Law 8 Corporate Management 2

Is it mandatory to have the possibility to remove directors?

Yes, since the Companies Act 1948.

What was the state of the removal of directors prior to 1948?

The removal of directors was left to the articles.

Often protected directors by requiring special resolution

Can the company contract out of the obligation to have the possibility to remove directors?

No.

“Not withstanding anything in any agreement between it and him”

When a director is removed, are they entitled to wages lost from rest of employment contract?

Yes

Why must the General Meeting approve long-term contract?

Because directors are entitled to wages lost from rest of employment contract when they are removed

Which model article enables the General Meeting to dictate certain things to the directors via special resolution?

Article 4

In practice, do the directors tend to act in shareholders’ interest?

Yes

What legally is relevant in regards to the directors being dictated?

Legally, the directors should act independently and have no discretions fettered.

Their fiduciary duty should stop them being dictated.

In which instances may the General Meeting act at common law?

1) The appointment of directors

• Companies Act does not define the appointment of directors

• Worcester Corsetry v Witting (1936)

  • The General meeting has the inherent right to appoint directors by ordinary resolution unless articles provide otherwise

2) If BoD deadlocked/directors disqualified/no Board

• Irvine v Union Bank of Australia (1879)

  • Under these circumstances the power to the management of the company has reverted to the General Meeting

• Barron v Potter (1914)

  • If the articles say that only the BoD could appoint a director but the BoD is deadlocked, the General Meeting can fill that gap

3) Authorisation/ratification of unlawful act by BoD

• Bamford v Bamford (1970)

  • The General Meeting can forgive a breach of the fiduciary duty by the director and authorise the unlawful act, or in anticipation can authorise something that would otherwise be a breach

What is the Duomatic principle?

Where it can be shown that all shareholders who have a right to attend a vote at a General Meeting assent to a matter which a General Meeting of the company could carry into effect, that assent is as binding as a resolution in the General Meeting would be.

Not necessary to go through a vote, if minority agrees then no point of formalities.

All shareholders must be fully informed before consenting, otherwise the action will be invalid

Does the duomatic principle interfere with the allocation of power?

No, it merely allows shareholders to disperse with formalities applicable to their decision making power, we are not giving them any new power.

What are some contradictions to the Duomatic principle?

• Re Bailey Hay & Co Ltd (1971)

  • You don’t have to give positive assent at the GM. If you attend and don’t object, it still applies.

• Schofield v Schofield (2011)

  • Attending and not objecting was not enough to consent.

• Hussain v Wycombe Islamic Mission (2011)

  • Writing a letter of objection prior to the GM but not objecting at the GM is still taken as consent.

• Wright vs Atlas Wright (1999)

  • If director gets approval from sole shareholder for lifetime payments contract, then doesn’t need GM approval

• Randhawa & Randhawa v Turpin & Harding (2017)

  • Duomatic principle doesn’t apply in the case where one shareholder doesn’t consent, even if that shareholder is a dissolved company

• Euro Brokers Holding Ltd v Monecor Ltd (2003)

  • Members of the company can reach an agreement without the need for the strict compliance do all procedures, whether those requirements come from the articles, Companies Act, or a separate Shareholder Agreement

  • Contradicts contract law

Why should a change in the constitution via the Duomatic principle be done with a notification in place?

Because 3rd parties, like new shareholders, otherwise may not realise that there has been a change in the articles

What are limitations of the Duomatic principle?

• It only applies if those procedures protect shareholders

• It is inapplicable if interest of others than members are at stake, such as creditors, as obviously members can’t waive/disperse protections meant for those others

• Open to challenge as unanimous consent can be hard to prove due to no documentation

In what case will the Duomatic principle not apply?

• If the resulting transaction could result in loss to the creditors of the company or the company’s insolvency

  • Henry v Finch (2015)

• If there is dishonesty involved with the consent

  • Ciban v Citco (2020)

• If the shareholders are not fully aware of what is happening

Definition of ostensible authority

The power of an agent to act on behalf of a principal, even though not expressly or impliedly granted.

What is a shadow director

A person whose directions or instructions are usually followed by the directors of that company.

Are shadow directors bound by statutory duties?

No

What are remedies for a director who breaches his fiduciary duty?

• Financial repercussions

• Injunctive relief

• Removal

• Imprisonment