In recent public inquiries and regulatory investigations, questions have been raised around the practices of boards holding informal meetings or other briefings, which are not minuted.
While clearly not every director ‘get together’ needs to constitute a formal (minuted) meeting of the board, the recent regulatory attention means directors (and in particular Chairs) should be clear on the requirements.
What is the legal position?
The Corporations Act does not prescribe what constitutes a ‘directors’ meeting’. The Act however requires a company to keep minute books in which it records, within 1 month, proceedings and resolutions of directors’ meetings (including meetings of a committee of directors) and resolutions passed by directors without a meeting.
The courts have taken a broad view of what amounts to a directors’ meeting and have generally looked to concurrence by all directors. The courts have accepted that:
- directors may meet informally and may do so without being physically together
- for there to have been a valid directors’ meeting there must have been a genuine meeting of minds of the directors, so that in reality they have met, considered and decided
- informal gatherings which result in concurrence of all directors in a course of action can be sufficient to constitute a directors’ meeting
- there must be an intention that the occasion be a directors’ meeting and an awareness by the persons present that they are concurring, in their capacity as directors, in the management of the affairs of the company, and
- whether there was a meeting of minds in the relevant sense is a question of substance as distinct from a question of form.
If a directors’ meeting has occurred without the requisite formality or minutes, the decisions made at that meeting will nevertheless be valid (subject to the provisions of Corporations Act s1322).
What does ASIC say?
ASIC has acknowledged that it is appropriate for boards to have informal meetings.
In its Corporate Governance Taskforce – Director and officer oversight of non-financial risk report, ASIC said:
“… boards need to interact in a manner that increases their effectiveness, which includes informal meetings. These meetings are a good forum to gain greater understanding of issues and insights into company operations. Boards need to be mindful however of the risks involved where informal conversations result in decisions or actions being agreed upon absent formal frameworks or without the benefit of the entire board’s views being considered. Boards should implement practices that minimise these risks, such as monitoring the subject of discussions that are not repeated at a formal meeting, and formally recording key decisions and action items.”
What does this mean?
It is acceptable for boards to have informal meetings. Clearly this is important: boards benefit from workshops to inform the board of developing projects and transactions, and from board education on important topics such as workplace health and safety, cybersecurity and on ESG-related issues.
However, directors need to be aware of the risks involved in participating in informal conversations which may (often organically) transmute into a formal decision-making forum.
Ultimately, if the relevant meeting results in decisions or actions being agreed upon by directors without the required formalities of a board meeting (including minute taking) being implemented, there are risks:
- for the company - in terms of meeting its statutory obligations to record the proceedings of those meetings in the company minute book (where the failure to meet those obligations constitute strict liability offences), and
- for the directors - given the primacy of the minutes in terms of their evidentiary value in demonstrating whether or not the directors’ statutory and other duties have been discharged (and potentially whether or not D&O insurance will respond to the extent there are questions around whether the directors were ‘acting’ as directors at the relevant time).
Accordingly, when directors engage in informal meetings, they should:
- ensure they are aware that the meeting is not a formal board meeting (and the Chair should make this clear at the outset)
- ensure the subject of discussions in informal meetings are monitored and any decisions or actions to be agreed upon by the directors are held over to the next formal board meeting, and
- in the event that the informal meeting results in decisions or actions being agreed upon by the directors, have that part of the meeting minuted or adopted formally by the board in accordance with the company’s constitution.
