Directors need to learn from James Hardie case5-June-2013 Fraud and Insolvency By Mark Streeter
There are several important lessons from the decision:
1(a) as a general rule, boards which make decisions by consensus need to consider whether to hold formal votes on specific resolutions, especially those involving important strategic decisions;
1(b) where resolutions are put to directors for their consideration, formal votes must be held and individual votes of directors recorded in the minutes;
1(c) should a director abstain or vote against a resolution s/he should ensure their position is clear and recorded accurately in the draft minutes;
1(d) for board meeting held by phone, video conference or other technology, directors must have individually consented to the use of that technology and be equipped with all necessary materials for the duration of the meeting and be present for the duration of the meeting.
2. Delegated decision-making by board committees does not require such formality, however, the establishment of the delegated committee does have to occur as a result of the passing of a director’s resolution.
A brief outline of the circumstances that led to the decision in the James Hardie case follows:
At a board meeting, where two overseas directors attended via phone, a draft (but misleading) announcement to the Stock Exchange was considered. The chairman of the meeting asked: “Is the board happy with that?” The two directors on the phone, who had not seen the document setting out the announcement, did not indicate that they would abstain. All directors present nodded or remained silent. Such a process was the usual practice of the board and they considered that the resolution (to release the announcement) had been passed.
The Judge found that this manner of decision-making was “dangerous, unless supplemented by appropriate formality”.
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