Re Duomatic Ltd [1969] 2 Ch 365

Facts

  • Duomatic Ltd was a private company whose directors received payments possibly deemed improper.
  • All shareholders, who also served as directors, had given informal approval for these payments.
  • Upon the company entering liquidation, the liquidator challenged the validity of the payments, questioning whether the informal shareholder consent was sufficient.

Issues

  1. Whether informal approval by all shareholders entitled to vote can validate directors’ actions that would otherwise require formal shareholder resolution.
  2. Whether unanimous shareholder agreement outside formal procedure is sufficient to legitimize company decisions.
  3. What limits, if any, apply to actions taken under informal shareholder agreement.

Decision

  • The Court of Appeal held that the informal and unanimous approval of all voting shareholders was sufficient to validate the payments in question.
  • It was established that shareholder decisions could be made absent a formal meeting if all entitled shareholders clearly agree to the proposed action.
  • The existence of full, unambiguous agreement from all voting shareholders was deemed essential.
  • The decision confirmed that the principle cannot override legal obligations, requirements in the company’s articles for special approvals, or affect third-party and court-sanctioned matters.

Legal Principles

  • The Duomatic principle allows shareholder decisions to be effective without formal procedure, provided all voting shareholders give their clear and informed consent.
  • The principle only applies where every shareholder entitled to vote has expressly or impliedly agreed to the action.
  • This rule does not bypass statutory or constitutional requirements, third-party rights, or situations requiring court approval.
  • Written evidence of unanimous agreement is preferable to avoid disputes regarding consent.
  • The principle harmonizes with general company law on shareholder consent but is limited to internal decision-making with full agreement.

Conclusion

Re Duomatic Ltd [1969] 2 Ch 365 established the Duomatic principle, enabling company decisions through the unanimous informal consent of all voting shareholders, provided all legal and constitutional requirements are met and clear agreement is demonstrated.

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