Company Law

[Scot22]

Is it enforceable if : at an AGM shareholders pass a resolution that directors cannot authorise expenditure over a certain amount without the approval of the majority of shareholders ?

[atticus]

This may require an amendment of the company's articles of Association.

[Scot22]

Thanks. There is nothing I can find that refers to this. So, I assume, directors make decisions and shareholders can vote them off. I hoped AGM resolutions might have some authority but see the logic.

[R0b]

Not quite sure what it is you're really asking for here. Put simply, the answer to your question is yes, shareholders can but as Atticus says it may require an amendment to the Articles of Associations for the company.

Shareholders can pass resolutions by ordinary resolution by 50% votes or special resolution being 75% votes. Some resolutions are specifically called out in the Companies Act 2006 as requiring a special resolution - amending the articles is one of them.

Whether AGM resolutions have any legal force depends on the company and the articles. A lot of large public companies with millions of shareholders can vote on certain resolutions but their articles are amended such that there is no legal force on the resolution other than for directors of the company to take away and consider the outcome of the vote although the directors are not legally required to follow the shareholder resolution. On the other hand some votes are legally binding for example if you vote for somoene to be the CEO or chairman of a board.

[Scot22]

Apologies for not being clear enough. The Articles make no reference to effect of shareholders vote. A resolution was passed to limit size of spending decisions of board. Not sure if it is effective.

[R0b]

Are we talking about a private or public limited company and when was it incorporated?

It would be a very odd and strange way of doing business if there was nothing in the articles about the effect of a shareholder vote, which effectively means that shareholders have no power and that (i assume) all the power lay with the directors. For example, the companies act allows shareholders to remove directors from a company upon complying with the relevant requirements and notices to hold a meeting and vote.

Are you sure there is nothing that talks about the legal effects of shareholder voting? The model articles which is generally adopted by a lot of companies has the following language fr companies incorporated under the 2006 Act:

4.—(1) The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.

Either the company has decided to draft its own model articles or it adopted the model articles and revised this language or the only thing I can think of is the company was incorporated before 2006 in which case the old 1985 model articles would be applicable and that has similar language to the 2006 model articles.

I would have to assume that unless anything in the articles state otherwise, a shareholder resolution meeting the required threshold i.e. in this case I think an ordinary resolution would suffice being 50% of the vote, it would be binding on the company and its directors.

There should be documented minutes of the meeting that would cover this anyway. Have those minutes been circulated yet?

[Scot22]

Very much appreciate your informative post. I should have put more detail, again apologies.
It is a private company limited by shares incorporated in 1997.
I have searched again and am confused. Does silence mean shareholders can determine issues ? Or do director powers override everything.

[atticus]

The Articles of Association are the company's constitution, its rulebook.

This assumes that there is no separate shareholders agreement.

[R0b]

Directors have day to day powers of running the company, not shareholders so if you are saying that there is nothing in the articles around shareholder power or rights, then I don't think that a shareholder can override the decision of the director. So that resolution that was passed was, probably a pointless exercise.

Shareholders could call a meeting to then vote to ask the directors to reconsider their position and agree not to spend over a certain amount but again, as they have day to day power, they could choose to ignore. Directors powers are derived from the Companies Act and the articles of association and any exclusive shareholder only decisions.

I suppose another alternative is to remove the director using the statutory procedures, but the director may be entitled to compensation and you have to be careful if the director is also an employee of the company as their directorship would not (if I recall) remove them as an employee and you would have to dismiss them formally which could then trigger unfair dismissal or some other rights.

potentially the easiest way and straightforward way to go about this is to get the shareholders to pass a special resolution (75% usually required unless articles say otherwise) to amend the articles to then limit director spending.

[Scot22]

Many thanks Rob for your detailed and clear help. It is very much appreciated. I now understand the situation.

[R0b]

No worries but also take note of Atticus' post who is also right you need to account for any shareholder agreement which will dictate shareholder rights and obligations and that might complicate things.

[Scot22]

I know Atticus from a site he was on before it closed. I always pay close attention to his posts !

[atticus]

That is kind of you :-)

I am going to make a guess - which could well be wrong - that this company manages a block of flats, and that the shareholders are the leaseholders, some of whom are directors. If this is right, there is various leasehold property legislation requiring consultation about works, estimates, etc before charges can be recovered from flat owners. A requirement for a majority vote approving expenditure may cause difficulties - imagine the situation where the block needs a new roof, but a majority, being those who do not live on the top floor, decide that they don't want to spend the money.

If I have guessed wrong - sorry! But there can be other scenarios in which this kind of fettering of the directors' powers in managing a company can cause problems.

[Scot22]

I think that was possibly an informed guess. I did post rather a lot about an unusual director !
I hadn't thought through the full implications. Glad you've pointed them out.