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Can an Administrator be appointed solely by a shareholder?

10 Apr 2018

 

Administrators are often rightly concerned about the validity of their appointment.  It is commonplace and shows good practice to seek a security review where the appointment is by a qualifying floating chargeholder. However, what should Administrators do where they are appointed by the shareholders of a company, but where their director is not playing ball?

 

In relation to the out of court route for appointment, the Insolvency Act 1986 refers specifically to an Administrator being appointed by “the company or its directors”; and Rule 3.26(2)(a) of the 2016 Rules refers to a copy of the “resolution of the company” being filed at court.

 

But how can a resolution be made without a general meeting being called? Given that the responsibility for calling a general meeting generally lies with directors, this article looks at the options for shareholders where the director(s) refuse to do so.

 

Sections 303-306 Companies Act 2006 allow shareholders to require directors to call a general meeting as follows:

 

  1. Directors are required to call a general meeting when requests are received from members with fully paid-up shareholdings of at least 5% of the company’s voting rights.

  2. Directors must call a general meeting with 21 days of receiving such a request, and the general meeting must be held not more than 28 days after the date of the notice of meeting.

  3. Where the directors fail to call a meeting within 21 days, the members may themselves call the meeting for a date not more than three months after the date the directors became subject to the requirement to call a meeting.

  4. Where there is a particular urgency to call a general meeting (such as the need to appoint an Administrator), shareholders can apply to the Court for an order for a general meeting.

 

However, both of the above (waiting for time to elapse or applying to court) take time and could incur significant costs. In Randhawa and another v Turpin and another [2017] EWCA Civ 1201, the Court of Appeal considered whether the “Duomatic Principle” could be of use to shareholders in these circumstances.

 

The Duomatic Principle allows there to be no formal meeting or resolution of shareholders so long as there is unanimous assent to the decision between the shareholders entitled to vote.

 

In Randhawa, the Court held that it was possible that in dealing informally with practical issues such as non-cooperative directors, members would potentially be able to rely on the Duomatic principle to appoint Administrators if there is unanimous assent and the factual circumstances support the use of the principle.

 

As ever, Administrators would be best advised to instruct solicitors to review the circumstances of their appointment, particularly where there is a non-cooperative director and the Duomatic principle may need to be relied upon.

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Tel: +44 (0)191 232 0283  ·  Email: info@srflegal.co.uk

 

Short Richardson and Forth Solicitors Limited is a private limited company registered in England and Wales under company number 10572065, authorised and regulated by the Solicitors Regulation Authority No 637150.

Short Richardson and Forth Solicitors Limited is a private limited company constituted and run in accordance with the provisions of the Companies Act 2006. The term “partner” has been used to denote individual senior solicitors employed by Short Richardson and Forth Solicitors Limited.