The Australian Institute of Company Directors (AICD) and Governance Institute of Australia (Governance Institute), in response to the importance of accurate board minutes highlighted by the Financial Services Royal Commission, have recently collaborated to outline the requirements in relation board minutes and board papers, in their paper entitled ‘Joint statement on board minutes’ (Joint Statement). In this snapshot, we summarise the key takeaways from this statement.
Relevant sections of the Corporations Act
Section 251A of the Corporations Act 2001 (Cth) (Act) requires a company to keep minute books in which it records (within one month) proceedings and resolutions of directors’ meetings (including meetings of a committee of directors). The minutes must be signed by the chair of the meeting or the chair of the next meeting within a reasonable time. As noted in the Joint Statement, this section does not require that minutes be prepared and signed within one month. Whilst minutes must be prepared and recorded in one month, they can be reviewed by directors and signed within a reasonable time after that. Once minutes are recorded and signed they are prima facie evidence of the proceedings and resolutions passed.
Pursuant to section 251A(5) of the Act, minute books must be kept at either the company’s registered office, its principle place of business (provided it is in Australia) or any other place within Australia as approved by ASIC.
Breach of any of the obligations in section 251A is an offence of strict liability, meaning that fault does not need to be proved for an offence to be made out.
Board minutes are a record of board decisions and the process by which those decisions are made. They are very important: they may sometimes be the best and only evidence that directors have complied with their duties in respect of the decisions that they have made and their general oversight of the company.
Minutes should be drafted in such a way that is clear, concise, in plain English, and so someone absent from the meeting can follow the decisions that were made. However, they are not a report or transcript of discussion or debate during the meeting, or a record of an individual director’s contribution. They are also not purely a compliance exercise.
Finding a balance between recording sufficient detail in the minutes to accurately reflect what occurs in the meeting and capture the boards decisions concisely and accurately, without including too much information, can be difficult. The Joint Statement helpfully outlines a number of key ‘dos’ and ‘don’ts’ to keep in mind in this regard.
- include details such as the organisations name, the nature and type of meeting, the place, date and starting time of the meeting, the chair name, the attendees, the invited guests, apologies accepted, presence of quorum minutes of the previous meeting, materials distributed before and during the meeting, proceedings of the meeting and resolutions made including director votes against or extensions, when attendees leave and re enter the room, closing time and chair signature in the minutes;
- include key points of discussion and the broad reasons for decisions;
- include significant issues raised with management by directors and the responses received or action promised (in non-emotive and impartial language);
- record any votes by directors against or abstaining from a resolution;
- include the reason the majority of directors were in favour of the decision notwithstanding the consenting views;
- refer to, without repeating the content of, board papers and other supporting documents in the minutes;
- if there is a key issue not canvased in the board paper which helps the board reach a decision in the meeting, this should be referred to in the minutes;
- use words such as the board ‘discussed, debated, questioned, inquired, requested information on, tested their understanding on..’ to accurately record board discussions;
- identify any privileged information in the minutes, and ideally include the privileged information in an appendix or attachment;
- seek legal advice if you are not sure about whether information is privileged;
- prepare draft minutes from notes as soon as possible after the meeting while they are fresh in the mind of the minute taker;
- consider the principles of the business judgment rule when preparing and approving minutes;
- approach a consistent method in drafting minutes; and
- if privileged information was discussed, note only that the board considered relevant legal advice when making a decision.
- record every question put and every response received;
- neglect to include any important issues or discussions (if the minutes are silent on an issue, a court may adopt a degree of scepticism as to whether the matter was considered by the board);
- attribute details of any robust discussion that takes place along the way to a specific director (this may result in a negative impact on board dynamics);
- record the votes of individual directors;
- draft minutes defensively;
- approach the drafting of minutes in such a way to undermine the board acting as a collective;
- include comments made by directors advocating a view with which they personally disagree (this may discourage free flowing discussion);
- include the length of time a board spent discussing an individual agenda item;
- use a recording device for minute taking;
- repeat the content of board papers in minutes;
- include information protected by legal professional privilege in the minutes; and
- provide draft minutes which may contain privileged information to third parties without first obtaining legal advice.
Board papers also play an important role in the minute taking process and in ensuring directors are complying with their duties. Board papers should:
- clearly indicate what the board or committee is being asked to do;
- support the decision made; and
- include enough details about the reasons for a decision to understand the rationale. Material information that is not included in board papers which forms part of the discussion may also need to be referenced in the minutes.
The Joint Statement provides a useful and timely reminder of the importance of board minutes and board papers and how they can be best drafted to ensure that a company is effectively recording its meetings. It is a useful document to guide those who may be unsure about what should and should not be included in minutes.
The overarching consideration should be that the minutes accurately record the meeting without being a transcript of the meeting, and that they show that directors have complied with their obligations and considered all matters with a degree of duty care and diligence.
The evidentiary weight that is often placed on minutes means that it is critical that each director actively reviews the minutes and that the process of finalising and approving the minutes is rigorously managed by the chair.
If you have any questions regarding board materials or directors’ duties generally, please do not hesitate to contact Lavan’s Corporate Disputes and Investigations Team.