Appointment of Directors by Shareholders: The Importance of Compliance with Notice Provisions

Submit a Feature

Legal

Appointment of Directors by Shareholders: The Importance of Compliance with Notice ProvisionsA recent High Court judgment considered the requirements for the valid appointment of directors by Shareholders.

The case puts beyond doubt that where a company's Articles of Association ("Articles") prescribe procedures for the appointment of directors in a particular manner and subject to the provision of particular notices and timeframes, there must be strict compliance with those procedures.

Background

The Plaintiff was a shareholder in Conroy Gold and Natural Resources Plc (the "Company"). He served notice pursuant to section 146 of the Companies Act 2014 (the "Act") of his intention to propose ordinary resolutions relating to the removal of six serving directors and the appointment of three new directors, one of whom was the Plaintiff. A dispute subsequently arose concerning the validity of the resolutions purporting to appoint the new directors which centred on the interpretation of the notice requirements set out in the Articles of the Company and some parts of section 144 of the Act.

Section 144 of the Act contains optional provisions on the appointment of directors, which apply unless a company's constitution provides otherwise.  The Company's Articles did not dis-apply section 144, but modified it in terms of notice periods in providing that a director could not be appointed at a general meeting unless he or she was recommended by the directors, or not less than seven nor more than forty two days before the date of the meeting notice had been given to the Company:

  1. by the proposing member of the intention to propose the directors for appointment and
  2. a notice executed by the proposed directors of their consent to the appointment

No such notices were served on the Company. At the EGM convened at the request of the Plaintiff,  the resolutions were approved following a poll, by majority vote. However the Chairman informed the meeting that the resolutions could not take effect because of non-compliance with article 85 of the Company's Articles in respect of the new directors proposed. The Plaintiff initiated proceedings before the High Court (the "Court") seeking a Declaration that the failure to give effect to the vote on the resolutions constituted oppressive conduct.

The Plaintiff contended

  • There was practical and substantive compliance with the notice provisions through correspondence with the Company's agents (Allenby and IBI: stock exchange advisers),
  • The Company had waived the requirement for notice, and
  • The Company was estopped from insisting on strict compliance with the notice requirements.

The Findings of the Court

The Court considered the legal standing of a company's Articles holding that they are a statutory contract between a company and its members and should not be interfered with, save in accordance with law. It held that the notification requirements at issue here were simple and clear and they were not satisfied.

The Court rejected the argument of practical and substantive compliance. The Plaintiff was attempting to reclassify emails and questionnaires with Allenby and IBI whom the Company engaged for the limited purpose of ensuring compliance with the rules of the stock exchange, as notices. It held that no notice as required by article 85 was sent to the Company.   The consequences of this was that the resolutions appointing the new Directors were a nullity even when passed by a majority.

The Court found that it was not within the power of the Chairman to waive compliance with the notice provisions of article 85, and the Plaintiff had not made out a case for estoppel.   The Court stated that there was no obligation on the Company or fiduciary duty on directors to remind a member of the notification obligations.   The Court found no evidence of oppression on the part of the Company.

The Plaintiffs case was dismissed for failure to comply with the notification provisions of the Company's Articles.  The Court awarded costs to the Company.

High Court judgment O'Sullivan v Conroy Gold and Natural Resources Plc [2017] IEHC 543.

Contributed by Gail Nohilly of William Fry.