Company On Directions Board Meeting

Introduction

A company can be defined as a legal entity that is separate from it’s directors, founders, agents and shareholders as the case in of Salomon v. Salomon& Co (1987) AC 22 expounded that the these group of people aforementioned are not in any way liable for the companies liability unless in cases of fraud (Afterman and Baxt 1999:18).   The running of a company is done by the director or directors depending on their number and these are the people who make major decisions affecting the company.  According to the Corporations Act sections 248C to section 248G provides that a director normally sits in board meetings to discuss and vote on the decision on the company and a chairman of the board is elected to oversee the board from among the board members is elected to oversee the meetings and chair the voting process.

Problem Analysis

            In this case scenario, Nicols Trobovkis a director of Multinational Electronics Pty Ltd has concerns on how the chairman, Marjorie Jaxon has been leading the company and has his reservations on the current progress of the company under the chairman’s control.  The chairman being aware of Nichols Trobovkis’s views decides to exclude him from an important directors meeting by giving a directive to the company secretary not to issue him a notice to this specific meeting where a discussion on a contract in favor our of Fujiama Computer Components is to be discussed, voted for and signed by the board members, in which contract the chairman has specific interest.  The meeting proceeds without  Nichols and the contract is signed.  As per the Corporations laws what remedies does he have and how can he stop the contract.

Problem discussion

                         Generally the law dictates that the role of a chairman is inclusive of creating a constructive relationship with the directors and be a mentor, fearless in bringing everyone to account, manage the board and its discussions, ensure that there sufficient information to the board regarding financial affairs of the company, take leadership on the corporate Governance of the company, and lastly as per literature of Searly and Worthington a good chairman should be aware and be able to solve conflicts of interests existing in the company’s  directives (2007:32).  Under the Corporation regulation referred to as the promulgation of the Corporations Act of 2001 which under section 248 it provides the procedure by which a directors meeting can be called and provides that a director has to sit in a meeting.  The chairman of the board’s meeting is elected by the directors under section section 248E and as explained in the case of Foster v Foster (1916 – 1917) All ER rep 856 the court ruled that the chairman is appointed by the directors on such terms as they think fit.

            First, the procedure for calling a director meeting is by issue of notice as was the courts ruling in the case of Petch v Kennedy [1971] 1 N.S.W.L.R. 494 clearly provided that it is mandatory to issue notice for any meeting of a company and though it must not be necessarily written but it should be substantially in advance of the meeting and if all directors are not aware of the meeting then it is not a valid meeting (Searly and Worthington 2007:32).  Under section 248 C of the Corporations Act it provides that any of the director can always call for a meeting provided reasonable notice is given to all the directors and reliance will be on past board practices to determine what constitutes reasonableness which in this case, no notice was given to one director.  The provisions goes ahead and provides that if notice was supposed to be given and was not the the meeting in itself is an irregularity and only if the internal rules in an organization was followed then there is no irregularity as was the ratio decidendi in the case of Royal British bank v Turquand (1856 ) 119 ER 886 (Afterman and Baxt 1999:18).

            Secondly, though the Corporation rules does not provide on the number of directors that forms a quorum, the minimum is two and if the meeting is to discuss issues on whether a company should sign a contract or not in which one or a particular director is interested then at that point the director is ineligible to vote, under statutory law section 248G(2) a chair also has a vote and is allowed to vote in favor of the contract but not to establish quorum, if one votes then it amounts to breach of the provisions as was the case in  Austplat Minerals NL (1990) 8 ACLC 720  (Searly and Worthington 2007:32).

            Thirdly, is the issue of conflict of interest and the provisions are that there should be declaration of specific interest in a contact by a director, under section 191 of the CA.  Though the law provides that in such cases the doctrine of unanimous consent is to prevail where the decision has been made by the directors on something their decision,will be valid and binding irrespective of the lack of a formal meeting.  The rules provide that the signing of a resolution to be done by all directors and is to be effective from the date of the last signature, in Re Portuguese Consolidated Copper Mines Ltd  (1889) 42 Ch. D. 160 the court held that a business transacted done at an informal meeting can be subsequentlfully ratified after properly convened meeting of directors but a formal resolution is not necessary. There must be a quorum at the informal meeting otherwise no business can be transacted.

            Lastly, it can be said in a meeting of directors where a quorum is present, the exclusion of the remainder of the board from attending is considered as breach and an individual can thus successfully sue the Company and the director and or other directors for being excluded improperly from the board meeting and also from discharging his duty as a bona fide director of the company.  This view was illustrated in the case of  Pulbrook v Richmond Consolidated Mining Co (1878) 9 Ch.D. 610 where the court ruled that Pulbrook having being a bona fide director and excluded from a board meeting was an individual wrong fro m which the directors were liable and that his right to take part in the company’s management, know what is going on regarding the company and also to vote in these meeting was infringed and thus court ruled in his favor.

Conclusion

            Nickols being a director who has been excluded from an important board meeting which the laws has provided as being a breach and a wrong to himself and also to the company and in such circumstances he has aright to file a suit to enforce his right and also sue for the benefit of the company as a shareholder regarding the contract signed and can seek the court to award him a remedy for revocation of such a contract his argument based on the above discussion.

References.

Afterman, B., Baxt, A. (1999) Cases and Materials on Corporations and Associations, 8^th ed , Butterworths Sydney.

Searly, L.,Worthington, S. (2007) Cases and Materials in Company Law, Oxford Press

The Corporations Act 2001