Room to improve? The importance of getting your agendas and minutes right

November, 2012

It’s AGM season and now is a good time to reflect on the great job your directors have done and to start planning for the year ahead with your new board.

But is there any room for improvement? Could your directors become better at what they do to avoid ending up in the courtroom?

There have been a number of recent cases about the actions of directors. These cases send a clear message – there is an increasing trend of holding company directors accountable for the actions of a company.

One such case is the May 2012 James Hardie case[1] which highlights the importance of directors getting board meeting agendas and minutes right, so that they can fulfil their statutory duty of care and diligence.

Although the James Hardie decision applies to a for profit company, the same principles would apply for a not for profit company, given the obligations on directors are, generally speaking, the same.

This article takes a look at the James Hardie case and what it means for your directors when it comes to agendas and minutes, so that your directors can become better at what they do.

How did James Hardie[2] end up in court?

At a board meeting on 15 February 2001, the directors of James Hardie approved an announcement to the ASX about a corporate restructure. The restructure included the establishment of a foundation which would handle all asbestos-related claims against James Hardie.

The next day, the announcement was released and it stated that the foundation would be “fully funded” to meet the claims.  However, it later became apparent that the foundation was not fully funded.

ASIC considered that the statement in the announcement was therefore misleading and it commenced proceedings against the directors of James Hardie for breaching their duty of care and diligence under the Corporations Act.

Outcome for the directors

After proceedings in the NSW Supreme Court and then the NSW Court of Appeal, the matter was considered by the High Court. The High Court held in May 2012 that the former James Hardie directors had breached the Corporations Act.

The decision essentially turned on the factual finding that the directors had approved the announcement, and the signed minutes of the board meeting had a significant part to play in the Court’s decision, highlighting the importance of getting the agenda and minutes right.

What the decision means for directors

1.    Getting the agenda right

What happened in the case?

In James Hardie, the board papers that were distributed ahead of the board meeting did not contain a draft of the announcement, but instead referred to a proposal about the establishment of the foundation. The final details of the proposal were only tabled at the board meeting, at the same time as the draft announcement.

The non-executive directors argued that the board had not approved the draft announcement and that it could delegate this type of external communication matter to management. In other words, they were arguing that the approval of the announcement was not an agenda item.

The trial judge did not accept this argument and said that the directors:

 

But this was an ASX announcement. What about other sorts of announcements?

The courts are yet to fully consider the boundaries of non-delegable duties in relation to the obligation to approve certain announcements, but the Court in James Hardie indicated that boards may be required to approve announcements or press releases that relate to matters that are of considerable importance to the company’s future and/or matters of importance to stakeholders.

Implications for directors

So, for a not for profit organisation, directors should:

 

2.    Getting the minutes right

What happened in the case?

There were several issues in James Hardie about the minutes of the board meeting.

The first issue was that the minutes were signed by the chairman at the next board meeting in April 2001, breaching section 251A(1) of the Corporations Act because this was more than one (1) month after the meeting. The minutes therefore lost their special evidentiary status, highlighting the importance and probative value of minutes.

Another issue was that there were a number of inaccuracies in the minutes.  The directors argued that this was because the minutes were drafted before the meeting and were not a true record. However, the minutes were actually amended after the meeting, but the directors had not picked up the inaccuracies.

The Court did not consider the directors’ failure to read and detect inaccuracies to be a breach of their duties. However, it appeared that the judges viewed this negatively, cautioned directors to make sure they read minutes properly before approving them.

The Court did not comment directly on the content of the minutes, but there were comments about the importance of accurate minutes recording the events at a meeting.

Implications for directors

So, for a not for profit organisation, directors should:

Although there are increasingly onerous duties being imposed on directors, we consider that the implications of James Hardie can and should be managed with careful planning to ensure your directors properly fulfil their obligations.

Contact Mills Oakley

For more information, please contact:

vera-visevic-mills-oakley

Vera Visevic | Partner
T: +61 2 8289 5812
E: vvisevic@millsoakley.com.au

 


[1] ASIC v Hellicar and Others [2012] HCA 17 (James Hardie)

[2] James Hardie Industries Ltd

 

Privacy Policy | Terms of Use