Gunewardena v Conran Holdings Ltd

Company articles are determined by the resolutions properly passed by the members, not by an inaccurate copy filed at Companies House. Registration records the articles but does not itself amend them. An irregularly filed version may nevertheless become operative through unanimous shareholder assent or acquiescence under the Duomatic principle, but the evidence must establish the necessary shareholder consensus. Accounting treatment and the parties’ subjective views cannot alter the statutory meaning given to a defined term in the articles. A notice exercising a compulsory purchase right remains valid where it offers more than the amount calculated under the articles, provided it makes clear that the shares may be purchased at the certified value.

The claimant held shares in the defendant company under articles providing for compulsory transfer when a group employee ceased to be employed within the group. After the claimant’s employment relationship changed, the company treated him as having given a deemed transfer notice and acquired his shares for their par value.

The claimant challenged the transfer. He argued that the relevant subsidiary relationship had ended earlier, that articles filed in 1998 governed the valuation, and that the company’s notice was invalid because it offered more than the auditors’ nil valuation. The central questions concerned the meaning of “subsidiary”, the effect of filing an inaccurate version of the articles, shareholder acquiescence, and the validity of the notice.

1. Claim dismissed. The claimant’s shares were subject to the compulsory transfer mechanism and the company’s notice was valid.
2. CGL was a subsidiary of CHL under the articles because the articles adopted the Companies Act definition and CHL held a majority of the voting rights. Accounting treatment of CGL as a joint venture, contractual restrictions on CHL’s control, and the parties’ subjective views did not alter the meaning or operation of the articles. CGL remained a subsidiary until the 2013 sale, when the claimant ceased to be employed within the group.
3. The articles were those established by the members’ special resolutions. Filing a conformed copy at Companies House fulfilled a statutory filing obligation but did not give an inaccurate copy contractual or constitutional force. The statutory scheme permitted alteration only by special resolution. The filed 1998 version therefore did not displace the 1995 valuation provisions.
4. The Duomatic principle, as explained in Re Duomatic Ltd [1969] 2 Ch 365 and EIC Services Ltd v Phipps [2004] 2 BCLC 627, applies where all relevant shareholders assent to, or conduct themselves so that it would be inequitable to deny assent to, a course which could be approved at a general meeting. The evidence did not establish unanimous assent or acquiescence in the filed 1998 articles. Most shareholders instead assented to correcting the filing error and preserving the Five Times Profits valuation.
5. The notice was effective. The auditors’ certificate showed a negative value, which the company was entitled to treat as nil. The letter enclosed the certificate and made clear that the company would purchase the shares for at least nil, while offering the claimant more. Offering more than the certified amount did not invalidate the notice; offering less would have produced a different result.