Facts
- The dispute arose in a family-owned private company where three siblings served as equal shareholders and directors.
- One brother, also a director, introduced Article 9 into the articles of association, which gave his shares three votes each on any resolution regarding his removal from the board, compared to the single vote per share of the other siblings.
- This arrangement ensured he could effectively prevent his own removal by ordinary resolution, as his augmented voting power would defeat any dismissal attempt.
- When the other siblings sought to remove him via an ordinary resolution, Article 9’s weighted voting rights defeated the motion.
- The key question became whether Article 9, expressly intended to circumvent section 184 of the Companies Act 1948 (now section 168 of the Companies Act 2006), was legally valid.
Issues
- Whether a company’s articles of association can lawfully confer weighted voting rights on a director’s shares specifically for resolutions concerning their own removal.
- Whether such a provision in the articles is effective even if its purpose is to circumvent section 184 of the Companies Act 1948, which allows removal of a director by ordinary resolution.
- Whether contractual freedom in a company’s constitution can override or influence statutory shareholder rights regarding director removal.
Decision
- The House of Lords upheld Article 9, confirming its validity and enforceability.
- The judges acknowledged Article 9 was intended to circumvent section 184(1) of the Companies Act 1948, but accepted that special voting rights for different share classes are permissible if properly included in the articles.
- Lord Reid noted that the law allows companies to allocate special voting rights to classes of shares, so long as these rights are set out in the articles from inception.
- The articles of association were treated as a binding contract that could stipulate such arrangements, granting directors enhanced voting power on matters of their own removal.
- The majority found that the company constitution could legitimately take precedence in this context over the intended regime of the statutory provision.
- A dissenting opinion argued that Article 9 undermined the intent of section 184 and should be invalid, but the majority judgment prevailed.
Legal Principles
- Company articles of association may provide for weighted voting rights for specific classes of shares, including for votes relating to a director's own removal, provided such provisions are explicitly included.
- Freedom to contract in the company’s constitution can, in certain circumstances, alter the statutory rules on director removal.
- Contractual terms within company articles may validly affect the application of statutory requirements, such as the ordinary resolution rule under company law.
- The judgment draws a distinction between the statutory rights granted by company law and the permissible contractual arrangements embodied in a company's articles.
Conclusion
Bushell v Faith established that a company's articles may lawfully confer weighted voting rights that enable a director to block their own removal, provided these rights are properly incorporated, even if such arrangements effectively circumvent statutory provisions governing director dismissal. The case affirms the strength of the contractual nature of a company's constitution in shaping internal governance and shareholder power.
