Company and Corporate Law

This study will involve a clear analysis of company procedure relating to the validity of meetings. It will duly consider how a meeting may be legally called by way of valid notice. It will also conisder how the decisions that are taken by those present at the meeting are legal and valid and are beyond any legal challenge. The study will also give an indepth analysis of the statutory provisions that must be followed for a meeting and the decisions taken therein to be legally valid. During the conduct of this study reference will be to applicable case law and other authorities in this area of law.

Explain what must be done and by whom, to ensure that the validity of a meeting and of the decisions taken are beyond legal challenge

There are a number of meetings whose presence form an essential part of the day to day running of a compnay. There are three different types of meeting namely a board meeting, an annual general meeting and an extraordinary general meeting. The validity of each of these meetings is governed by the Companies Act 1985 and Table A . Both these sets of legislation lay down and make provision for the rules that ensure that the validity of a meeting and of the decesions taken are beyond legal challenge. The board meeting will be dealt with separately but the two remaining meetings will dealt with individually but the forms of the decisions that are taken in the latter two meetings will be dealt with together.

The board meeting will now be addressed. A board meeting may be called by any director at any time under Article 88 . Article 88 provides:

“subject to the provisions of the articles, the directors may regulate their proceedings as
they think fit. A director may, and the secretary at the request of a director shall, call a
meeting of the directors. It shall not be necessary to give notice of a meeting to a
director who is absent from the United Kingdom.”

The notice of the meeting must be reasonable and it must be given to every director who is in the country. Oral notice is also sufficient. What is reasonable much depends on the issue that is to be discussed and the make up of the board. In practice reasonable is very often taken to be 7 days.

At the board meeting each director will vote on the issues that are be discussed. Each director has one vote and any of the resolutions, which are known as director’s resolutions, are passed by a simple majority. Artcile 88 gives the chairman of the board of directors a casting vote. This casting vote may be removed by a special resolution. Personal interests in any of the issues being discussed may stop a director voting. This is provided for by Article 94 of Table A. The director concerned must also make a section 317 declaration in order to avoid being criminally liable. Even a single director at a board meeting of one must make this declaration even though, as will be seen later in this study, there is a danger that the meeting my be deemed to be inquorate and the business transacted invalid as was the case in Neptune (Vehicle Washing Equipment) Ltd. v. Fitzgerald . This must be noted in the minutes of the meeting. Article 94 does permit a director to vote but only in certain extenuating circumstances. The board of directors also has powers of management . Should there be a deadlock, the board of directors should summon a general meeting.

Those present at a meeting are known as being a quorum . A quroum must constitute 2 or more people. It is important to note that the business that is transacted by an inquorate meeting will be invalid. A director who has a personal interest in an issue being discussed does not count towards the quorum. However, Nick Fairclough asks the question can the chairman of a company hold a valid meeting by himself. This gives rise to the question can one member meetings be held? He defines a a quorum as being the situation where “no business shall be transacted at any meeting unless a quroum is present. Two persons entitled to vote upon the business to be transacted, each being a member or a proxy for a member shall be quorum” Fairclough asks if this is if this is correct. He asks if it were possible for two separate shareholders present by proxy to fulfill this requirment. The answer he gives is unfortunately not.

Fairclough states that the problem is that judges have taken a literal view of the word ‘meeitng’ as meaning an event requirng the actual presence of two or more persons. He states that the authority for this view is Prain & Sons Ltd, Petitioners . The article in this case is similar to the article quoted above and only one member attended the meeting. The member was the beneficial owner of shares and was a trustee. He held the proxy of a third member so as to remove any doubt that there were two persons present by proxy even if he, as trustee, could not be deemed to be a separate person. The resolutions that were passed at this meeting were declared invalid and Lord Moncrief stated:

“a meeting at which only one member is present to play multiple parts may be thought to
be nothing other than a pantomime.”

This judgement was taken from already well established authority in Sharp v. Dawes and Re Sanitary Carbon Co. . Fairclough goes on to point out that even though Prain is still good law the principle does admit certain exceptions. He cites McLeod (Neil) & Sons, Petitioners which is based on the same facts as Prain . It was held that a quroum. Fairclough is of the view that McLeod recognises that one person can “wear two hats” it does not affect the reasoning in Prain as there were two persons present.

Finally, to complete this process and to ensure that the decisions made in the meeting have legal protection a copy of the Minutes of the meeting must be kept as provided for by Aricle 100 and section 382(1), Companies Act 1985.

The next two types of meetings that must be dealt with are general meetings and extraordinary general meetings. As previously stated, each meeting will be dealt with separately as regards the notice period required for notification of the meeting. The decisions that are taken at these meetings will be dealt with together as they are more or less the same ones.

The first meeting to be considered is the annual general meeting. Adams and Longshaw state that the directors are obliged to call an annual general meeting once in each calendar year under Article 37 . The only rule regards the date of the annual general meeting is that there must no be a gap of more than 15 months between annual general meetings. Kelly and Holmes state that members may legally call a general meeting by using the power to requisition a meeting. For a meeting to be called any shareholder must hold at least one-tenth of the share capital that carries voting rights. If the directors fail to covene a general meeting as required within 21 days of the deposit of the requisition even though the date of the actual meeting may be eight weeks in advance of the date of the requisition, the shareholders who requisitioned the meeting may themselves convene a meeting and recover any expenses from the company.

Adams and Longshaw state that a notice of 21 clear days is required for an annual general meeting although members of the company can agree that a shorter period of notice is accpetable. The decision of the members must be unanimous.

The only other notice period to be considered here is that required for an extraordinary general meeting. The period of notice for this meeting depends on the type of resolutions, or decisions, that are to be proposed at the meeting. If there are only ordinary or extraordinary resolutions are to be discussed and they do not concern the appointment of a director only 14 days’ notice is required for this meeting. In any other cases a period of 21 clear days’ notice is required. The time limits for notice periods are set out in section 369, Companies Act 1985. It mus be noted that it is essential that the correct written notice is given in the proper form and to all those people who are entitled to attend it. If this is not done then any resolutions passed at the meeting will be declared invalid under Article 111 . This rule is strictly applied.

Now that the legality of the meetings has been discussed, the legality of the decisions that are taken must now be addressed. There are several types of decisions that are made at these meetings and these are known as ‘resolutions’. Resolutions come in several different forms namely ordinary, special, extraordinary and elective. Each of these resolutions are used in both a general and an extraordinary general meeting and will now be dealt with individually.

If an ordinary resolution is to be passed at a meeting, 14 days’ notice of that meeting must be given to all those entitled to attend and vote. An ordinary resolution is passed at a meeting if a simle majority of the members present and voting are at the meeting approve of it. Therefore, all that is required for an ordinary resolution to be passed and be deemed valid and legal is more than 50% of the votes cast.

A special resolution is different from an ordinary resolution in that it requires 21 days’ noitce of that meeting be given to all those entitled to attend and vote and it requires the approval of 75% of the members present at the meeting and who are voting. This basically means that if 75% of the members of the company approve and vote for the resolution it will be deemed to have been passed and will, therefore, be deemed to be valid and legal.

An extradorinary resolution is similar to a special resolution in that it requires 21 days’ notice of that meeting be given to all those entitled to attend and vote and it requires a 75% majority for the resolution to be passed and be deemed to be legally valid. Slorach and Ellis state that there are very few occassions on which the members are required to use an extraordinary resolution. They give two examples where it may be used namely where the members wish to pass a resolution in order to put the company into voluntary liquidation or to vary the rights attached to certain classes of shares.

The final form of resolution to be discussed is the elective resolution. Companies Act section 379A(2) makes provision for how an elective resolution will be legally effective.

For an elective resolution to be deemed legally valid the correct notice, that being 21 days’ notice, of the meeting at which the resolution is to be discussed must have been served on all those who are entitled to attend and vote at the meeting. An elective resolution requires a 100% unanimous consent of all the members of the company for it to be deemed to be legally valid.

To further ensure the legality and validity of these resolution, some of them have to be registered at Companies House with the Registrar along with the minutes of the meeting. All special resolutions must be registered at Companies House and only certain ordinary resolutions.

In conclusion to this study it would appear that in order to ensure the validity of a meeting and of the decisions taken are beyond legal challenge the representatives of the company must ensure that the law and the regulations that have been discussed in this study are carried out in the correct and lawful manner so as not to give someone who may be disgruntled at a decision taken at a meeting a way in which they challenge its legality and validity.

BIBLIOGRAPHY

1.) Principles of Business Law – 2nd Edition by David Kelly and Ann Holmes. Published by
Cavendish Publishing Limited in 1997.

2.) Essential Business Law by Paul Hilder. Published by Collins Educational in 1995.

3.) Business Law – 9th Edition by Scott Slorach & Jason Ellis. Published by Blackstone
Press in 2001.

4.) “Can the chairman of a private company hold a valid meeting by himself?” asks Nick
Fairclough. Solicitors’ Journal – 10th January 2003.

5.) Business Law and Practice by Trevor Adams, Alexis Longshaw, Christopher Morris and
Tim Sewell. Published by Jordan Publishing Limited in 2003.

6.) Business Law & Practice: Legislation Handbook by Trevor Adams. Published by Jordan
Publishing Limited in 2003.

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