Minutes of directors’ meetings: Minimising the risk

As directors may wish to rely on the minutes of a meeting to demonstrate the proper fulfilment of their duties, they should seek to ensure that everything they do in their capacity as directors is accurately recorded.

The importance of these issues for those responsible for management of a company should not be understated. The statutory requirements of s 251A of the Corporations Act 2001 (Corporations Act) correspond with those duties, and are by no means benign. This article considers the legal duty to keep minutes of meetings, the level of detail that should be included, and the evidentiary use of minutes, in particular by regulators in enforcement proceedings.

Legal requirements and implications

In the author’s experience, although most directors are aware of the need to keep accurate minutes, relatively few appreciate and understand the operation of the statutory duty to do so.

Section 251A(1) of the Corporations Act provides that a company must keep minute books in which it records within one month:

• proceedings and resolutions of meetings of the company’s members and
• proceedings and resolutions of directors’ meetings (including meetings of a committee of directors) and
• resolutions passed by members without a meeting and
• resolutions passed by directors without a meeting and
• if the company is a proprietary company with only one director — the making of declarations by the director.

Subsection 251A(2) further provides that the company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by one of the following:

•  the chair of the meeting
•  the chair of the next meeting.

The minute books must be kept at either the company’s registered office, its principal place of business (provided it is within Australia) or at any other place (within Australia) as approved by ASIC: s 251A(5).

Under the stepping stones model of liability, a breach of directors’ duties may be found based on a company’s contravention without proof of ‘involvement’ in the company’s breach.

The following key observations can be made about the operation and effect of these statutory obligations.

1. Breach of any of the obligations in s 251A is an offence of strict liability: s 251A(5A). For strict liability, the prosecution is not required to prove fault, but there is a defence of reasonable mistake available.³ Fault liability (involving the proof of ‘mens rea’) is one of the most fundamental protections of criminal law.⁴ To exclude this protection is a serious matter, but strict liability can be regarded as appropriate where it is necessary to ensure the integrity of a regulatory regime.
2. Section 251A does not mandate that final minutes be prepared and signed within one month. Rather, whilst a record of the proceedings and resolutions must be prepared and retained by the company within the statutory period, the signing need not occur within that period. Rather, it can take place outside the statutory period, provided it occurs within a reasonable time of the meeting, thus allowing for a company whose board meets every two months, or for those that do not meet in January, and so on. What is a ‘reasonable’ time after a meeting will be a question of fact to be determined in the circumstances of the company.
3. Repeated breaches of s 251A by a company could signal to regulators the existence of deeper problems within the company. Subsection3(2)(c) of the Criminal Code Act 1995 deems a company to have authorised the commission of an offence on proof that ‘a corporate culture existed within the body corporate that directed, encouraged, tolerated or led non-compliance with the relevant provision.’
4. The statutory obligations to keep minutes, and to ensure they are signed, are obligations imposed directly upon the company itself, not upon its individual directors. Nonetheless, the failure by directors to ensure a company’s compliance with s 251A could represent a failure by directors to act with appropriate care and diligence.⁵ This opens the door to the concept of ‘stepping-stone liability’, which involves the process of finding secondary liability on the part of a director for allowing a primary breach by the company.⁶ It has formed the basis of a number of recent successful actions brought by ASIC against company directors, giving rise to pecuniary penalties and disqualification from acting as a director.⁷ Importantly, under the stepping stones model of liability, a breach of directors’ duties may be found based on a company’s contravention without proof of ‘involvement’ in the company’s breach.
5. Subsection 251A(6) is an evidentiary provision which facilitates the proof of facts in issue in a proceeding. It provides that a minute so recorded and signed is evidence of the proceeding or resolution to which it relates, unless the contrary is proved. If the threshold is met (ie, the minute is kept within one month, and signed within a reasonable time), this evidentiary presumption operates to shift the onus on to the company (and its directors) to prove that the contents of the document are not accurate.
6. Taken together, s 251A and a series of other provisions make clear that company records, including meeting minutes, may be used in regulatory investigations or in court, and can be crucial to any finding that a company has breached its legal obligations. Books required to be kept by the Corporations Act may be kept in hard copy or electronically, so long as they are capable of being reproduced in written form.⁸ Companies must take all reasonable precautions for guarding against damage, destruction or falsification of, and for discovery of falsification of, any book or part of a book required to be kept.⁹ A book kept by a company under any requirement of the Corporations Act is admissible in evidence in legal proceedings and prima facie evidence of any matter stated or recorded in the book.¹⁰ Section 1307 of the Corporations Act provides that conduct resulting in the falsification of books relating to the affairs of the company is an offence, and ss 1308(2) and 1308(4) provide that is an offence for a person to make or authorise the making of a statement that they know is false or misleading in a document required to be kept under the Act.

Mechanics of minute keeping

In practice, it is within the discretion of the board or company secretary to determine the method used for minute taking, as long as the requirements of s 251A are met.¹¹ It is therefore perhaps not surprising that many directors remain confused about the operation of s 251A for the preparation of draft and adoption of final minutes in practice, and do not appreciate the risk of not carefully calibrating the minutes-adoption process.

A practical approach to resolving this uncertainty is as follows.

Minutes are often referred to as ‘the chair’s minutes’, because presentation of minutes for adoption and signature will be the responsibility of the chair, since as a legal matter, they must sign be signed by the chair in order for the company to comply with s 251A(2).

The final version must inevitably get to the chair for signature. But the authority of the chair to certify the content of the draft minutes as accurate will be derived from the resolution of the directors themselves. It is therefore important to understand the significance of the stages that precede the chair’s signature.

Where a company secretary prepares a contemporaneous note of a meeting which records the proceedings (ie, when it began, when it finished, who attended, and the business of the meeting conducted) and the resolutions passed, a company can comply with s 251A(1).

Such a draft could be regarded as reliable evidence of that which occurred at the meeting. As Justice Sackville observed in Seven Network v News Ltd:¹²

The minutes of a meeting or an email summarising a recent conversation, particularly where the documents are prepared by someone with no obvious axe to grind, often will provide the ‘ounce of intrinsic merit or demerit’ that is worth pounds of fallible evidence derived from memories prone to distortion and reconstruction.

However, a risk remains that this draft may later be obtained by the regulator (or even a disgruntled shareholder acting as a class action plaintiff).¹³ Indeed, during the royal commission, counsel assisting quizzed the CEO of IOOF Holdings, Chris Kelaher, as to handwritten minutes taken by the company secretary.¹⁴

Accordingly, in the month following the meeting, the finalisation of a draft, that is accepted by the chair, will provide a sounder foundation for compliance with s 251A(1), as it will manage the risk that the company secretary’s contemporaneous note is inaccurate in a material respect. If consulting with fellow directors on the draft, the chair should be mindful that the trail of correspondence and amendments may one day be discoverable in subsequent proceedings.

This process will still not satisfy s 251A(2) unless and until the final minutes are signed by the chair on behalf of the company. The chair’s draft should therefore be circulated to the board for their consideration (by inclusion in the subsequent meeting papers), and presented to the meeting for formal adoption. Any agreed amendments can be incorporated, and the board can finally resolve to adopt the (amended) draft minutes as a true and correct record. The groundwork will thus be laid for the company’s compliance with s 251A(2) by application of the chair’s duly authorised signature to the final agreed form of minutes.

There is surprisingly little guidance in the case law as to the detail required in minutes.

Content of minutes

The importance of the accuracy of the content of signed minutes was well illustrated by the James Hardie civil penalty proceedings.¹⁵ ASIC tendered signed minutes of a February 2001 board meeting recording as tabled and approved a draft ASX announcement of the establishment of the Medical Research and Compensation Foundation. As the minutes had not been approved until the April meeting of the board, the evidentiary presumption in s 251(6) could not apply.¹⁶ ASIC relied on the fact that those minutes had been approved at the subsequent meeting of the company.

In defending the allegations against them, the directors disputed the accuracy of the minutes and called evidence to raise the inference that the minutes were inaccurate and false. Rejecting the directors’ defence, the High Court affirmed the trial judge’s conclusions that the minutes of both the February and April board meetings were admissible as business records,¹⁷ and were evidence of the truth of the matters they represented.¹⁸ The court also noted that if the directors’ argument in relation to the falsity of the minutes was accepted, this would also have demonstrated that the directors had failed to take reasonable steps to ensure the company’s minute books were not false or misleading.¹⁹ A failure of directors to challenge relevant minutes at the time (in other words, their tacit approval of them) could also represent a failure to act with appropriate care and diligence.

How detailed do minutes need to be? In questioning by counsel assisting the royal commission, CBA chair Catherine Livingston was queried why the CBA board’s October 2016 minutes did not record her challenge to management in relation to a regulatory report containing details of management’s handling of anti-money laundering and counter terrorism financing issues. Specifically, Ms Livingstone was asked:²⁰

This is the official record of the minutes of a meeting of the board of CBA at which very significant matters were discussed. If you challenged the regulatory report and were provided with assurances by management in response to that challenge, should they appear in this official record of that meeting?

It will be interesting to see what the royal commissioner, himself a former High Court judge, makes of this issue. There is surprisingly little guidance in the case law as to the detail required in minutes. In a judgment drawn from textbooks in the absence of any reported case exhaustively defining what should go into company minutes, Young J set out sound principles for minute taking in the absence of further statutory guidance:²¹

1. Minutes must note the nature and type of meeting, the time of commencement and like details.
2. Minutes must contain a full and accurate record of all business done including a list of who was present and all resolutions passed at the meeting.
3. At least where disqualification follows from non-attendance, the minutes should contain a list of apologies accepted. (The distinction between a tendered apology and an accepted apology may be significant: see Ryan v Heiler (1990) 69 LGRA 307.)
4. Minutes must be as concise as circumstances permit. Thus reasons for resolutions etc are seldom recorded.
5. Minutes must be phrased in non-emotive language and on the face of them must appear impartial and above suspicion.
6. A minute is not a report. Therefore speeches and arguments normally do not appear in minutes.
7. Minutes must contain a record of all appointments made and the terms of reference of any committee that is set up.
8. Normally failed motions need not be recorded.
9. At least in the case of large meetings, there is no necessity to record the name of the mover or seconder or the voting, though the secretary may consider it appropriate to record these matters.
10.  A person present may insist that his or her vote or abstention be recorded.
11. Incidents occurring at the meeting which may be significant should be recorded, but not unrelated incidents. Thus in Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598, the minutes should have read ‘At this point another director knocked Mrs Hermann unconscious and she sank to the floor’. However, minutes of a conference I recently attended which was interrupted by an intrusion of some entertainers, need not have recorded ‘At this point the meeting was invaded by Santa Claus and some mini-skirted elves!’
12. Reports of committees etc are not summarised in the minutes. A copy should be initialed or otherwise identified by the chair and copy may be circulated with the minutes and/or attached to the original minutes.
13. The time of closure of the meeting and, unless on a regular day the time and place of the next meeting are noted.
14. Minutes must be prepared within a reasonable time after the meeting: Toms v Cinema Trust [1915] WN 29.

Minutes need not be a verbatim record of discussion, but should document reasons for decisions.

Getting the level of detail right can be something of a balancing act for company directors. Greater detail and records of discussion and debate can promote transparency, and assist in future decision making for directors and company stakeholders.²²

Practice guidelines for minute taking developed by ICSA: The Governance Institute in the United Kingdom, suggest that minutes need not be a verbatim record of discussion, but should document reasons for decisions.²³ ICSA: The Governance Institute recommends that ‘any detail given should be proportionate, striking a balance between detail and brevity that provides a reliable audit trail’.

As Young J has indicated, incidents that may be ‘significant’ should be recorded. In the author’s view, the question of what detail should be included ought to have regard to the particular regulatory environment in which the company operates. In light of the issues raised at the royal commission, it may be appropriate for minutes to demonstrate that issues of risk, compliance, and the impact of company resolutions on both shareholders and stakeholders have been properly considered.²⁴ This may extend to including incidents where the executive are challenged and particularly in relation to their legal obligations.

While there remains a risk that detailed recordings of discussions in minutes can alter the boardroom dynamic and discourage full and frank discussion,²⁵ it may also be appropriate in some circumstances to name individuals who object to or dissent from a decision, make significant comments, or request that their objection is recorded. As Young J noted, a present member should be free to insist upon this.