COMPANY PROCEDURE

Evening Post, Volume CXVIII, Issue 8, 10 July 1934, Page 8

COMPANY PROCEDURE

APPOINTING DIKECTORS

ULTRA VIRES RESOLUTIONS

FAILURE OF INJUNCTION SUIT

Claiming to have been constituted directors of Rubber Distributors Ltd., four shareholders sued the three constituted directors of the company seeking an injunction restraining the defendants from excluding them from acting or interfering with their acting as directors of the company. The plaintiffs were John Duff, Kenneth John Duff, Edward C. Jack, and William Jack, for whom Mr. N. G. Foden appeared, and the defendants were Francis G. Galvin, Bernard A. Guise, and Joseph H. Walker, for whom Mr. Barnett appeared. The case was heard by his Honour ■the Chief Justice (Sir Michael Myers), whose judgment was delivered today in favour of the defendants. •'The three defendants are sued as the directors of Eubber Distributors, Ltd. The four plaintiffs, other than the company itself, claim that they are also directors and they seek an injunction to restrain the defendants from holding themselves out as the only directors or a-s constituting the board of directors of the company," said his Honour. • "This claim of the plaintiffs is based upon what if otherwise valid is no more than an ordinary resolution passed at a requisitioned extraordinary general meeting of the company held on September 1, 1933. It is admitted by the plaintiffs in their statement of claim that at the time of the requisition and of the meeting the three defendants were the only, directors of thd company. , WRONG COURSE ADOPTED. "It is claimed^jon behalf of the plaintiffs that first of all the first motion (rescinding a resolution limiting the directorate to three) was carried: that it was then proposed and seconded "That the number of directors be increased to seven"; that this motion was then declared carried; that written nominations were then received for four additional directors; and that the four plaintiffs were nominated and declared to be elected. . . . The company's regulations in this case expressly exclude various clauses of Table 'A', and clause 86 is one of the clauses so excluded. "Seeing that directors were not appointed by the company's articles of association and that the articles contain no provision for their appointment, the proper course for the company to adopt, if it was not desired that the subscribers to the memorandum of association should continue to be the directors, was to amend the articles of association by making additions thereto proper to meet what was desired. This could be done under the Act of 1908 only by special resolution, or, the company being a private company, by entry in its minute book pursuant to subs. 6 of s. 168 of the Act. Neither of these courses, however, was adopted. A DILEMMA. "Whut the company did was to pass an ordinary resolution at its first annual general meeting of shareholders in AprD 16, 1930, to the effect that the number of directors be fixed at three, and. three directors were elected. It is now sought to rely upon an ordinary resolution purporting to rescind the ordinary resolution passed at the" first annual meeting and to appoint additional directors. Those who seek to do this, however, seem to me to be in a dilemma. "If, as clearly is so, the original ordiiiai-y resolution was contrary to s. 69 of the Act, and therefore invalid, the- position cannot be improved by passing another invalid resolution. Even if the first resolution bo rescinded there would still bo no valid appointNient of the four persons who claim to have been added as directors. "All I am actually concerned with is the question as to whether the four plaintiffs have been validly appointed' or elected directors of the company. Iv my opinion they have not," and consequently their action fails. DEADLOCK NOT AVOIDED. "When this matter was first heard before me on February 21 I pointed out that the parties were heading for a deadlock which would in all probability load to compulsory liquidation of the company and result in financial loss to all concerned.. I suggested that this result might be avoided by a spirit of reasonableness, and I indicated • one practical course the adoption of which would overcome the easting difficulties. "Counsel asked that they should have the opportunity to negotiate for a settlement of the differences between the parties and that in the meantime I should defer the delivery of judgment. On June s,counsel again attended and said that they had been unable to arrive at a settlement, but desired to submit further argument, which I accordingly heard. ■• "It seems to me that this is a case in which the- company should not have been joined as a plaintiff. If it was a necessary patty it should, I think, have been made a defendant. Two of the plaintiffs wero the original requisitionists who. required tho meeting to be convened, and in essence the dispute seems to me' to be a matter between the four plaintiffs and the three defendants. "The four plaintiffs were asking that effect bo given to a resolution which is ultra vires and invalid. I fail to see how tho company could properly be plaintiff in such a proceeding. The dispute, as I view it, is really a personal matter between the four individual plaintiffs and tho three defendants, and I see no reasoii why the four individual plaintiffs should not pay the costs."