Application of the Duomatic Principle on the Dissolution of a Registered Corporate Member

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In the recently reported case of Randhawa & Ors V Turpin & Anor the High Court has considered the application of the principle of unanimous shareholder consent, known as the ‘Duomatic Principle’ in the context of whether the quorum provisions for a directors’ meeting as set out in a Company’s articles of association had been informally amended by the unanimous consent of the Company’s shareholders.

Under the Companies Act 2006 a company’s articles of association may be altered only by the passing of a special resolution however under the Duomatic Principle where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the Company assent to some matter which a general meeting of the Company could carry into effect that assent is as binding as a resolution in a general meeting would be. The Duomatic Principle requires only the assent of the shareholders with a right to vote and the agreement of the holders of any non- voting shares is not necessary.

There is some debate as to whether the Duomatic principle is capable of applying to all types and aspects of corporate transactions, in particular those that must follow a set statutory procedure and as to whether the principle applies to the beneficial owners of shares, a question which remains unclear, with conflicting messages emanating from the Courts.

In order to satisfy the requirements of the principle the relevant shareholders must give their consent in full knowledge of what it is they are assenting to. The assent can be express or presumed and an acquiescence is as good as a consent.

In Randhawa & Ors V Turpin & Anor the High Court considered whether a directors’ appointment of administrators was invalid as the board meeting had been inquorate and the quorum provisions had been informally amended by the unanimous consent of the company’s shareholders.

The company’s articles limited the powers of a sole director to arranging a general meeting and appointing an additional director and stipulated that a quorum of two be present for a board meeting. At the time of the appointment of the administrators the sole director made the decision at a meeting at which he was the only director present.

The sole director was also the registered holder of 75% of the company’s share capital, which he held on bare trust for his father.  Although the father could not act as a director due to a disqualification order, there was evidence that the sole director operated the business under the father’s instructions.  It was also probable that the father was also the beneficial owner of the remaining 25% of the share capital, which was registered in the name of an Isle of Man company that had been dissolved in 1996.

The High Court held that the administrator’s appointment was valid. In reaching this decision the Court considered that the company had operated with a sole director for a period of 4 years and had consistently made decisions in this manner. It was found that the consent of the 75% shareholder alone was sufficient enough to trigger the Duomatic Principle and that the shares that couldn’t be voted on could be disregarded for the purpose of the Principle.

It is interesting to note the Court’s approach in this case to applying the Principle in circumstances where all of the company’s shares had voting rights but were incapable of being exercised. Surprisingly it was considered that these shares could be disregarded and the Principle could be triggered by the unanimous consent of the remaining shareholders.

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Jenny Burke

About Jenny Burke

Jenny Burke is a Solicitor within the Corporate & Restructuring department at Forbes Solicitors and assists business clients of all sizes from a range of sectors with transactional and advisory work. Jenny’s blogs cover her specialisms of mergers and acquisitions, corporate restructures and re-organisations and partnership and shareholders agreements.
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