- Statutory powers are to be exercised in accordance with a company’s articles of association
- The Duomatic principle cannot simply be used as a bandage to cure a company’s procedural errors
This appeal considered whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 Schedule B1 of the Insolvency Act 1986.
A layer of complexity was added by the fact that, whilst 75% of the shares in the company were held by the sole director, the remaining 25% were held by a dissolved Manx company.
The three issues were:
- Did paragraph 22 of Schedule B1 of the Act give the director a right to appoint an administrator separate and distinct from the quorum rules in the articles of association;
- Can the Duomatic principle validate the appointment; and
- Did the fact that the appellants had previously challenged the administrators’ remuneration amount to acquiescence to the validity of their appointment.
As to the first point, this was rejected by the court, which stated that statutory powers are to be exercised in accordance with a company’s articles of association.
The Duomatic principle only applied in circumstances where all shareholders of a company had given their informed consent. Notwithstanding its dissolution, the Manx company remained a member of the company. In these circumstances therefore the Duomatic principle could not be invoked as a fallback, as the Manx company had not given consent.
As to acquiescence, the court rejected this as being relevant, as the question before the court was a technical one of validity of appointment.