Important reminders from the courts

The recent decision of the Federal Court in ASIC v Australian Property Custodian Holdings Limited shines a light on decision-making in the boardroom and corporate record-keeping.

In this case, the Australian Securities and Investments Commission (ASIC) brought proceedings against the Australian Property Custodian Holdings (APCHL) and each of its directors. Justice Murphy agreed with ASIC allegations, finding that the directors had breached their duties as directors and that APCHL had also breached its duties as a responsible entity.

According to Holding Redlich partner Sylvia Fernandez MAICD and general counsel Lyn Nicholson FAICD, his decision is a must read for directors and particularly directors of responsible entities because it considered in detail the value of consensual decision-making as against the obligation of each individual director to form and make known a clear position.

They say the case is a timely reminder that:

  • The minutes recording the board meeting should record discussions of important matters.
  • Those who prepare and approve board minutes are obliged to exercise a high standard of care.
  • Each director is required to actively support a resolution, actively oppose it or expressly abstain from supporting or opposing it, and it is his or her responsibility to ensure that his or her will is expressed and recorded in one of those ways. The practice of a chairman who does not call for votes for and against, but merely states “I think we are all agreed on that” and accepts silence as assent falls short of the standard required by the court. A director’s responsibility is to ensure that his or her will is clearly expressed and accurately recorded and the responsibility is amplified with the importance of the resolution.
  • Section 1308(2) of the Corporations Act 2001 makes it an offence to make a statement in a document required by or for the purposes of the Corporations Act which is false and misleading in a particular material. Company minutes are such documents. Section 1308(4) makes it an offence for the directors, and the company secretary, not to take all reasonable steps to ensure that a statement in such a document is not false and misleading.
  • Section 251A of the Corporations Act strictly requires the minutes to be placed in the minute book within one month.
  • It is an offence for a director of a public company to be present while the board considers a matter in which he or she has a material personal interest, or to vote on a matter. This means that a public company director should disclose the matter, should leave the boardroom before the meeting begins to consider the matter, should not speak to the matter under decision, and should not be present when the vote is taken and, of course, should not vote on the matter. For a director of a private company there remains the obligation to fully disclose the nature and extent of the interest.