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Case law: Court considers chairman’s power to adjourn shareholders’ meeting because of disputed shareholding

The chairman of a shareholders’ meeting should consider whether a disputed shareholder’s vote will affect the outcome of a resolution when determining whether they have power to adjourn it, where a dispute over who owns particular shares means it’s not possible to discover the view of the meeting.

November 2019

This update was published in Legal Alert - November 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

In a recent case, a shareholders’ meeting was called by the directors to ask the shareholders to appoint two new directors.

One of the proposed directors (H) claimed he owned half the company’s share capital, but the board disputed his claim and told H he was not entitled to attend or vote at the shareholders’ meeting.

H and his lawyer turned up to the meeting anyway, so the director who had been appointed as chairman asked him and his lawyer to leave. H refused so the chairman adjourned the meeting (technically, he merely closed it as no future date was set for it to reconvene) on grounds it was impossible to hold a meeting until the issue of the disputed shareholding had been resolved.

A proxy attending on behalf of another shareholder, an ally of H, purported to re-open the meeting on the basis that the original chairman had no power to adjourn it. The two of them, along with another shareholder, then purported to pass shareholder resolutions to appoint H and the other new director to the board. The purported new board then notified Companies House of the changes, appointed a new chairman of the board, added him as a signatory to the company’s bank account and resolved to pay a dividend.

The original chairman applied to court, in the company’s name, for an interim injunction stopping the purported new directors from acting, or representing themselves, as directors of the company. He claimed that:

  • because he had adjourned the meeting before the resolutions to appoint new directors were passed, the resolutions were invalid; and
  • he was entitled to adjourn the meeting, because a chairman had a residual power to do so if it was not possible to ascertain the views of the meeting.

H and the other new director argued that H was a shareholder and that nothing in the articles authorised an adjournment in these circumstances. The original chairman therefore had no power to adjourn, so H and his supporters had been entitled to re-open the meeting.

As part of its consideration of whether to grant an interim injunction, the court had to decide whether the original chairman had raised a serious issue to be tried, pending a final injunction. It decided he had.

The court granted the interim injunction on the basis that a chairman has a general power to adjourn if it is impossible to discover the views of the meeting – and a dispute or doubt over whether someone holds a ‘determinative’ vote or not satisfies this criterion.

As H’s purported shareholding (if he actually held it) would have given him power to determine the outcome of the vote, it was not open to the original chairman to continue the meeting and ignore any votes H purported to cast.

Nor was it open to him to use his casting vote as chairman to defeat the resolutions to appoint the new directors, which would not have resolved the issue of whether H was entitled to vote.

This decision provides a useful indication of how a court might decide the issue of whether a chairman has a residual power to adjourn a meeting if the views of the meeting cannot validly be ascertained; and whether a dispute over ownership of a determinative shareholding means they cannot be ascertained.

Operative date

  • Now

Recommendation

  • The chairman of a shareholders’ meeting, where it is impossible to discover the view of the meeting because of a dispute over who owns particular shares, should take advice on whether they have a residual power to adjourn the meeting.
  • They are more likely to have residual power if the votes attached to the disputed shareholding will affect the outcome of a resolution put to the meeting.

Case ref: Findmyclaims.com Limited v Howe [2018] EWHC 1833

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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