Vectone Entertainment Holding Ltd v South Entertainment Ltd

Section 371 of the Companies Act 1985 gives the court a procedural discretion to enable company business to be conducted where prescribed meeting arrangements have become impracticable. The court may assist a majority shareholder where corporate governance is paralysed and the proposed resolutions concern matters ordinarily determinable by majority voting power.

The jurisdiction cannot override class rights or substantive rights agreed between shareholders. A quorum provision alone does not create such a right. Disputed allegations of oppression, unfair prejudice, improper motive or abuse of process should ordinarily be determined in substantive proceedings rather than on inadequately evidenced section 371 applications.

Vectone, South’s 60 per cent shareholder, sought an order convening a general meeting under section 371 of the Companies Act 1985. The proposed resolutions included ratification of allegedly unauthorised proceedings and acts, appointments to South’s board, and related indemnities.

South’s articles required two members for a quorum. Middlesex, the minority shareholder, and Mr Popat, South’s remaining validly appointed director, did not attend meetings. Vectone accepted that earlier meetings, resolutions and purported director appointments were invalid. The defendants argued that the meeting would breach a shareholders’ agreement and that the application involved oppression, unfair prejudice, improper motives and abuse of process.

1. Relief granted. Vectone was entitled to an order under section 371 of the Companies Act 1985, with directions as to how the meeting was to be called and conducted.
2. Section 371 was a procedural, discretionary provision. The court applied Union Music Ltd v Watson [2003] EWCA Civ 180 and Re Woven Rugs Ltd [2002] 1 BCLC 324. A majority shareholder’s ordinary right to appoint or remove directors was relevant. A quorum requiring two members did not itself confer a veto or prevent an order breaking deadlock.
3. The jurisdiction could not override a class right or substantive right arising from the shareholders’ agreement. The defendants had not established any right to equal board representation, control over board composition or a veto.
4. Allegations of improper purpose, abuse of process, oppression or unfair prejudice were unsuitable for determination on incomplete and disputed evidence. They could be pursued in other proceedings, including a section 459 petition or, where appropriate, a just and equitable winding-up petition. Issues arising in the separate broadcasting proceedings were not determined.
5. Although conditions could be attached to an order, the proposed costs and indemnity conditions were refused because they depended on disputed matters better addressed in other proceedings.