Inflation, rising costs, higher prices and the withdrawal of the pandemic wage subsidy and tax warehousing schemes will test the resilience of Irish small and medium-sized enterprises. These factors could result in a potentially large volume of business distress, according to Financial Stability Notes No 9 of 2022 published by the Central Bank of Ireland.
Directors of insolvent companies risk facing applications for restriction, disqualification and even imposing personal liability for their company’s debts. The key defence to such proceedings is that they have acted honestly and responsibly. Board minutes are an essential tool for demonstrating this and for mitigating the risk of such proceedings being issued in the first place. In this note, we highlight the key points that all directors should consider.
Why keep board minutes?
The minutes of meetings of the board of directors serve many purposes.
Most directly, all companies have a legal obligation to keep records of all resolutions and proceedings at board meeting. There are criminal penalties for failing to keep the required minutes and the company and any officer in default may face prosecution and, on summary conviction, a fine of up to €5,000.
Moreover, well-drafted board minutes can also serve an important corporate governance function. This is because board minutes which provide a clear record of the issues considered and the decisions taken by directors can be a valuable evidential tool for directors who are seeking to show they acted honestly and responsibly.
What must be included in the minutes?
Irish law does not prescribe a specific form for minutes. However, they must at least include:
- The names of the directors in attendance;
- Any appointments of officers; and
- Details of all resolutions and proceedings at the meeting.
Draft minutes of a meeting should be approved by the board and signed by the chairperson of that meeting or by the chairperson of the next meeting.
The signed minutes should then be entered in the minute book. This book is usually kept at a company’s registered office address and the task of updating and maintaining the book belongs to the company secretary.
Delegation should be recorded in the minutes
Generally, the directors of a company do not all carry out the same functions. Where the directors have allocated responsibilities between them, this delegation should be clear if they are not to share responsibility for failures equally.
This is especially important in relation to the keeping of proper accounting records. While this usually only comes into focus when a company is insolvent, we suggest that all company directors should ensure that a competent and reliable person has been appointed and entrusted with maintaining adequate accounting records, that a director is nominated to supervise them and that this is recorded in board minutes.
What should (not) be included in the minutes?
A common rule of thumb is that “minutes should record decisions, not discussions”. For example, while the minutes should identify the issue discussed, they do not need to record the discussions of directors verbatim. The board minutes must record the outcome of any votes taken on issues.
However, anodyne minutes prepared on this basis are unlikely to assist directors facing proceedings arising from the insolvency of the company.
Notwithstanding the general collective responsibility of the board, if a director wants his or her concerns in relation to a course of action recorded in the minutes, they should be recorded.
If the person responsible for keeping the minutes, or the board in approving the minutes refuses to do this, the director concerned should consider formally writing to the company secretary recording those concerns.
What about companies verging on insolvency?
Directors of companies which are verging on insolvency, even if not actually insolvent, should consider keeping more detailed minutes of board meetings regarding the financial position and prospects of the company.
Detailed board minutes can help to demonstrate that directors have acted properly in the discharge of their statutory duties. These include duties to: act in good faith, act honestly and responsibly, avoid conflicts of interest, and exercise care, skill and diligence in conducting the affairs of the company. There is also an express statutory obligation on directors to have regard to the interests of creditors, where a director believes, or has reasonable cause to believe, that a company is, or is likely to be, unable to pay its debts, or becomes aware of its insolvency.
Taking this last duty as an example, it means that the directors must consider the interests of creditors. The best way to show that this has been done is for this consideration to be recorded in board minutes.
The minutes should record any professional advice sought by the company and the steps taken as a result of that advice. That said, care should be taken not to duplicate legally privileged advice in the board minutes. It is generally sufficient to record something of the nature of “A memo of legal advice from [●] dated [●] was tabled”. The lawyers providing such advice should be in a position to advise on the risk of inadvertently losing legal privilege, if required.
Well drafted minutes can serve as a valuable tool for directors who may subsequently need to defend their actions.
For more information on insolvency and financial restructuring matters, contact a member of our Restructuring & Insolvency team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.