Valid appointments: don't forget the articles

Insolvency Bitesize - November 2017

Validity of appointment questions rarely go to the Court of Appeal. A recent case serves as a cautionary tale. Imagine you've been in office for almost 4 years as administrator. Then your appointment is successfully challenged because the board meeting appointing you was inquorate. A simple error, easily avoided, but with potentially huge significance – for your costs and your actions.

The articles clearly required a quorum of 2. So, the sole director's decision to appoint administrators out-of-court meant the appointment was invalid. It could not be saved by invoking a general principle of company law under which informal unanimous shareholder consent can amend provisions in the articles by conduct. The principle couldn’t apply where one of the registered members was simply unable to give any such consent at all. Here, one member had been dissolved but was still shown on the members’ register.

There are three key takeaways:

  • check the company’s articles – they will say what the minimum quorum is for a valid board meeting;
  • follow the company’s internal management rules - without exception; and
  • be wary of ability to correct failings in fundamental company - don’t assume you can rely on unanimous shareholder action.