Facts
- Mr. Randhawa and Mr. Turpin were the only directors and shareholders in a family company.
- A dispute arose regarding the validity of a deed of release.
- Mr. Randhawa contended that Mr. Turpin lacked authority to execute the deed without a formal shareholder resolution.
- Mr. Turpin argued that informal discussions and mutual understanding between them as directors and shareholders sufficed to authorize the action.
Issues
- Whether informal shareholder approval can substitute for a formal shareholder resolution when the law requires such a resolution.
- Whether the deed of release executed by Mr. Turpin without a formal resolution was valid.
- The extent to which the Companies Act 2006 permits reliance on informal shareholder arrangements, particularly for major company actions.
Decision
- The Court of Appeal held that informal shareholder approval does not override the requirement for a formal resolution where the law, specifically the Companies Act 2006, mandates one.
- The deed of release required a formal shareholder resolution; Mr. Turpin's reliance on informal approval was insufficient.
- The Court distinguished the case from Re Duomatic Ltd, indicating that informal consent is only valid where no formal procedure is legally required.
Legal Principles
- The Companies Act 2006 prescribes formal procedures for shareholder resolutions, including written resolutions and meetings, to ensure proper record-keeping, shareholder participation, and minority shareholder protection.
- Informal shareholder approval is only effective where the law does not mandate a formal process and must represent clear agreement from all shareholders; it is inappropriate for significant decisions or structural changes.
- Re Duomatic Ltd confirms informal approval can authorize company actions only where all shareholders agree and no statutory requirement for a formal resolution exists.
- Formal procedures are essential to safeguard shareholder rights and maintain transparency in company management.
Conclusion
Randhawa v Turpin (No 2) clarifies that informal shareholder agreements cannot replace formal resolutions required by company law; directors and shareholders must strictly comply with Companies Act 2006 procedures to ensure validity and protect shareholder rights.