James William Haggart & Anor v Elanzo Alastair Burgess & Ors

A sole director must have reached an actual decision before purported company filings can validly record the appointment of directors or allotment of shares. Merely contemplating a restructuring, being generally willing to proceed, or leaving important details unresolved is insufficient.

The Duomatic principle requires informed and unqualified consent to the material details of the transaction. It cannot validate changes where the relevant shareholder lacked sufficient knowledge or had not assented. On the evidence, the purported appointments and allotment were unauthorised and ineffective.

The claim concerned Iktomi Events Limited, a dormant company later used to receive income from nightclub events. The first claimant was its sole director and shareholder. The defendants purported to appoint two Burgess family members as directors and allot shares so that the family held 80% and the first claimant held 20%.

The claimants sought declarations that the filings were invalid, removal of the filings, and rectification of the register of members under the Companies Act 2006. The defendants argued that the first claimant had decided or agreed to the restructuring, alternatively that the changes were validated by the Duomatic principle. The central issue was whether he had made the necessary decision or given informed consent before the filings.

1. Declarations and relief granted. The first claimant had not decided, agreed, or come to a view that 80% of the shares would be held by the Burgess family or that the first and second defendants would become directors. The filings were therefore invalid and ineffective, and the claimants were entitled to the declarations and consequential relief sought.

2. Meaning of “come to a view”. Under the company’s Articles, the sole director had to move beyond contemplating a future possibility and reach his own decision that the proposed course would be put into effect. A general willingness to appoint family members, while leaving the restructuring and the identity of appointees unresolved, did not satisfy that requirement.

3. Duomatic principle. The principle in Re Duomatic, as explained in EIC Services v Phipps, requires informed and unqualified consent to the material details of the transaction. It could not apply because the first claimant had neither sufficient knowledge of the proposed allocation and appointments nor consented to changes contrary to his financial interests. The principle may remedy procedural irregularities in director appointments and share issues, but only where its requirements are met.

4. Evidence. The court accepted the first claimant’s evidence and treated the defendant’s recollections with caution, applying the guidance in Gestmin SGPS S.A. v Credit Suisse concerning the fallibility and malleability of memory. The contemporaneous documents showed that the restructuring remained unresolved and that the first claimant was not informed of the filings when made.

5. The court therefore ordered the declarations and statutory relief sought, including removal of the relevant filings and rectification of the register of members.