Alvona Developments Ltd. v The Manhattan Loft Corporation (AC) Ltd. & Anor

The power under section 371 of the Companies Act 1985 is discretionary and is not confined to correcting technical defects in the machinery of meetings. The court may override an ordinary quorum provision or a member’s refusal to attend where necessary to enable a majority shareholder to exercise an ordinary statutory right.

That power should not be used where the proposed order would override a class right, substantive right, or agreement amounting to a right in the nature of a class right. A shareholder agreement intended to preserve a jointly appointed director may therefore prevent an order designed to break the resulting deadlock. Whether an alleged agreement has that effect is fact-sensitive.

Alvona, the holder of 70 per cent of the shares in The Manhattan Loft Corporation (AC) Ltd, applied under section 371 of the Companies Act 1985 for an order permitting a general meeting to proceed with a quorum of one member. It also sought summary judgment under CPR Part 24.

The company’s affairs were deadlocked. Alvona contended that it could use its majority shareholding to appoint or remove directors. Powis, the 30 per cent shareholder, contended that the parties had agreed that the company would have one jointly appointed director. The court considered whether, on the assumed facts appropriate for summary judgment, section 371 could be used to override that alleged agreement.

1. The Part 24 application was dismissed. The court did not determine whether Powis’s alleged oral agreement existed; that issue required factual investigation and cross-examination.

2. Section 371 confers a discretion. It may be used to overcome quorum provisions and a member’s refusal to attend, and it is not merely a technical procedural remedy. However, the discretion must be exercised having regard to the substantive rights and arrangements governing the shareholders.

3. The authorities distinguish between an ordinary quorum provision, which may be overridden to prevent a minority from frustrating the majority, and a class right, substantive right, or right in the nature of a class right, which the court should not override by making a meeting order. The court must not use section 371 to impose a new shareholders’ agreement.

4. Ross v Telford [1998] 1 BCLC 82 was applicable by analogy. An agreement intended to preserve equal or joint control, so that a shareholder cannot use its voting power to remove the jointly appointed director, may create a protected right preventing an order under section 371. The alleged agreement in the present case was indistinguishable in substance from the deadlock arrangement in Ross v Telford.

5. Union Music Ltd v Watson [2003] 1 BCLC 453 explained the distinction between quorum provisions and substantive rights. The court treated the alleged agreement here as falling on the substantive-right side of that distinction. The issue had to be decided case by case.

6. The existence of another possible remedy, including a petition under section 459 or a just and equitable winding-up petition, did not determine the section 371 application. The refusal of the meeting order left Alvona free to establish that no agreement existed or to pursue other relief.

First-instance decision. The judgment records no appeal or earlier judgment in the same proceedings.