## 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.


EIC Services Ltd v Phipps [2003] EWHC 1507