ASIC v Macdonald – have the lessons been forgotten?

The case of Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (ASIC v Macdonald) decided in the New South Wales Supreme Court, highlights the importance of strict adherence to the requirements of the Corporations Act 2001 (Cth) (Act) when preparing minutes of Directors’ meetings (Board Meetings) for them to be relied upon as evidence in a proceeding.

Facts of the case

The central issue was whether or not the ASX Announcement (Announcement) was approved at a Directors’ meeting and whether or not the minutes of the meeting could be relied upon as evidence as provided by under section 1305(1) of the Corporations Act 2001 (Cth) (Act).

The defendants argued that the Announcement was approved at a meeting of the Directors of the James Hardie Industries Limited (JHIL) on 15 February 2001.  The minutes contained an entry that explained the impact of the resolution, the passing of the resolution itself and approval for the Announcement to be prepared and sent to the ASX.

The chairman signed the minutes at the following Board Meeting on 4 April 2001. The minutes of the meeting of 15 February 2001 were sent to the Company Secretary on 7 April 2001, some 51 days later for inclusion in the company’s minute book.

The basis of ASIC’s argument

Section 251A(1)(b) of the Act provides that a company must keep proceedings and resolutions of Directors’ meetings and record them in its minute book within 1 month of the meeting.  Section 251A(2) provides that these minutes must be signed by the chair of the meeting or the chair of the next meeting.

If these criteria are met, then Section 251A(6) provides that the minutes that are so recorded and signed are evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proven.

It was successfully argued by ASIC that Section 251A(6) was not engaged because of the excessive period of time between the Board Meeting on 15 February 2001 and when the minutes were filed in the minute book by the Company Secretary on 7 April 2001.  Therefore the Minutes were of no evidentiary value to the defendants.  The principle from Claremont Petroleum NL v Cummings (1992) 110 ALR 239 that minutes must be prepared and filed strictly within one month of the meeting was applied by the Court.

The principle

Minutes are meant to be contemporaneous documents designed to be a true and accurate reflection of the events occurring at the meeting.  The statutory requirements outlined in s251A of the Act are strictly applied by the Courts.

The format and content of minutes of Directors’ meeting

There has been little prescriptive judicial guidance regarding the format and content of minutes of Director meetings.  In the case of John J Starr (Real Estate) Pty Ltd v Andrew (Australasia) Pty Ltd (1991) 6 ACSR 63 (Starr) Young J refers to Horsley’s Meetings, 3rd edition at pp164-8, which was written prior to the advent of the Corporations Act.  The Act now codifies certain Directors duties mainly under sections 180 – 183, 189, 190, 191, and 588G (although other relevant provisions exist).  Therefore, there appears to be an expanded requirement for the content and format of minutes to act as an enabling mechanism for Directors to establish that they had discharged their duty and acted properly.

The appeal

Each of the Directors appealed to the High Court, with the Court delivering a joint decision in Australian Securities and Investments Commission v Hellicar; Australian Securities and Investments Commission v Brown; Australian Securities and Investments Commission v Gillfillan; Australian Securities and Investments Commission v Koffel; Australian Securities and Investments Commission v Terry; Australian Securities and Investments Commission v O’Brien; Australian Securities and Investments Commission v Willcox; Australian Securities and Investments Commission v Shafron [2012] HCA 17.

The focus of this appeal was on the whether the Directors’ had breached their duties.   The Directors did not challenge the Court of Appeals ruling on the admissibility of the minutes and subsequently the High Court did not consider this issue.  The Court of Appeal’s reasoning in relation to the exclusion of the minutes of a meeting remains binding on Directors, and something that Directors should always be cognisant of.

Links and further references

Legislation

Corporations Act 2001 (Cth)

Cases

Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287

Australian Securities and Investments Commission v Meredith Hellicar & Ors [2012] HCA 17

Claremont Petroleum NL v Cummings (1992) 110 ALR 239

John J Starr (Real Estate) Pty Ltd v Andrew (Australasia) Pty Ltd

Further information about directors duties

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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