Directors' Responsibilities in Corporate Governance

Corporate Partner Conall Geraghty highlights a key lesson for directors: always hold formal board meetings and keep written records of decisions. Drawing on a recent High Court case, he explains why informal arrangements aren’t enough and how poor governance can have personal consequences for directors.

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Directors - you need to hold formal board meetings and you need to keep a written record of what is decided.

This was one of the key lessons from a recent High Court case where the Court made restriction orders against two directors of an Irish company.

One of the central reasons in this case was that in the up to six years before the company was liquidated, the directors didn't keep a written record of board meetings.

In their defence, the directors argued that there's only two directors, "sure, we're brothers. We work in the same building and across from each other in the office. We can shout over each other". So, in a way, you were kind of in a permanent board meeting.

The Court didn't accept this reasoning and concluded that this was not an acceptable or a responsible way to conduct the business of a company. In fact, the Court felt that this was a failure of corporate governance. So while the directors were not dishonest, they were certainly not responsible.

One of the key lessons also is that the directors didn't keep written records of some of the more important business decisions. For example, the decision to enter into a major lease or the decision to commence litigation.

So what does this mean for you? Well, executive directors in a company, particularly co-founders or those involved in the family business where you're involved in the day-to- day operation of a company, you need to pause, take a step back, and every so often have a formal board meeting to record the key decisions of the company, get this in writing, and get the chairman to sign the minutes at the end. Maybe you just simply need to put in a regular diary invite or convene meetings as you make big decisions.

Failing to do this can have personal consequences for you as a director.

And if you have questions about board meetings or governance, please contact me or another member of the Corporate team.

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The content of this vlog is provided for information purposes only and does not constitute legal or other advice.