#3577 - Power Within A Company Cases - Company Law

Company Law Supervision III – Cases

POWER WITHIN A COMPANY

Division of Powers

Automatic Self-Cleaning Filter Syndicate [1906]

Quin & Axtens Ltd v Salmon [1909]

Breckland Group Holdings [1989]

Articles of company stated that management of company resided with directors. In addition, shareholders had shareholders’ agreement stating that litigation could only be brought on behalf of company with consent of directors. Majority shareholder (D) launched action on behalf of company, other shareholder (C) sought to have action restrained. Held:

Principle in Quin & Axtens applies

i.e. if decision is one for board to properly make, is not for shareholders to take it themselves

This conclusion is backed up by shareholders’ agreement

i.e. agreement indicates shareholders thought decision was properly one for the board to make

Thus as power to litigate was vested in board alone (and not the shareholders), was not one with which general meeting could intervene.

Thus litigation restrained.

General Meetings

Calling of Meeting

Kaye v London Tramway [1898]

Was provisional agreement for sale of an undertaking by one company to another. Purchaser agreed to pay substantial compensation to directors of company to compensate them for loss of office upon sale. Directors called meeting of members to approve purchase, but notice of meeting did not include reference to directors’ compensation payments. Held:

Notice was invalid

i.e. because it was inadequate

notice of meetings must be fair and adequate

Therefore approval of transaction by shareholders was also inadequate.

Conduct of Meeting

Union Music v Watson [2003]

Company with two shareholders. C, the majority shareholder, and D, the minority shareholder, fell out. A prior shareholder agreement between C and D provided that the shareholders should exercise their voting rights so that the company could not hold any meeting or pass any resolutions unless all the shareholders were present. D threatened not to attend any meetings, and C applied for court order a meeting limited to appointment of new director by C (in order to provide valid quorum). Held:

• Section 306 does not allow court to override either:

1. equal voting rights;

2. class rights

3. or entrenched rights

   I.e. where these situations exist, will be presumed that it was intended for one shareholder to be able to block other from acting.

• Relevant factors in exercise of power are:

1. Ability of company to run its affairs

2. Right of majority shareholder to exercise his voting power

Facts

• Is correct to exercise discretion to order a meeting here:

1. Right in question here was simply a quorum requirement

• And D did not benefit from any special class rights or entrenched rights

2. Shareholdings were not equal

   Thus meeting called for appointment of new director by C (even though he would be only person present).

Notice

Colin Gwyer & Associates Ltd v London Wharf [2003]

Company had three directors. One director, who lived in Jersey, refused to recognise the valid appointment of another director. Meeting was planned in London for particular date, even though Jersey director had made it known he would not be able to attend on that day. Meeting took place on that day, but Jersey director was only sent formal notice for meeting in the morning of that day. In cross-examination, Jersey director admitted he would not have attended any meeting at which the director whose appointment he did not recognise was present. Held:

Where meeting is held of which some directors have no notice or insufficient notice, any resolutions passed at meeting are invalid.

Where a director is deliberately excluded from a meeting, business carried out at meeting is invalid.

i.e. where one director deliberately refuses entry to another director.

However fact that it is merely inconvenient for a director to attend meeting at particular time does not mean business carried out at meeting is invalid

Facts

Meeting was validly convened.

Jersey director cannot complain that he only got notice on morning of day of meeting

Had known about meeting for months

Was not entitled to notice under articles

Would not have attended anyway given the disputed director’s presence

Had the company deliberately excluded disputed director from meeting in order to make Jersey director attend, would have invalidated business of that meeting.

Chairman

Byng v London Life Association [1990]

Extraordinary general meeting was called to approve a merger. Deal was contentious, therefore meeting was expected to be well attended. Company arranged for meeting to be held at Barbican, with overflow room. On day of meeting, 800 people attended – so many that registration process failed and many people were stuck outside. First meeting had used audio-visual links which also failed to work. Chairman of meeting opened meeting, then shortly afterwards adjourned it to recommence at different venue later that afternoon due to all the problems. At second venue, many people who had attended first venue were unable to turn up. Merger was approved at second meeting; resolution was challenged. Held:

Common Law Power of Adjournment

Chairman has power at common law to adjourn meeting where it becomes impractical to continue it

Company’s articles stated that meeting could only be adjourned with consent of the meeting

However this does not mean that common law power was ousted

For common law power to be ousted, would have to be specifically excluded by articles

• However common law power of adjournment must be used

1. Reasonably

2. Bona fide for purpose of facilitating the meeting

• And NOT to disrupt voting on a resolution which chairman does not support

Technology

No need for all those present at meeting to be in same room

Thus audio-visual links for those not inside main venue are permitted

Facts

First meeting had been adjourned unreasonably

Company should held second meeting at a later date

Decision to adjourn it to different venue on same day meant number of members were excluded

Thus resolutions passed at second meeting were invalid.

Default Powers of General Meeting

Barron v Potter [1914]

Directors of company were deadlocked; were two factions of directors, both of whom refused to turn up to board meetings called by the other side in order to prevent there being a quorum. General meeting of shareholders purported to appoint an extra director to break deadlock; one group of directors challenged this decision on grounds that only directors had power to appoint directors. Held:

Is a default common law rule that annual general meeting has power to appoint directors where board is incapable of acting due to deadlock.

Thus appointment valid.

Foster v Foster [1916]

Board of directors had power to appoint a managing director. However article of company provided that directors were disqualified from voting on any contract in which they had an interest.

Were three directors. Two of them wished to be MD; however each was barred by articles from voting on their own appointment, and each was opposed by their competitor; thus no effective majority of board’s votes could be obtained to appoint anyone MD. General meeting purported to appoint one of the two as MD; competitor challenged decision of general meeting. Held:

Appointment was valid.

Here, was not possible for decision to be made at all by board

i.e. as no effective majority could be obtained to pass valid decision.

Thus rule in Baron v Potter applies to allow shareholders to make decision.

Massey v Wales [2003]

Alexander Ward [1975] (HL)

A general meeting, in absence of effective board, has a residual authority to use the company’s powers

Supports view that this residual authority extends to all powers of board (and not just power to appoint director)

Informal Consent

Re Express Engineering Works [1920]

All 5 shareholders of a company approved issue of debentures; according to articles, this had to be done at general meeting. Company went insolvent, liquidator alleged issue of debenture was invalid as it had not been done at general meeting. Held:

Statute was for protection of shareholders.

Thus given all 5 shareholders had unanimously decided to waive procedure in statute, issue of debenture valid.

Re Duomatic [1969]

Director was remunerated by company. When company went insolvent, liquidator sought to recover payments on grounds they had not been authorised in general meeting (as required by statute). Held:

Payments had been signed off on accounts by 100% of the shareholders

Thus was inference that all shareholders had consented

Does not matter that consent of each individual shareholder was given at different points in time

Re Torvale Group [1999]

Company took a loan from group called ‘3i’, whilst also issuing preferred ordinary shares to group. Later on, company issued debentures; however as company articles, issue of debentures required consent of ordinary preferred shareholders. When company went insolvent, was suggested that as 3i had not consented via written resolution to issue of debentures, issue was invalid. Held:

Duomatic principle is not limited to situations in which the consent of all the shareholders in a company is given.

Rather can apply equally where consent of a particular group of shareholders is given.

Here, 3i had given informal consent to issue of debentures

Thus as it was sole holder of preferred ordinary shares, issue of debentures was valid

Cane v Jones [1980]

Case concerned family company; according to articles of company, chairman had a casting vote at directors’ and shareholders’ meetings. C claimed that in 1967, unanimous...