In the recent case of Randhawa & Ors v Turpin & Anor,
the High Court analysed the question whether, under the Duomatic
principle, a company's articles of association could
effectively be amended by the holders of 75% of its share
An administrator was appointed for BW Estates Limited
(BWEL) by BWEL's sole de jure director, Mr
David Williams (D). At this time, D held 75% of
BWEL's share capital on trust for his father
(R), with the remaining 25% being held by an Isle
of Man registered company (IoM Co). IoM Co was
dissolved prior to BWEL's admission into administration and it
is understood that R was its beneficial owner.
BWEL's articles of association (the
Articles) provided that the quorum for board
meetings was two and that where one director was in office that
director's only power was to appoint another director.
The applicants in the case were creditors of BWEL. They sought
to challenge the costs which BWEL had paid to the administrator by
claiming that the administrator's appointment was invalid.
Their argument was that, under the Articles, D as a sole director
only had the power to appoint another director.
D sought to defend this claim by asserting that the quorum
provisions in the Articles had been effectively changed by a
constant course of conduct where D, as the legal owner of 75% of
BWEL's share capital, and R, as the beneficial owner of that
share capital, had allowed a sole director to exercise the powers
usually afforded to a quorate board.
Referring to the precedent of Re Duomatic
Ltd1, the High Court noted that where it can be
shown that all shareholders with a right to vote have informally
agreed on a matter, that such unanimous agreement is as binding as
unanimous agreement declared by way of a formal shareholders'
resolution (the Duomatic principle).
The High Court held that under the Duomatic principle,
the Articles had effectively been amended by the holders of 75% of
BWEL's share capital. In particular it was held that:
the assent of IoM Co as the holder of
the remaining 25% of the shares was not necessary as IoM Co was
incapable of exercising those votes (by virtue of having been
even if it were necessary to obtain
the consent of IoM Co, the fact that R was the beneficial owner of
IoM Co and had informally assented to the amendment to the Articles
was sufficient in itself to trigger the Duomatic
Records of decision making
The case highlights the importance of retaining a record of
decisions which have been made by the board and shareholders, even
in the smallest of companies.
Where a company pursues an action requiring shareholder approval
and the shareholders informally sanction, or stand by to allow that
action taking place, that company may find itself unwittingly
making fundamental changes to its constitution and powers. The
uncertainty created by this can leave certain actions of the
company then open to challenge by creditors and disgruntled
This uncertainty may also create an impression that the company
has been poorly managed and that its officers are ignorant of their
legal obligations. Ultimately this can ring alarm bells for
commercial lenders and contractors and is likely to adversely
affect shareholders' negotiating position when making an
Appointment of administrators
Further, when appointing an administrator out of court (as
occurred here) it is important to get it right the first time. The
rules and authorities which govern this area are strict and
challenges to an administrator's appointment can prove
If directors wish to put a company into administration, they
must comply with the company's articles (as this case
highlights). Directors must also correctly give notice of an
administration in accordance with the rules, as failure to do so
can render appointments invalid.2
If an appointment is subsequently rendered invalid, actions
carried out by an administrator whilst in office have no legal
standing and the Court may order the appointer to indemnify the
appointee for any resulting liability. The Court may be willing to
make a retrospective appointment,3 however this is not
always the case4 and this method should not be relied
  2 Ch 365
 See Minmar Ltd v Khalastchi and another
 EWHC 1159 (Ch).
 See Adjei and others v Law for all [ 2011]
EWHC 2672 (Ch).
 See RE Care Matters Partnership Ltd [ 2011]
EWHC 2543 (Ch).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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