Common Areas of Board Dispute
Where directors are in dispute, procedural formalities are often at issue. Whilst the making of rules governing directors' meetings is generally left to the directors themselves to decide on, once made, these rules must be observed. There follows some of the key areas where disputes commonly arise and (where appropriate) practices in each area which may assist in avoiding such disputes:
Notice of meeting:
Directors must have a reasonable opportunity to attend and to be reasonably well informed in advance of the meeting of the matters to be discussed. Seven days is the usual period of notice for a Board meeting but it can be less in exceptional circumstances.
Attendance at a board meeting over the telephone is generally acceptable provided the Articles of Association permit it (the Model Articles do). However, as all directors must hear the proceedings, if more than one director attends by telephone, you should try to use telephone conferencing facilities.
Disputes may involve the aggrieved participant questioning whether the appointment of a director or of an alternate director is valid.
The quorum for a board meeting is to be found in the Articles of Association. Articles will usually state that the directors may fix the quorum required but if they do not then the quorum shall be two. The existence of a quorum may be disputed in the event of allegations that certain appointments were invalid or that certain directors should not have attended or voted due to a conflict of interest.
Voting at the Meeting:
The majority needed to pass resolutions at a Board meeting is more than half in number of those present and entitled to vote. However the Articles of Association or a shareholders' agreement (especially in the case of a joint venture company) may require that certain matters must be approved by a particular director or a larger majority. It should also be noted that an alternate director who is also a director in his own right has two votes. In addition, under Table A and the Model Articles, the chairman of the meeting is given a second or casting vote in the event of a tie (unless he is not permitted to vote due to e.g. a conflict).
Especially if a Board meeting is likely to be contentious, you should ensure that detailed minutes giving explicit details about the calling of the meeting, attendance by directors and its conduct are kept in anticipation of later challenge by disgruntled directors or shareholders.