This article was written by Brian Murphy and Rahul Arora.
In the aftermath of the Hayne Royal Commission, boards are seeking to ensure compliance with their statutory obligations to record and retain board minutes and board papers. During the Royal Commission, CBA Chair, Catherine Livingstone, was examined in relation to the adequacy of CBA's board minutes from October 2016. While the report of the Commissioner made no finding in respect of the CBA minutes, the robust exchange between Ms. Livingstone and Counsel Assisting, Rowena Orr QC, provides a reminder of the importance of board minutes accurately recording what occurred during a meeting. Indeed, inaccurate board minutes can give rise to contraventions of the Corporations Act and may expose directors to personal liability in subsequent legal proceedings for breaches of directors' duties.
Obligations in relation to the recording of board minutes
- Section 251A(1)(b) of the Corporations Act imposes an obligation on companies to record minutes of all 'proceedings and resolutions' of board meetings. It is a criminal offence to contravene this section.
- Directors are also obliged to ensure that minutes are not false or misleading under section 1308 of the Corporations Act. It is a criminal offence to contravene this section.
- Section 251A(6) confers a special evidentiary status on board minutes by providing that a minute that is 'recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved'. Since it is difficult for directors to argue that the events recorded in board minutes are incorrect, to the extent the board minutes record what occurred during a meeting, it is critical that those board minutes are accurate: ASIC v Hellicar (2012) 247 CLR 345
How much detail must be included in board minutes?
Although the level of detail required by section 251A(1)(b) is ambiguous, minutes should record at a minimum:
- certain administrative matters (e.g. nature and type of meeting, attendees, apologies accepted, time of commencement, time of closure, presence of quorum);
- resolutions of the board including any votes by directors against or abstaining;
- significant information which is disclosed to the board, which may be by reference to board papers tabled; and
- important matters raised in the course of reaching decisions.
However, it is clear that:
- minutes do not need to be a transcript of board meetings (i.e., it is not a report. Therefore speeches and arguments normally do not appear in minutes); and
- boards enjoy a degree of freedom as to the level of detail which they choose to include in their minutes.
In some circumstances, it may be appropriate to add further information to provide evidence that directors have discharged their duty to exercise care and diligence. For example, directors may choose to record their reasons for reaching a decision where it is legally required that directors consider certain matters in reaching that decision.
It is important to note that where a company takes the approach of keeping comprehensive and detailed board minutes, the absence of any mention of a significant event in those board minutes can lead to an inference that events of that character did not occur: ASIC v Healey (2011) 196 FCR 291. The existence and strength of such an inference will depend on the significance of the event and the level of detail of the minutes that were taken.
What obligations does a company have to retain board papers?
Section 286 of the Corporations Act imposes an obligation on a company to keep written financial records that:
- correctly record and explain its transactions and financial position and performance; and
- would enable true and fair financial statements to be prepared and audited.
Accordingly, to the extent that any board papers are financial records or contain information which falls within the ambit of financial records, such board papers are required to be kept under the Corporations Act.
There are also good policy reasons for retaining board papers. In particular, where approved board minutes refer to board papers or where board papers assist with clarifying contextual matters in board minutes, the keeping of board papers will assist in ensuring that the board minutes are an accurate reflection of proceedings at board meetings.
In relation to board papers that have been personally annotated by directors, there are potential benefits and also potential risks if a company or a director retains such board papers. For example, directors' annotations may contain fledgling ideas that have not been carefully thought through, and which may be open to misinterpretation and used accordingly by regulators or third parties seeking to allege a breach of directors' duties. In turn, companies should consider their approach in relation to the retention or destruction of annotated board papers, keeping in mind that such papers must be retained under section 1307 of the Corporations Act where they are relevant to an anticipated regulatory investigation or legal proceeding.
