Monday, 19 November 2012

Australia: disqualifying non-executive directors and the conduct of board meetings

The New South Wales Court of Appeal gave judgment last week in Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370. This is an important and interesting case which sets out very clearly the expectations placed on non-executive directors and boards more generally with regard to the manner in which board business is conducted and decisions reached where some directors are not physically present but take part by telephone or other means. The leading opinion was delivered by Sackville AJA. Much shorter opinions were given by Barrett JA and Beazley JA.

What may prove controversial is the court's decision to subject two non-executive directors in the US, not physically present at a meeting when a document was approved, to a lower disqualification period than those physically present at the meeting. Indeed, Beazley JA commented: "... the matter which I have found particularly vexing is whether the directors located in the United States ought to be visited with the same penalties as the directors who were physically present at the meeting .... Not without some hesitation, I have concluded that a lesser penalty is warranted in the particular circumstances of this case." (paras. 1 and 2).

This is not to say that Sackville AJA did not regard the actions of the US non-executive directors as serious. Indeed, he stated that their disqualification was required "... to drive home the importance of a director paying attention to each significant item of business at a meeting and ensuring that he or she does not vote in favour of a motion on an important matter without having sufficient material to make an informed judgment." (para. 319).

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