues in minute taking in order to support their members and help guide debate on the topic.
The statement is supported by an insightful opinion of two eminent commercial barristers (Dominique Hogan-Doran SC and Douglas Gration) which is helpfully annexed to the statement. The statement can be downloaded from the Governance Institute of Australia website which can be accessed here.
The statement sets out some practical steps for preparing minutes including maintaining consistency of style, avoiding overly emotive language and including key points of discussion and reasons for decisions in the minutes which:
“may help to establish that directors have exercised their powers and discharged their duties to act with care and diligence and in good faith, for a proper purpose and in the best interests of the company.”
The statement also contains some salient words of caution in relation to the level of detail to be included in board minutes. It highlights that extensive detail in minutes is not only unnecessary, but can often be risky and disadvantageous. A key example is the case cited in the statement in which legal professional privilege was lost by a company due to careless preparation of board minutes.
Generally speaking, such privilege attaches to confidential advice from lawyers which is sought for the purposes of actual or anticipated litigation. Privileged documents and communications are not normally admissible as evidence in a proceeding and documents containing the advice are not usually required to be disclosed to an opposing party in legal proceedings.
In the case cited, legal advice was lost due to the inclusion in board minutes of the nature and content of some legal advice obtained by the company. The Court ruled that privilege was effectively ‘waved’ over the entire advice as the inclusion of some of the advice in the board minutes constituted a disclosure to the opposing party in the litigation.
Therefore, boards often need to strike a balance between properly documenting the background to decisions and remaining mindful of the issues which may arise if confidential information or details lacking proper context are included in board minutes. Sound professional guidance is essential when preparing and finalising potentially controversial board minutes, particularly in circumstances where such minutes may later be scrutinised by key stakeholders to such decisions. Whilst dull and tedious, time and resources dedicated to getting things right can avoid a legal headache for the company later on.
If you require advice in relation to the composition or formalities for board minutes and resolutions, contact a member of our team for on-point, practical guidance.
Joseph Carneli, Senior Associate