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Company Must Follow Rules

23rd January, 2012

When a company is in financial difficulties, the details of its internal regulations tend to be near the bottom of the list of considerations when directors are making decisions. Regrettably, company law does not make allowances for this, which led to a recent case in which the validity of the appointment of an administrator was challenged.

The decision to appoint the administrator was supported by a majority of the directors, but no board meeting had been convened and no notice had been given to the members of the board. The appointment was challenged by a director who had not been present at the meeting.

The first question the court dealt with was ‘Can a majority of the board of directors ratify a decision which was not taken in accordance with the company’s articles of association?’

The second question was ‘Can the company dispense with issuing notices to “concerned persons” regarding the intention to appoint an administrator?’

The High Court ruled that the answer to both questions was ‘no’ and therefore the appointment of the administrator was invalidated by each of the failures.

This case shows that no matter how far down one’s list of priorities abiding by the internal regulations of the company may seem to be, failure to do so, or to comply with company law in general, can cause far more problems than one might think.

For advice on all company law contact Nick Clarke in the Corporate and Commercial Department.

 

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