Randhawa & Anor v Turpin & Anor

A statutory power for directors to appoint an administrator under paragraph 22(2) of Schedule B1 does not override the company’s articles. Directors must act through the procedures and quorum requirements imposed by the articles.

The Duomatic principle requires the assent of all shareholders entitled to attend and vote. It cannot validate an act where a registered shareholder is a dissolved corporation incapable of consenting. Nor can it support an informal variation of the articles without that shareholder’s consent.

A creditor’s later challenge to an administrator’s appointment is not necessarily an abuse of process merely because it could have been raised in earlier remuneration proceedings. The validity of an administration is a question of the company’s legal status.

BW Estates Ltd had a sole de iure director, although its articles required a quorum of two directors. One quarter of its shares remained registered in the name of a Manx company which had been dissolved. The sole director purported to appoint the respondents as joint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986.

Creditors of BW Estates later applied for a declaration that the appointment was invalid. HHJ Purle QC dismissed the application, holding principally that the articles had been informally varied or that the Duomatic principle validated the appointment. He also held that acquiescence and abuse of process barred the challenge.

The creditors appealed. The central questions were whether the company was a single-member company, whether the statutory appointment power displaced the articles, and whether informal consent, acquiescence or abuse of process could validate or prevent challenge to the appointment.

1. Appeal allowed. The joint administrators’ appointment was invalid, and the court made a declaration to that effect.

2. The company was not a single-member company. Under the Companies Act 2006, membership was determined by the register of members. The dissolved corporate shareholder remained registered. Its dissolution did not reduce the company to one member or make a quorum of one available under section 318(1).

3. Paragraph 22(2) of Schedule B1 to the Insolvency Act 1986 conferred a power on directors to appoint an administrator, but did not permit them to disregard the articles. The articles governed the manner in which directors could act. They required a quorum of two directors and permitted a sole continuing director to act only to fill vacancies or call a general meeting. The sole director’s resolution was therefore invalid.

4. The Duomatic principle could not cure the defect. It treats the informal assent of all shareholders entitled to vote as equivalent to a resolution which a general meeting could validly pass. It does not permit the available shareholders to stand in for a registered shareholder who cannot consent. The dissolved company’s shares had passed to the Crown under Manx law, and neither the dissolved company nor the Crown had assented.

5. For the same reason, the articles had not been informally varied to allow the sole director to exercise the board’s powers. Such a variation depended on the Duomatic principle and lacked the necessary unanimous consent.

6. The creditors were not barred by acquiescence or abuse of process. Their earlier application concerned remuneration and was not inconsistent with a later challenge to the appointment’s validity. The administrators had the articles and the inquorate resolution when appointed and ought to have checked their own appointment. A creditor was not precluded from questioning the company’s legal status merely because it acquired its interest from a person who had consented to the defective resolution.

• Court of Appeal (Civil Division): Allowed the creditors’ appeal and declared the appointment of the joint administrators invalid: [2017] EWCA Civ 1201.
• High Court, Chancery Division, Birmingham District Registry: HHJ Purle QC dismissed the creditors’ application on 22 July 2016 and granted permission to appeal. A citation is not stated in the judgment.
• High Court, Chancery Division: In earlier, separate remuneration proceedings, HHJ Cooke dismissed the creditors’ application: [2015] EWHC 517 (Ch).