EIC Services Ltd v Phipps [2003] EWHC 1507

Facts

  • The case concerned a bonus share issue by EIC Services Ltd to existing shareholders, which excluded former shareholders who held share warrants to bearer.
  • Disagreement arose over whether these warrant holders should be considered shareholders entitled to participate in the bonus issue.
  • The core question was whether the Duomatic principle could validate the bonus issue in light of the exclusion of the warrant holders.

Issues

  1. Whether the Duomatic principle could be used to justify the bonus share issue when certain warrant holders were excluded.
  2. Whether the warrant holders had retained sufficient shareholder rights under the articles of association to require their unanimous consent.
  3. How to determine who qualifies as a “shareholder” for the purpose of unanimous consent under the Duomatic principle.

Decision

  • The court held that, according to the company's articles, the warrant holders did retain specific shareholder rights.
  • As the warrant holders were excluded from the bonus share issue, the requirement for unanimous shareholder agreement under the Duomatic principle was not satisfied.
  • The Duomatic principle could not be invoked to validate the share issue without the informed and unanimous agreement of all shareholders entitled to vote and receive dividends, including the warrant holders.

Legal Principles

  • The Duomatic principle allows informal unanimous shareholder consent to validate irregular company actions, provided all shareholders entitled to vote and benefit from the decision understand and agree to it.
  • The principle is bounded by the necessity for true unanimity; all who hold relevant rights at law or under the articles must be included.
  • Determining shareholder status is essential, especially where warrants or other instruments diversify entitlements and complicate identification.
  • The case distinguishes between informal approval of decisions within shareholders' existing powers and more substantial capital changes, the latter often requiring strict adherence to legal procedures.

Conclusion

EIC Services Ltd v Phipps confirms that the Duomatic principle cannot apply where all entitled shareholders, including warrant holders, are not included or do not unanimously consent. The decision highlights the need for precise identification of those entitled to participate in such decisions, particularly for significant corporate actions like share issues, and underlines the limits of informal shareholder approval in modern company law.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal