ARE YOUR COMPANY RESOLUTIONS VALID?

Irregularities in the convening and conduct of Company meetings can lead to invalidity of resolutions purportedly passed. Courts have been prepared to waive some of the formality of board meetings such as the necessity for the physical presence of directors, when technology is available by way of telephone or video conferencing. The formality of passing and recording resolutions is, however, still very much required. In the recent NSW Supreme Court case of Mulcon Pty Ltd -V- MYT Engineering Pty Ltd & Ors (1996), informal agreement by the directors over the telephone with the Company Administrator as to the terms of a Deed of Company Arrangement was held not to be a valid resolution and the Deed was declared void. His Honour Bryson J held that there was a distinction between a "meeting of the minds and concurrence in a decision" which is what had taken place as against "a resolution of the board" which had not. Furthermore in order for a director’s meeting to take place, the relevant Directors must intend that there be such a meeting. A social occasion when the directors are present and some wish to have a meeting and some do not, cannot be held to be a board meeting. Any purported resolutions passed in such circumstances would be held to be invalid. The High Court decision in R -V- Byrnes and Hopwood (1996) confirms that a resolution of the Board is required to authorise the affixing of the Company seal on documents. The following irregularities have also led to the invalidity of purported resolutions and of the meetings themselves:- 1.Notices of meeting of Directors not being given to all Directors. 2.Misleading statements in documents accompanying a notice of meeting. 3.Proxy forms being sent to members for execution, which are already completed in the way members instruct their proxies to vote. 4.Minutes of meeting being kept in a loose leaf binder without any numbering or precautions being taken to safeguard against falsification or substitution of records. This last irregularity is of particular importance for Company Secretaries and incorporators. If Young J in RE RM(NO13) PTY LTD (1995) is correct increased precautions must be taken to prevent tampering if minute books are kept in an unbound or unnumbered format. Failure to do so may result in a breach of section 1306(3) of the Corporations Law. Please feel free to contact any of the solicitors at Gells if you require further information regarding the convening and conduct of Board meetings.

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