“‘Tis Well Consented” Vel Non

On July 19, 2010, I discussed action by written consent of the board pursuant to Corporations Code Section 307.  The statute is remarkably silent on some key points.  For example, while the statute clearly requires that consents be in writing (see Sections 8 and 195), the statute does not specifically require that the consents be signed (Section 17) or dated.  If nothing else, the absence of these requirements would seem to diminish the significance of the date of signing for purposes of determining when, or even if, an action has been taken by written consent.

More importantly, the statute doesn’t say when board action by written consent becomes effective.  For example, a corporation may circulate consents to its incumbent board members.  If all members sign a consent but all of the consents are not returned to the corporation until after a different board has been elected, will the consent be effective?

Some may conclude that valid board action was taken because consent was signed (even though signing is not explicitly required by the statute) while the persons consenting were still directors.   This is consistent with the view expressed in Ballantine & Sterling, California Corporation Laws § 84.04 (“Accordingly, written consents should indicate the date of signing by each director so that the date of last signing, the date upon which the consent becomes effective, can be ascertained.”).   Proponents of this view would most likely regard the  statutory requirement of filing consents as purely a record keeping requirement and not a condition to effectiveness.

Others may take the position that the action is not effective because the consents were not delivered to the corporation before the directors were unseated.  In other words, the consent was given after the invidividuals giving the consent were no longer directors.   This argument is supported by the fact that Section 307(b) doesn’t explicitly require a signature and states that the consent(s) must be filed in the board minutes.  Moreover, even if a signature requirement is read into the statute, the giving of consent implies a delivery of the consent.  A director, for example, may sign a consent but deliberately set it aside so that she can give the matter more thought.

While these questions may seem to be academic or theoretical, they can and do arise.  In AGR Halifax Fund, Inc. v. Fiscina, 743 A.2d 1188 (1999), the Delaware Court of Chancery was asked to decide whether a consent given by persons before they became directors could become effective if delivered to the corporation after they became directors.  The court said “no”.  The Chancery Court’s focus on the status of the individuals as directors at the time the decision was made (as opposed to when the consent was delivered) implies that the court would reach the opposite conclusion in my example above.

 Section 141(f) of the Delaware General Corporation Law (DGCL), like its California counterpart, does not explicitly require a signed consent of directors.   Interestingly, the two states differ in this regard with respect to stockholder action by written consent.  Section 228(a) of the DGCL requires a consent to be signed while Section 603 of the California Corporations Code does not.  For a discussion of Delaware’s stockholder consent statutes, see my article, Delaware’s Inadequate Protection of Shareholders When Action Is Taken by Consent, 11 The Business Lawyer Update 4 (May/June 1991).

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