Good Governance Guide - Governance Institute of Australia

Issues to consider in the use of circular resolutions Management and oversight

Circular resolutions are a mechanism that allows directors of a company to pass a resolution without a meeting of directors. They are commonly used for non-contentious and routine resolutions that need to be passed between board meetings. They should not be used for resolutions that require extensive presentations by management or discussion among directors.

Legal context Under s 248A of the Corporations Act, which is a replaceable rule (see s 135), the directors of a company may pass a resolution without a directors’ meeting being held if all the directors entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution. The resolution is passed on the date when the last director signs the document. Many companies displace or modify s 248A with specific provisions in their constitutions with respect to circular resolutions. The use of circular resolutions may also be affected by shareholders’ agreements and similar documents. An entity not governed by the Corporations Act will need to refer to any authority granted to it under any applicable legislation and/or their own constitutional documents.

It is good governance therefore for circular resolutions to be used sparingly. They should be limited to use for procedural matters or recurring, non-controversial matters (for example, administrative matters where a decision is required on a monthly basis, but the board does not meet monthly) or for matters that have had prior board discussions in meetings, do not require further discussion by directors and which cannot be deferred to the next meeting. A directors’ meeting should be convened, either in person or by teleconference, for any urgent matter that arises between board meetings that requires discussion and the exercise of judgment in order to make a decision. Circular resolutions should not be used for dealing with urgent and controversial matters that arise of which the directors are previously unaware. It is good governance for directors to have a protocol or understanding in place specifying the types of decisions that can be put to the board for a decision by circular resolution. An overuse of circular resolutions can point to poor governance, as it can:

Use of circular resolutions

• suggest poor controls and lack of organisation, if urgent and unexpected matters frequently arise

Decisions of the board are ordinarily made by resolutions passed by a majority of the votes cast by directors present at a meeting of the board. Board minutes record the passing of resolutions.

• confirm insufficient attention to planning, as matters arising in the ordinary course of business should be built into the board calendar and dealt with in directors’ meetings

Directors are individually responsible for all decisions taken by them and must always act in accordance with their directors’ duties. Directors must be active and diligent in performing their roles. They are required to act in good faith and for a proper purpose, and to exercise skill and care. Board meetings allow directors to discharge their duties by receiving and considering presentations from management, putting questions to management and discussing matters among themselves. There is less scope for doing this in respect of a circular resolution.

• undermine the trust of the board in the secretariat and senior management. Even when used sparingly, the practical shortcomings attached to circular resolutions need to be understood. These can include: • some directors do not look at emails or phone messages regularly • some directors live in or travel frequently to and from remote locations • some directors may not have access to scanners to return signed documents, if required

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Management and oversight

Good Governance Guide

Good Governance Guide • a significant volume of emailed questions and answers may be required before all directors will provide approval of the resolution, and it may be easier and quicker for a meeting of directors to be convened by teleconference.

Use of circular resolutions in wholly owned subsidiaries Circular resolutions may be used somewhat less sparingly in a wholly owned subsidiary, where the directors are often executives of the business and are already familiar with the issue to which the circular resolution relates.

Provision in constitution for less than 100 per cent approval of a circular resolution The Corporations Act specifies that every director eligible to vote on the resolution must sign the circular resolution for it to be passed. However, the constitution can specify that the number of directors required to pass a circular resolution can be less than 100 per cent. This can be a practical means of expediting the passing of a circular resolution, given that: • directors may be travelling and not easily contactable • certain procedural matters can have tight deadlines attached to them.


It is good governance to consider quorum provisions and conflict of interest issues when determining if the constitution will permit less than 100 per cent approval and when accepting signatures of less than 100 per cent. While provisions relating to circular resolutions are common in many listed company constitutions, nevertheless listed public companies may need to apprise proxy advisory firms and shareholders of the benefits to the company of any constitutional amendment to limit the number of directors required to pass a circular resolution. A protocol or understanding that limits the decisions that can be put to the board by circular resolution may assist in providing clarity in this regard.

Circular resolution practice It is good governance for the company secretary to establish a protocol or understanding in relation to circular resolutions in addition to the provisions in the Corporations Act and company constitution. This may be contained in a board or board committee charter, in board or committee minutes (following discussion at a board meeting) or in a circular resolution policy. It is important that the directors have the opportunity to discuss and agree how they would like the protocol or understanding to operate and provide guidance to the company secretary.

Importantly, even where the constitution specifies that not all directors are required to approve a circular resolution for it to pass, it is good governance for the resolution to be sent to all directors and for all directors to be given the opportunity to participate in the decision.

In developing such a protocol or understanding, the issues to consider include:

The options that a company can consider in relation to voting include:

• the form of the directors’ responses in order for the circular resolution to be considered a valid approval, including the management of verbal consents

• A simple majority of all directors must sign the resolution (that is, 51 per cent). • A minimum percentage of directors must vote in favour (this could be 66 per cent or 75 per cent). • All directors must sign the resolution except those absent overseas at the time. This was previously common but is now somewhat outdated, given the ease of electronic communication with many overseas locations and, in contrast, the difficulty in communicating electronically with some locations in Australia.

• who in the company normally decides which matters can be sent to directors for approval by circular resolution • whether the chair has any specific responsibilities

• the management of any questions or requests for additional information raised by one or more directors • the dissent of a director or a request by a director for a directors’ meeting, having regard to the general principle that circular resolutions should be used for routine or non-contentious matters


Good Governance Guide • authorisation processes where the constitution permits less than 100 per cent approval and a director has not responded to the circular resolution email and/or is unable to be contacted and the circular resolution requires a decision to which an important deadline is attached, including the date on which the resolution is passed • communication of the outcome to the board of directors • what will be included in the minute book to evidence that the circular resolution has been passed • the management of board papers associated with a circular resolution • whether board committee practices in relation to the use of circular resolutions is aligned with that of the board. There is a wide variety of approaches to how a protocol or understanding may operate, particularly the form the directors’ responses may take and what is to be included in the minute book.

Decision as to which matters can be sent to directors for approval by circular resolution Consideration needs to be given to whether the persons involved in the decision as to which matters can be sent to directors for approval by circular resolution includes the: • chair • company secretary • managing director, or • a combination of these, normally involving the chair.

The chair’s responsibilities Consideration needs to be given to whether the chair has any specific responsibilities in relation to circular resolutions, which could include: • the approval of the use of a circular resolution in each instance • approval of the resolution prior to it being circulated


The form of directors’ responses A decision needs to be taken as to the accepted form of the directors’ responses in order for the circular resolution to be considered a valid approval. These can include: • printed copies of the resolution with original signature • scanned copies of the signed resolution emailed to the company secretary (this does not include applying scanned signatures to the resolution) • consent received by email • consent received by text message • consent using voting buttons in a board portal in response to an email • verbal consent received by telephone • a combination of any of the above. The formal requirement of the replaceable rules in the Corporations Act and many companies’ constitutions is that directors are required to sign a document containing a statement that they are in favour of the resolution set out in the document. Verbal consent, text messages and voting buttons in a board portal are unlikely to satisfy this requirement. If it is necessary to adopt these methods to ascertain the will of the board and carry out a certain course of action regardless of formalities, then the board should ratify the decision at the first available opportunity. If these methods are not formally allowed under a company’s constitution, they should not be used for resolutions where it is essential that they are immediately legally effective. Constitutions differ to a wide degree and the form that directors’ responses to circular resolutions should take should be considered by the board and they should then seek to amend the constitution, if required. The company secretary should maintain appropriate file notes and records in respect of all circular resolutions.

The management of any questions or requests for additional information

• the decision as to what action to take should a director express dissent, for example, whether a meeting is required

Consideration needs to be given to:

• the decision that a resolution be carried in the absence of one or some director responses (where the constitution permits less than 100 per cent response).

• whether this practice will apply even if all other directors have already consented to the resolution

• whether any questions and related answers are circulated to all directors, and


Good Governance Guide • whether directors can withdraw their consent before the resolution is passed, or • whether the consent process should commence from scratch if there are any questions.

Director dissent Consideration needs to be given to what protocol will operate if a director does not support the circular resolution. The options include:


For companies where 100 per cent of directors must approve the resolution, it cannot proceed without all the directors approving it. Where less than 100 per cent of director votes are required to pass the resolution, the company secretary will also need to decide if the resolution is dated once the requisite majority is received, or when all responses have been received.

• the resolution is not passed (for example, where consent is required from 100 per cent of directors)

Communication of the outcome to the board of directors

• the resolution is withdrawn, or

Consideration needs to be given to the process for communicating the outcomes of a circular resolution to the board, including when the board will be advised that the resolution has been carried (or not) and how many directors voted for or against the resolution or abstained from voting.

• it is put to a meeting (teleconference), or • it is deferred to the next meeting of directors. Consideration also needs to be given to whether: • any director can request that a matter be dealt with in a meeting rather than by circular resolution, and • if so, whether that request will always be met, and/or

Further consideration needs to be given as to whether such communication will:

• whether the chair determines if it will go to a meeting of directors.

• take place by email immediately after the resolution has been passed (or not passed)

Authorisation process Where the constitution permits less than 100 per cent approval of a circular resolution and the circular resolution requires a decision to which an important deadline is attached, consideration needs to be given to the authorisation process. While the resolution is passed if the requisite percentage of votes is met, there needs to be clarity as to process the company follows if a director has not responded to the circular resolution email and/or is unable to be contacted. Regardless of whether the constitution permits approval of a resolution by 75 per cent or less of directors, it is good governance for the directors to agree that this should only be relied on as a last resort, where it is genuinely not feasible to secure 100 per cent of directors’ consent. This allays any concern that the directors may have that the voting limit could be abused by seeking to pass a resolution by deliberately seeking to exclude potential dissent. In any event, the consent of all directors must be sought by ensuring that the communication requesting the circular resolution to be passed is sent to all directors.

• be reported in the board papers and recorded in the minutes of the next scheduled meeting of directors (but not communicated by email). In this instance, consideration needs to be given as to whether the circular resolution is noted, or if the formal requirements of the applicable legislation or constitution have not been met, ratified by the board. It is prudent for record-keeping purposes that all circular resolutions passed between board meetings be noted in the minutes of the next board meeting.

The minutes Consideration needs to be given to what will be included in the minute book to evidence that the circular resolution has been carried by the requisite numbers. The resolution must be entered in the minute book within one month of the decision being taken (s 251A). There are different approaches to entering the circular resolution in the minute book: • one copy only of the original resolution with all original signatures (should only one paper page have been circulated to all directors, one at a time) • each director’s original signed resolution (separate pages)


Good Governance Guide • a combination of signed originals and or scanned/ faxed copies • copies of any approval emails • one paper copy of the resolution which has been re-signed at the next formal meeting, retaining the original dates on which the resolution was signed by each director (and which is underpinned by the multiple documents collected during the approval process, all of which are stored outside the minute book).

The management of associated board papers Consideration needs to given to how to deal with any board papers that were associated with the circular resolution. The options include: • The board paper associated with the circular resolution is kept with the board papers. • The board paper is kept in the minute book. This may depend on the length of the paper. Retaining the board paper with the circular resolution in the board papers is preferable.

Board committees


However, it may not be apparent that a director has a conflict of interest until after the resolution is circulated. In this instance, the director needs to advise the company secretary of the conflict of interest and their vote cannot be included in calculating the required majority and, if 100 per cent approval is required, unless the constitution deals with this particular issue then a circular resolution cannot be used. When determining a circular resolution protocol or policy that permits the carriage of circular resolutions by less than 100 per cent, for example, 51 per cent or 75 per cent of the board or committee, the protocol or policy should also clarify how that number may be determined or varied in the event there are conflicts of interest, as well as whether or not minimum approval numbers need to take into account quorums that would otherwise apply in a meeting scenario. If there are inadequate numbers for an important decision, the response might be that the matter must be determined in a meeting of directors rather than by circular resolution, or that a committee must refer the matter to the full board for decision.

Consideration needs to be given as to whether circular resolutions will be permitted for board committees, and if so, whether the protocol for board committees should be aligned with that of the board. The constitution is frequently silent on how circular resolutions will be dealt with for board committees.

Conflicts of interest The existence of conflicts of interest must be taken into consideration in all decision-making by boards and committees, whether the decision is by a meeting of the full board/committee or a subset where decisions can be made by a majority or by the number permitted where the constitution permits less than 100 per cent approval of a circular resolution. How an actual or perceived conflict of interest is to be dealt with for a particular decision generally needs to be addressed within the circular resolution and the accompanying board paper if the existence of the conflict is known in advance.
