The Purpose of Procedure

In practice, one is often informed of situations where "Mr Jones borrowed money from the company""the company paid for the shares" or "his wife bought the car from the company, but she hasn't paid the company back yet".

Such seemingly mundane statements make the hair on the back of my neck stand up. I squint at the person sitting across the table. I clear my throat with a small sharp cough and ask: "did you call the meeting and pass the resolutions?"

The inevitable response to this is a quizzical look and "what you mean?"

Each of these scenarios is an example of what are often referred to in legal jargon as "the Forties". These are the sections of the Companies Act that regulate the manner in which a company issues shares, declares dividends, makes loans or offers financial assistance, repurchases shares and the like.

It is that this point that I ask the client (as gently as I can): "where are all the notices of your board meetings and shareholder meetings?"  Again, a quizzical look and "what you mean?"  I continue: "and what about all of the board minutes and shareholder resolutions?"  Queue quizzical look and, perhaps this time, a shrug.

I'm sympathetic to business people. It's their job to get on with the business of running the business, making a profit and dealing with problematic employees. The last thing on their minds is "procedure".

How is civil procedure related to Corporate Governance?

You may recall that in a previous post, I spoke about shapes and patterns. Bear with me.

In 1996, the Master of the Rolls, Lord Woolf published his Access to Justice Report in which he identified certain principles to which the civil justice system must adhere. The civil procedure should:

"(a) be just in the results it delivers;

(b) be fair in the way it treats litigants;

(c) offer appropriate procedures at a reasonable cost;

(d) deal with cases with reasonable speed;

(e) be understandable to those who use it;

(f) be responsive to the needs of those who use it;

(g) provide as much certainty as the nature of particular cases allows; and

(h) be effective: adequately resourced and organised."[1]

To my mind then, the purpose of civil procedure is to set out rules which govern the orderly conduct of civil trials. The purpose of the rules is to set out how a defendant is notified that there is a claim lodged against him, what he needs to do in order to defend the claim, what documents are required to be filed at court, how the parties communicate before the trial, how one introduces evidence in relation to the trial and how the trial is conducted.

The rules of civil procedure will also set out how a decision is executed, and what steps should be taken if a decision is made that is disagreeable. This procedure is set out for the benefit of both parties. The rules give each of the parties a measure of certainty in relation to how the process is going to unfold. They set out the rules of engagement so that neither party is caught by surprise.

In the context of civil procedure for court proceedings, the procedure governs the manner in which a court arrives at a decision. 

Shapes and Patterns

The same considerations are applicable to the procedure for calling, holding and conducting meetings in a corporate environment, and how certain decisions are made. In the context of corporate law for the proceedings of shareholder meetings, the rules relating to shareholder meetings govern the way that shareholder resolutions are adopted. 

In my next post, I will set out some common sense thoughts on the calling, holding and conduct of meetings in a corporate context.

[1] 1996, Wikipedia.

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