Boardroom Formalities

16 Nov 2017

The High Court decision in Dickinson v NAL  Realisations (Staffordshire) Ltd [2017] EWHC 28 earlier this year underlines the importance of complying  with the formalities in taking board level decisions, no matter the scale of your company, in order to avoid potential disputes later down the road.

 

Dickinson concerned transactions between a company and its majority shareholder which were found ineffective because they had been carried out without the formal authorisation of a proper board meeting.

 

But where a company’s decision making process is governed not only by statute, but a company’s articles of association, common law provisions and even personal preference, how does an astute director ensure that his/her decisions will withstand a future challenge? Whilst there is no fail-safe way to avoid a challenge being made, there are some easy steps that can be taken to make it less likely that any challenge will be successful:

 

Notice

As a general rule, notice of a board meeting must be given to every director, even if they have previously indicated that they will be unable to attend. Although notice is not generally required where meetings are held regularly and on a specified day/ time, it is good practice for formal written notice to be given for each meeting. Unless the company’s articles provide otherwise, it is only necessary to provide “fair and reasonable” notice of a board meeting. What is “reasonable” will very much depend on the size and nature of the company in question, the usual practice of the board and the urgency/ importance of what is to be discussed. The method of notice can also vary – written notice is always recommended, but verbal notice may also suffice in certain circumstances (subject to any provisions in the company’s constitution). Written notice could, for example, include a text message or email, although the sender should bear in mind any provisions in the company’s articles in respect of deemed receipt and also the possibility of a claim that notice was not received or properly provided. To try to negate this, it is worthwhile considering requesting a written acknowledgment or utilising an automated delivery notice and/or read-receipt if providing notice by email.

 

Minutes

It is imperative that accurate minutes are recorded for each and every board meeting and, additionally, since 1 October 2007 that they are retained for at least 10 years. The company’s articles may also include provisions about the production of board minutes which should be followed. Failure to keep minutes will not only mean that board decisions are not recorded and could, therefore, be open to challenge,  but it is also an offence under the Companies Act meaning that every officer of the company could be liable to pay a fine of up to £1,000, and for continuing contravention a daily default fine of up to £100.

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