Abandoned ship - private company with no Directors

[roberto]

Some advice dealing with a sticky company issue:

Small private Company with 7 shareholders (4 of which are held by one individual). Majority shareholder was sole Director. Registered address of Company is his home address.

Following an extremely detrimental Tribunal Judgment in a case brought by the other 3 shareholders against the Company, the Director failed to carry out the remedy ordered by the Court, and simply resigned, became totally non-communicative, leaving the Company with no Director or paperwork or access to banking (for the past 4 months). The registered address remains his home address. Accounts are due to be submitted to Companies House in 6 weeks.

For reasons to complex to explain here, the remaining shareholders believe that the majority owner is deliberately trying to drive the (solvent) company into strike-off. Articles state that only shareholders can be Directors.

We urgently need to put Directors in place. If he prevents any Director appointment (by voting against any and all proposed appointments) the position will become clearer.

The question I have is how to call a meeting to appoint a Director under these circumstances.

a) Clearly we cannot ask the Directors to call a meeting, since there is not a Director.

b) I presume shareholders can simply call a meeting. We have to invite proxies and posted proxy votes on a Director Appointment given (a).

c) However how do we deal with the fact that posted proxy forms will need to be posted to the registered address of the Company (do they?) - which is his address? If we use that address, the meeting will have no outcome because the proxies votes will not be accessible at the meeting - so how to make a decision? Can we simply declare some other address as the one for posting proxies?

Any comments, particularly on (c) and getting through the general scenario of such a meeting?

[The Company is of a type (owner of a freehold) that (once we have a Director) we will be able to apply to a Court/Tribunal for imposed external management. If the majority shareholder does not resist, then we will act as both applicant and defendant in this application]

[R0b]

Re: Abandoned ship - private company with no Directors

Without seeing the actual articles, it is difficult to say but the relevant sections of the Companies Act 2006 is sections 302-306.

A member may require a meeting to be called by directors if they have at least 5% of the voting shares, but as there is no director then I don't think s.302 could be used or at least I've never seen it used in that way. So section 306 would be your next option which is a Court may order a meeting as it sees fit which the court could give directions as to how the proxy forms are taken into account and where they are sent to.

I do find it odd why there was only one director appointed and at the least is common for two with a number of shareholders who are not the same directors.

[roberto]

Re: Abandoned ship - private company with no Directors

Very helpful response indeed - thanks Rob. So here is some more information and comment:

a) Section 305 of the Act is possibly carelessly worded in that it says If the *Directors* do not call a meeting then shareholders (a majority of those who requested the meeting) can call it. It could have been worded as (for example) 311 -- "The Company must....".

But I wonder if it could be held that the request is made of the Company and it is the Company that must act, and that the clause should be interpreted in that way. After all, "Directors" never really act out acts - they make decisions (or don't make them) and the Company Acts...

b) Our articles may be helpful: On calling meetings it states :-
"The Directors may, whenever they think fit, convene an extraordinary general meeting,
and extraordinary general meetings shall also be convened on such requisition, or, in
default, may be convened by such requisitionists, as provided by Section 368 of the
Act. If at any time there are not within the United Kingdom sufficient Directors capable
of acting to form a quorum, any Director or any two members of the Company may
convene an extraordinary general meeting in the same manner as nearly as possible as
that in which meetings may be convened by the Directors."

That seems to allow a calling of a meeting without resorting to Court.

c) Which leaves the matter of mechanism for voting, on which the articles include:

Proxies may be deposited at the Registered Office of the Company at any time before
the time of the Meeting for which they are to be used unless otherwise specified in the
notice convening such Meeting. Regulation 62 of Table A shall be modified accordingly.

That would seem to allow the notice to state some "otherwise specified" but it is not clear which preceding part the
"otherwise specified" applies (the at any time part?)......

Thoughts?

d) On your comment "I do find it odd why there was only one director appointed" - that is my inaccuracy. The majority director is in fact
Director and Wife holding two shares each, so they are a two-in-one deal. But the articles do in fact state "The minimum number of Directors is one".

Many thanks for your help

[R0b]

Re: Abandoned ship - private company with no Directors

Before I can comment any further, how old is the company? I've made the presumption that the company is based under the 2006 Act but there is reference to Regulation 62 of Table A. Table A are the model articles under the Companies Act 1985 which is the predecessor of the 2006 Act. The 2006 Act largely replicates the 1985 Act but will be under different sections, unless the company has specifically adopted the 2006 articles with or without amendments.

Again, about the proxy information the court can determine how that is done I believe so if needed, they can give directions as to voting procedures and proxies etc.

Shareholders and Directors are not the same, is the wife a director of the company or was it just the husband?

[roberto]

Re: Abandoned ship - private company with no Directors

Thanks again Rob

Incorporated 1997
No specific adoptions of articles

Does that help or hinder?

Would like to avoid court if possible. There will be other court cases here, so an extra one just to call a meeting to allow the company to be represented as respondent would be a last resort.

Yes my initial post was completely misleading on the Directors who resigned following the court hearing involving their conduct - husband and wife both were directors owning (jointly) 4 shares (each share can be "owned" by more than one person, but each share carries one vote -- it is a property management company so each unit can potentially have more than one named lessee with one named as voting shareholder).

I think the broader issue is that the construction of the law assumes that shareholders (and Directors) have an interest in the Company and will suffer detriment as a result of something bad happening to it. There are clear examples of circumstances where this is not the case, and where majority shareholders can actually profit from driving a company into a strike-off (or into bankruptcy). In the case of freeholds, if struck off, the freehold reverts to the crown, and majority directors who themselves engineered the strike off can potentially buy all shares from the crown. There must be other circumstances where a majority group of shareholders has acted to prevent a company from operating as a company by refusing to allow anyone (including themselves) to Direct. Not the same as existing Directors deliberately driving a company into bankruptcy - for which they can potentially be held responsible.

[R0b]

Re: Abandoned ship - private company with no Directors

I am afraid that there would be no other way around it unless there is some other provision within the Articles or the Table A Articles that says otherwise. Under the 2006 Act, where a company fails to meet the minimum number of directors which is 1, then it has breached its statutory duties, though I would presume the same provisions are in the 1985 Act. Where there is an absence of directors under the company then the only other way I can see it is an application to the court for a court-convened meeting. The relevant sections under the 1985 Act is Chapter IV, particularly section 371 gives the power of the Court to order a meeting.

The only other option I can think of is where the Articles gives the Company Secretary the power to convene a meeting, if the Company Secretary was another person other than the two directors. If not, then I am afraid Court is the only option.

If a meeting is convened by the Court you may want to consider appointing a Company Secretary who is separate from the directors and amend the articles to provide for the Co Sec to convene a meeting in the event of the company having no directors whether through resignation or by death or some other reason.