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C

News

Wed 04 Sep 2019

Important Case on the Operation of Section 303(5) of the Companies Act 2006 - An Update

Important Case on the Operation of Section 303(5) of the Companies Act 2006 - An Update

Judgment was handed down in case of Kaye v Oxford House (Wimbledon) Management Company Ltd [2019] EWHC 2181 (Ch) on Thursday 8th August 2019 by Deputy High Court Judge Lance Ashworth QC and is authority on the operation of Section 303(5) of the Companies Act 2006.

THE CASE FACTS:

It is perhaps unsurprising that the background to this case concerned itself with the all too common falling out of directors and members. One set of directors replacing another and the subsequent question of whether or not the replacement board of directors was validly appointed at a meeting of members of the company in question.

The original board of directors called a meeting of the members of the company having been requisitioned by the members to do so. Prior to the date on which the general meeting was to take place Counsel’s advice was then taken by an individual director with a view to determining whether or not the resolutions to be proposed at the meeting of members were vexatious or ineffective within the meaning of section 303(5) of the Companies Act 2006.

The meeting was duly held and the individual who took Counsel’s advice was appointed Chair of the meeting and ultimately refused point blank to put any of the resolutions to the meeting based on the fact that they would apparently be ineffective if passed at the meeting. This individual then closed the meeting.

The remaining members who were in attendance decided that the meeting should continue and appointed a new Chair. The meeting then proceeded to vote on and pass each of the resolutions proposed.

It is the act of these remaining members that resulted in conflict and the question of whether the act of passing those resolutions at the meeting was in fact valid or not.

THE ISSUES:

The law relating to general meetings is governed by Chapter 3 Companies Act 2006 and in particular sections 301 to 306 inclusive.

Under section 303 of the Companies Act 2006 the members of a company may require the directors of that company to call a general meeting.

Section 304 provides that directors required under section 303 to call a meeting must call the meeting within 21 days from the date on which they become subject to the requirement and the meeting itself must be held no more than 28 days after the notice convening the meeting.

Section 306 gives the Court the power (of its own accord or on the application of a director of a company or a member who would be entitled to vote at the meeting) not order a meeting to be called, held and conducted in any manner the Court thinks fit.

THE CASE IS IMPORTANCE BECAUSE…?

The Court’s ruling in this case was significant because certain technical points of interest arose:

  1. Once directors have given notice of a requisitioned meeting s303(5) of the Companies Act 2006 ceases to have any role to play going forward so far as directors are concerned. This means that if a board of directors thinks that a resolution is vexatious or ineffective at first instance then it should refuse to call a meeting of the members at the outset. It is not an option for the board to call the meeting and then to withdraw the resolutions from the business of the meeting. There is therefore no residual power remaining in the directors at the meeting of members and once they have performed their role prior to the meeting the rest is quite simply up to the members of the company to reach decisions as they see fit.
  2. There is simply no power available on the part of directors to seek to postpone or cancel the meeting of members. It is the duty of a Chair to preserve order at the meeting and to take care that the proceedings are conducted in a proper manner but this does not mean that a Chair has the ability to stop the meeting at his or her own will. The Chair is obligated not to run the meeting for his or her own benefit but for the benefit of the company as a whole.
  3. Finally, it was claimed that the resolutions were vexatious (in accordance with section 303(5)(c) of the Companies Act 2006). The Court provided some insight here as to how this should be interpreted given that no statutory definition exists in order to help understand what this might amount to. A resolution may be considered to be vexatious if it has qualities which show it to be troublesome or is proposed for no proper purpose. The Judge expressed doubt as to how a resolution to remove a director could be seen as vexatious given that such a resolution was in actual fact a fundamental right of members.

To discuss any concerns you may have about how your company’s general meetings are held please contact Andrew Morgan, Partner and Head of Corporate and Commercial a call on 020 7644 6303 or email amorgan@jpclaw.co.uk or contact him on LinkedIn.

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