Summary
Power of board to manage its own business
Power to delegate
Board minutes as evidence of proceedings
Comment


Summary

The Royal Court recently ruled(1) in a case involving a claim by a former director of two Jersey companies for sums due under service contracts with those companies. He claimed that under each service contract, exit payments of €700,000 and €600,000 respectively were payable on him ceasing to be a director.

The companies contended, among other things, that:

  • the board of directors lacked the authority under the articles of association of each company (which were in materially identical terms) to agree to the exit payments;
  • the exit payments were never properly authorised by the board of directors, but were negotiated without authority from the board by the chairman of each company; and
  • the exit payments were subject to certain preconditions which had not been met.

In dismissing the defences raised by the companies and ordering that the former director be paid the sums to which he claimed he was due under the service contracts, the court clarified its interpretation of certain provisions of the companies' articles of association. The judgment may therefore be of interest to other Jersey companies as the provisions reviewed by the court may be similar to those found in their own articles of association.

Power of board to manage its own business

The articles of association of each company contained an article which stated that:

"the business of the company shall be managed by the board which may pay all expenses incurred in forming and registering the company and may exercise all the powers of the company, including without limitation the power to dispose of all or any part of the undertaking of the company."

The court held that - subject to the powers of the board being exercised honestly, in good faith and for the corporate benefit of the company - such wording confirmed the general power of the board to manage the business of the company, which included the contractual arrangements governing its relationship with its directors.

The court also held that a separate article headed "Executive Directors", which empowered the board to enter into a contract "with any director for his employment by the company or for the provision by him of any services outside the scope of the ordinary duties of a director", should be read so that the word "any" included both executive and non-executive directors, notwithstanding the article's heading.

Power to delegate

One provision in the articles of association of each company authorised the board to delegate any of its powers "to a committee of one or more directors or other person as the directors think fit".

In finding that such wording allowed the board, as a matter of capacity, to delegate to the chairman of each company the power to determine the quantum of exit payments to its directors, the court also stated that it was not essential that the form of delegation include reference to "a committee" or to the article giving the board the authority to delegate. Rather, it was a matter of fact whether the board had delegated its power.

Board minutes as evidence of proceedings

The articles of association of each company contained an article which stated that:

"[board minutes] purporting to be signed by the chairman of the meeting to which they relate or of the meeting at which they are read, shall be sufficient evidence of the proceedings without any further proof of the facts stated in them."

The court considered that a provision to this effect contained in the articles of association of a company would reflect the arrangements agreed between a company and the board, and as such would be binding on both parties unless there was an obvious error on the face of the record or the record was vitiated by fraud.

On the facts of the case, the person who had signed the relevant minutes was the chairman of each respective company, not the chairman of the relevant meetings. Although the court stated that it could understand how the chairman of each company may have considered that it was his place to sign the minutes, given the aforementioned article, the minutes should not be treated as being conclusive evidence of the meetings in question without further proof.

Comment

The judgment makes clear that the scope of the general power of management contained in most Jersey companies' articles of association includes the negotiation and agreement of contractual arrangements with a company's directors. The judgment also shows the willingness of the Royal Court to treat the wording of each article on its own merits, as in the finding that non-executive directors could fall under a specific article headed "Executive Directors."

In relation to provisions in a company's articles of association regarding the delegation of powers to a committee, the judgment clarifies that where standard wording is used, the form of delegation need not refer to a "committee" or the relevant provision giving the board the authority to delegate.

The case also highlights the importance of a company's record-keeping responsibilities. Of particular note is the court's suggestion that where a company's articles contain wording to the effect that properly signed board minutes shall be sufficient evidence of the proceedings of meetings, such minutes will be binding on both the company and the board, unless an obvious error or fraud occurs. This could have implications where a company attempts to amend minutes after they have already been signed.

For further information on this topic please contact Sunir Watts at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (sunir.watts@ogier.com).

Endnotes

(1) Pirrwitz v AI, Royal Court, unreported judgment, January 24 2013.

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