The recent case of ASIC v McDonald (No 11) in the New South Wales Supreme Court is a timely reminder of the need to strictly comply with requirements of the Corporations Act 2001 (Cth) (Act).
That case principally concerned whether or not directors of James Hardie had made false and misleading claims about the ability to fund all asbestos compensation claims.
One important issue in the trial concerned the evidentiary value of the minutes of a particular board meeting. There was a minute of a board meeting of James Hardie on 15 February 2001 that was signed as a correct record by the Chairman of the next meeting of the board on 4 April 2001. The signed minutes of the meeting of 15 February 2001 were then sent to the company secretary to be included in the company’s minute book.
ASIC argued that the minutes of that meeting had the benefit of a statutory presumption in s251A of the Act. ASIC argued that under that provision, the minutes were proof of their contents unless proved to contrary.
The problem for ASIC was that there was a failure to comply strictly with the provision of s251A of the Act that minutes must be recorded in the company minute book within 1 month of the meeting.
The trial judge, Gzell J disagreed with ASIC about the effect of s251A(6) of the Act.
In the opinion of Gzell J, s251A(6) of the Act says that a company minute is evidence of the events described in it unless the contrary is proved and whether the contrary is proved must be judged on the whole of the evidence. If the evidence establishes that an event recorded in a minute did not occur, the fact of its recording in the minute has no effect. The minute had not been recorded in the company minute book within 1 month of the meeting. Gzell J also referred to the fact that recollection about events is unreliable so that if a company minute is to be given evidentiary value it ought to be a contemporaneous document so that it is more likely to be an accurate reflection of what happened at the meeting rather than a reconstruction of what happened.
What must company directors do about recording Minutes?
Company directors should remember that minutes of meetings are meant to be contemporaneous documents that are a true and accurate reflection of the events that occurred at the meeting and are so described in the minutes.
It is important that clear notes are made by a responsible person, whether a director or secretary of the company, at every director’s meeting. Those notes should be promptly recorded as a formal minute of the transactions at the directors meeting and equally promptly signed by the Chairman of the meeting, or the Chairman of the next meeting. Once those steps have been taken the signed minute must be placed in the minute book of the company. All these steps must be completed within 1 month of the date of the meeting.
Single director companies
Directors of single director companies are not relieved of obligations under the Act to record company affairs in the form of minutes.
For one company directors, s251A requires the director to sign minutes of the making of a declaration by that director within a reasonable time after the declaration is made. Otherwise the same provisions apply to the evidentiary value of minutes of a one director company.
What to do
Many family owned companies and one director companies struggle with the obligations to schedule and conduct directors meetings and to make prompt and accurate records of meetings in the form of minutes and to sign and file them as required by the Act.
If you want to rely on a minute of the Company as evidence of the transactions that occurred at the meeting, strict compliance with s261A of the Act is required. Otherwise you may have difficulty in proving the relevant events with possibly serious consequences.
MST advises company directors and secretaries on corporate governance and works with its clients to ensure compliance with the Act. We can assist in the set up of appropriate documentation and protocols for general corporate housekeeping to ease the mind of busy company directors.
Author: David Boyall