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Shareholders’ Power to Remove and Appoint Directors

08 October 2019

In the recent case of Kaye and another v Oxford House (Wimbledon) Management Company Ltd and others [2019] EWHC 2181, the High Court of England and Wales had to consider whether a meeting of the shareholders of a company had been effective in removing the directors and appointing others in their place.

The company in this case was a property management business for a block of 18 flats and the shareholders were the owners of each of the flats. Under the company’s articles of association, the shareholders had the right to appoint and remove the board of directors. The shareholders had requisitioned a general meeting as they were concerned with the way in which the directors were managing the business.

Rebecca Ronney
Rebecca Ronney
Solicitor

In response, the directors duly called the general meeting to take place on 1 June 2019. At the meeting the chairperson stated that the resolutions were ineffective and vexatious and declared the meeting closed. The shareholders continued the meeting and passed the proposed resolutions. The question for the court was whether the resolutions passed at the general meeting were effective.

Under section 303 of the Companies Act, shareholders who represent at least 5% of the paid up capital of the company may require the directors of the company to call a general meeting.

It was held that:

  1. Once the board of directors had received a request by the shareholders of the company to call a general meeting, the directors had 21 days to call such a meeting. The court commented that if the directors had considered the resolutions “ineffective, defamatory or… frivolous or vexatious, the directors are not required to call a meeting”. In the court’s judgement, once the directors had called the general meeting, it was for the shareholders to consider the resolutions included with the notice of the meeting. The court stated that “there was no residual power remaining in the directors further to consider…and determine that any particular resolution or resolutions should not be put before the members in a general meeting”.
     
  2. In this case the directors had chosen to exclude one of the ten proposed resolutions on the agenda for the meeting. The reasoning behind this was that in the event that each of the other resolutions was passed, the effect of this final resolution would have been that there would have been more than the permitted number of non-shareholder directors on the board. The court held that “it would be up to the meeting to decide the appropriate course of action, not the directors”. The chairperson had therefore acted outwith his powers in trying to prevent the shareholders from considering the resolutions by closing the meeting.
     
  3. The chairperson did not have the power to stop the meeting at their own discretion. The company’s articles allowed the chairperson to adjourn the meeting on the instruction of, or with the consent of, the shareholders. The court explained that the chairperson must “act at all times in good faith and for proper purposes, remembering at all times that the authority to preside over the meeting does not confer dictatorial power”. The court found that it was therefore “open to the members remaining to appoint a new chairman, which they did, and to continue with the meeting to conduct the business for which the meeting had been called”.

It followed that the court found the resolutions to remove the existing directors and to appoint six new directors were validly passed.

The court commented that for a resolution to be considered “vexatious” under s.303 (5) of the Companies Act, this would require the resolution to be “troublesome, burdensome or proposed for no proper purpose connected to the company…as opposed to the directors of the company”. The court did not find that these resolutions which proposed to remove directors and appoint new directors, a “fundamental right” of shareholders, to be vexatious in these circumstances.

This recent case provides guidance to directors who receive requests to call a general meeting. Directors must carefully consider whether the proposed resolutions are vexatious prior to calling a general meeting, as once a meeting has been called the directors may not be able to withdraw the resolutions from the meeting. This case also highlights the fundamental rights of shareholders to appoint and remove directors in accordance with the company’s articles of association.

Contacts: Rebecca Ronney, Solicitor T: 0141 221 8012 E: rro@bto.co.uk 

 

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