This was a case involving the potential removal of a Director from a limited company under what is now section 168 of the Companies Act 2006.
The basic facts are that the Articles of Association of the company provided that, "in the event of a resolution begin proposed at any general meeting of the company for the removal from office of any director, any shares held by that director shall on a poll in respect of such resolution carry the right to three votes per share".
All but one of the Directors wanted to remove the other one. The one who the others wanted to remove had a third of the shares. As a result he could not be removed.
Section 168 of the Companies Act 2006 (as it is now) only requires an ordinary resolution and as the legislative clause said nothing about this, it was ultimately deemed that this clause in the Articles was lawful. A clause like this does not, of itself, prevent a resolution being an ordinary resolution. Whilst this decision has been criticised, such a clause could be useful in the situation of a quasi-partnership company.
Saturday, 23 November 2019
Saturday, 16 November 2019
Top cases in Company Law
I'm studying for a fascinating course on Partnership and Company Law at present and this article will, as the course continues, feature what appear to me to be the leading cases in this area.
Ball (PV Solar Solutions Ltd) v Hughes and another [2017]
Here there were two directors of a private company, who had adopted a modified employer-financed retirement scheme. The aim of this scheme was to avoid exposing their own remuneration to tax. In addition, they applied three credit entries against their respective directors' loan accounts. In this case, the directors held 100 per cent of the issued share capital of the company.
It was argued that under the Duomatic principle, as the directors were also the only shareholders, they could be taken to have approved of the way in which the credits were applied by an informal resolution. The registrar rejected this ruling. This part of the ruling suggests a restriction on the Duomatic principle so that it could not be used to exonerate culpable conduct by the directors.
The Court went onto consider whether the directors had breached their fiduciary duties and had been guilty of misfeasance for the purposes of section 12 of the Insolvency Act 1986.
In the High Court, Registrar Barber needed to consider whether the directors had breached their duty under section 172 of the Companies Act 2006 to promote the success of the company. The Registrar found that at the time each of the credit entries had arisen, the duty to prioritise creditors' interests had arisen. An objective test was applied here and the Court did not think that an honest director could have reasonably concluded that the company's credits would have been for the benefit of the company's creditors. As a result, there had been a breach by the directors of their duty under section 172.
There was a real risk that the creditors' position was being put at risk, not just a remote one. In addition, they had also failed to exercise their powers for proper purposes as required under section 171 of the Companies Act 2006. The Court found the directors were not entitled to be remunerated under a quantum meruit and the registrar made an order under Section 212 of the Insolvency Act 1986 that the directors had to repay slightly more than £750,000 to the company, with interest.
Ball (PV Solar Solutions Ltd) v Hughes and another [2017]
Here there were two directors of a private company, who had adopted a modified employer-financed retirement scheme. The aim of this scheme was to avoid exposing their own remuneration to tax. In addition, they applied three credit entries against their respective directors' loan accounts. In this case, the directors held 100 per cent of the issued share capital of the company.
It was argued that under the Duomatic principle, as the directors were also the only shareholders, they could be taken to have approved of the way in which the credits were applied by an informal resolution. The registrar rejected this ruling. This part of the ruling suggests a restriction on the Duomatic principle so that it could not be used to exonerate culpable conduct by the directors.
The Court went onto consider whether the directors had breached their fiduciary duties and had been guilty of misfeasance for the purposes of section 12 of the Insolvency Act 1986.
In the High Court, Registrar Barber needed to consider whether the directors had breached their duty under section 172 of the Companies Act 2006 to promote the success of the company. The Registrar found that at the time each of the credit entries had arisen, the duty to prioritise creditors' interests had arisen. An objective test was applied here and the Court did not think that an honest director could have reasonably concluded that the company's credits would have been for the benefit of the company's creditors. As a result, there had been a breach by the directors of their duty under section 172.
There was a real risk that the creditors' position was being put at risk, not just a remote one. In addition, they had also failed to exercise their powers for proper purposes as required under section 171 of the Companies Act 2006. The Court found the directors were not entitled to be remunerated under a quantum meruit and the registrar made an order under Section 212 of the Insolvency Act 1986 that the directors had to repay slightly more than £750,000 to the company, with interest.
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