Randhawa & Anor v Turpin & Anor

The Court of Appeal considered whether a sole de iure director could validly appoint administrators where the articles required a quorum of two directors and one of the two registered shareholders was a dissolved corporate entity. The court held that paragraph 22(2) of Schedule B1 to the Insolvency Act 1986 does not displace a company’s internal management rules in the articles so as to permit a sole director to act where the articles require a quorum of two. The Duomatic principle could not validate the appointment because one registered shareholder (Belvadere) was a dissolved corporation incapable of assenting. The court also rejected arguments that the articles had been informally varied by the conduct of the parties or that estoppel, acquiescence or abuse of process barred the Randhawas’ challenge.

Background and parties: BW Estates Limited owned charged properties. David was the sole de jure director from August 2009; 75% of shares were registered in his name (alleged beneficially owned by Robert Williams) and 25% remained registered in the name of Belvadere Investment Company Limited, a Manx company dissolved in 1996. David purported to appoint joint administrators under paragraph 22 of Schedule B1 on 11 September 2013. Creditors Gursharan and Sukhinder Randhawa (the appellants) later challenged the validity of that appointment.

Procedural posture: The application to challenge the administrators’ appointment was heard in the High Court by HHJ Purle QC who dismissed it (22 July 2016). The Randhawas appealed to the Court of Appeal. Earlier proceedings include HHJ Cooke’s judgment (Re BW Estates Ltd [2015] EWHC 517 (Ch)) concerning administrators’ remuneration.

Relief sought and issues: The Randhawas sought declarations that the administrators’ appointment was invalid and ancillary relief (repayment of remuneration, release of charges). The principal issues framed by the court included:

• Whether the company should be treated as a single-member company following dissolution of Belvadere;
• Whether paragraph 22(2) Schedule B1 allowed the sole director to appoint administrators notwithstanding the articles’ quorum provisions;
• Whether the articles had been informally varied by consistent conduct so as to permit a sole director to act;
• Whether the Duomatic principle applied so that informal unanimous assent validated the appointment despite absence of a formal meeting;
• Whether the Randhawas were barred by estoppel, acquiescence or abuse of process from challenging the appointment.

Court’s reasoning and conclusions: The court concluded that:

• Statutory and constitutional provisions point to membership being determined by the register; the company had not become a single-member company simply because a registered corporate member was dissolved.
• Paragraph 22(2) (directors may appoint an administrator) does not displace the internal management rules in the articles that determine how directors validly act; the articles’ quorum requirement of two directors prevented a sole director purporting to act on his own.
• The Duomatic principle requires the assent of all shareholders who have the right to attend and vote at a general meeting; a dissolved registered corporate member cannot be treated as having assented and her assent cannot be inferred or supplied by the beneficial owner or by restoration possibilities. Accordingly Duomatic could not validate the appointment.
• The judge below was wrong to hold that the articles had been informally varied or that acquiescence or abuse of process prevented the Randhawas’ challenge.

Outcome: The Court of Appeal allowed the appeal and declared the administrators’ appointment invalid.

Appeal allowed. The appointment of the joint administrators was invalid because the sole de jure director could not cure the articles’ quorum requirement (two directors) by reference to paragraph 22(2) of Schedule B1; the Duomatic principle could not apply because one registered shareholder was a dissolved corporation incapable of assenting, and the articles were not informally varied; estoppel, acquiescence and abuse of process did not prevent the challenge.

Appeal from the High Court of Justice, Chancery Division, Birmingham District Registry (Case No: 8446 of 2013). HH Judge Purle QC dismissed the Randhawas' application on 22 July 2016 and granted permission to appeal. Earlier related decision: HHJ Cooke (Re BW Estates Ltd [2015] EWHC 517 (Ch)). Patten LJ refused consolidation and ordered timing of hearings in October 2016.