Resolutions and Amendments

This chapter considers the different types of resolutions that may be considered either at a company meeting or, in the case of a private company, by written resolution. Shareholders make their decisions by the passing of resolutions. Such resolutions take various forms, the type of which depends upon the size of the required majority for the resolution to be treated as effective. The form and content of company resolutions is now determined by the provisions of CA 2006. Each of these new statutory requirements will be considered in this chapter. In addition, this chapter examines the procedures that must be followed if it is desired to amend a draft resolution before it is voted upon at a general meeting. As will be seen, for special resolutions the possibilities for amendment are much restricted.

Notice, Agenda and Quorum for Meetings of Directors

As has been discussed in Chapter 2 concerning the giving of notice of meetings to convene a valid general meeting of members, the necessity to give due and proper notice of a meeting is a basic requirement for convening a meeting that can proceed to transact lawful business. In this chapter the requirements of notice of meetings are discussed with regard to meetings of the board of directors. The requirements of giving due notice in relation to meetings of directors are less stringent than those relating to meetings of members, for in relation to the latter the governing legislation prescribes requisite time periods for certain categories of meeting and the passing of certain types of resolutions.

Commentary on the Companies Act 2006 Model Articles

Under CA 2006, s 19 the Secretary of State has power to prescribe standard form articles of association for companies and different model articles may be prescribed for different descriptions of companies. Provision is made for private companies limited by shares, private companies limited by guarantee and public companies. They are contained in Schedules 1 to 3 of the Companies (Model Articles) Regulations 2008. It is not compulsory for companies to adopt all or any of the provisions that are contained in the model articles, and in certain situations there is much to be said for having articles that are drafted to meet the particular requirements of individual companies.

Meetings for the Purposes of Schemes of Arrangement

A scheme of compromise or arrangement may consist of a compromise or arrangement between a company and its creditors or any class of them, or between a company and its members, or any class of them. Schemes of arrangement are not a modern invention. The current legislative provisions are found in CA 2006, Part 26, ss 896–901 (inclusive), which is entitled ‘Arrangements and Reconstructions’, and which substantially reproduces the provisions in CA 1985, ss 425–427 with certain modifications to which reference will be made below. The statute applies the term ‘arrangement’ to include a reorganization of the company’s share capital by the consolidation of different classes of shares or by the division of shares into shares of different classes. CA 2006, Part 27, ss 902–941 (inclusive), deals separately with the provisions enabling the merger or division of a public company. The detailed practice and procedures governing applications for schemes of arrangement under Parts 26 and 27 are beyond the scope of this book and are referred to in this chapter only by way of summary.

The Company Communications Provisions, Including Electronic Communications

Effective communication by a company with a wide range of persons including its members, employees, bond-holders, debenture-holders and other stakeholders is of fundamental importance to the efficient management of a company. Equally, the ability of shareholders and others to be able to send communications to a company in an orderly and timely manner is a matter of importance. Until recent times the companies legislation has always required documents, notices and other corporate literature such as reports and accounts to be sent by post or delivered to members in what in modern terminology is called ‘hard copy form’. A company’s articles of association, including the 1985 Table A, usually contain detailed provisions dealing with the service of such notices and documentation. However, electronic communication has become the preferred method for many shareholders to receive documents and communications from companies. In recent years, even before the enactment of CA 2006, a large number of public quoted companies with many thousands of members have taken active steps to encourage as many shareholders as possible to elect to receive their documentation in this way rather than in paper format through the postal system substantially for reasons of cost-saving.

Meetings of Members Ordered by the Court

The two key organs of a company are the board of directors and the members of the company exercising their constitutional rights in a general meeting. Company law attaches great significance to the due convening of general meetings of shareholders. The general meeting is the forum for considering many of the essential matters relating to the company’s affairs including increasing or reducing the share capital of the company, changes to the memorandum or articles of association, alterations to the composition of the board of directors, considering the content of the company’s financial statements and approving dividends.

Exercise of Members’ Rights

One of the most noteworthy features of modern commerce in the twentieth and twenty-first centuries has been the emergence of the nominee shareholding in large, and in particular, public listed companies. Partly for ease of administration, the clients of banks, brokers and other financial institutions are encouraged to have their share portfolios held on their behalf by nominee companies of the financial institutions. The impact of this structure is such that the nominee company, which may provide a similar service for literally thousands of clients, is the ‘member’ of the company concerned and, under conventional company law and procedure, is the only person entitled to represent the interests of its clients at any general meeting.

Commentary on the Provisions of the Companies Act 2006, Part 13, Sections 281 to 361

The Companies Act 2006 (CA 2006), which on enactment contained over 1,300 sections, 47 Parts and 16 Schedules, received the Royal Assent on 8 November 2006. The preamble to CA 2006 states that it is ‘An Act to reform company law and restate the greater part of the enactments relating to companies; to make other provision relating to companies and other forms of business organisation; to make provision about directors’ disqualification, business names, auditors and actuaries; to amend Part 9 of the Enterprise Act 2002; and for connected purposes.’ This legislation was the result of a thorough review and overhaul of the statutory provisions affecting registered companies and it replaced all the provisions of the Companies Act 1985 (CA 1985) and other associated statutes. Since November 2006 further additions and amendments have been made to the CA 2006; this is testament to the proposition that the law is ever-evolving to meet new situations and challenges.

Written Resolutions of Private Companies

The important subject of written resolutions of private companies is dealt with in CA 2006, Part 13, Chapter 2, which comprises ss 288–300. These individual sections are commented on in detail in Part 3 of this book. These provisions mark a considerable extension of the statutory code previously contained in CA 1985, ss 381A–381C and Sch 15A. These latter provisions were incorporated into CA 1985 by CA 1989 with effect from 1 April 1990. The use of written resolutions is intended to enable private companies to avoid the formalities associated with convening a general meeting of shareholders.

The Concept of a Meeting and Quorum

The need to hold a meeting will arise in many different and diverse situations. All meetings are subject to procedural rules and regulations of the particular institution that has convened the meeting. The reason why there are rules and regulations is so that the participants at a duly convened meeting can transact business in a lawful manner and so that they will be able to debate and discuss issues in an orderly fashion. This book is concerned with the meetings of solvent companies that are registered and incorporated under the statutory provisions regulating companies. The reason for the requirement for meetings under the Companies Act 2006 (CA 2006) is so that the members can attend either in person or by proxy in order to debate and vote on matters affecting the affairs of a company. There are a number of procedures, some that are derived from the common law and others that are the creation of statute, that have to be observed in order for a meeting of a company to transact business in a lawful and regular manner.