A circular resolution is a documented resolution which is signed by a company’s directors, with wording to signify they are in favour of the resolution. Typically, companies which have a constitution will have a rule enabling them to use a circular resolution as a substitute for a resolution passed at a convened director’s meeting. Companies which do not have a constitution or circular resolution procedures in their constitution can rely on s 248A of the Corporations Act 2001 (Cth) (a replaceable rule) to empower the Board to utilise the circular resolution procedure.
The pros and cons
On the face of it, there are no statutory restrictions limiting circular resolutions to simple or procedural decisions. However, circular resolutions are not intended as a substitute for resolutions that require extensive presentations by management or discussion amongst directors. Nor should circular resolutions be used for dealing with urgent or controversial matters that arise, of which the directors do not have prior knowledge. Conversely, circular resolutions are often practical and time saving for directors who are executives of subsidiary companies.
Are circular resolution procedures the same?
No, unless s 248A can be relied on. The problem with s 248A is that, to be effective:
- All the incumbent directors have to sign the resolution; and
- All the incumbent directors need to be in favour of the resolution.
Circular resolutions are therefore not a solution to avoid robust discussion of issues at a Board meeting, nor are circular resolutions designed to ‘short cut’ briefings to the Board on associated issues by management or experts.
Obviously, the use of s 248A could cause problems if:
- A director could not, by reason of travel, sickness or other circumstance, sign and return the required resolution.
- A director was not convinced by the merits of the resolution and refused to agree with it.
For companies which have constitutions, the procedures for circular resolutions are not always uniform. Desirable constitution provisions for maximum utility specify:
- That the failure by an incumbent director to sign in favour of a circular resolution does not negate its validity;
- That it is sufficient if a majority of the incumbent board (or their duly appointed alternates) sign one or more copies of the circular resolution indicating that they are in favour of the resolution.
Take away message
If you are a company secretary or chairman of a company, you should refamiliarise yourself with your company’s constitution to see if the circular resolution procedures are fully serviceable to the extent you want. If not, consider what you would like instead and consider putting up a special resolution for constitutional changes for voting upon by the company’s members.