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tdlawyer
tdlawyer, Lawyer
Category: Law
Satisfied Customers: 1096
Experience:  11 years experience of general practice.
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I am chairman of the Management Company of a small estate of

Customer Question

I am chairman of the Management Company of a small estate of 7 units created in the house and grounds of a grade 2 listed building. A transferring positive covenant gives equal, shared responsibility through the Company for maintenance. Four of the seven owners are disputing aspects of the covenant, preventing agreement on the annual budget and attempting to derail attempts by three of the five directors to bring practice back into line with the legal basis of contracts of purchase.
There are a number of questions I could ask but for the moment it is this one: the four have organised an EGM for Friday 12 Dec with notice "to consider and approve an Ordinary Resolution: that the number of Directors be increased from 5 to 7..." My understanding is that it is the Board that calls an EGM following a requisition by shareholders. As two of the four are directors, does this give them the right to summon the EGM without the backing of the Board?
Submitted: 2 years ago.
Category: Law
Expert:  tdlawyer replied 2 years ago.
Customer:

Hi thanks for your question. My name is***** can answer this for you.

Customer:

The members/sharesholders can requisition a meeting by telling the board to call it. The majority of the board should then vote to do it.

Customer:

However, if for some reason the board fails to do this, then the members can call them meeting themselves without the board's involvement at all.

JACUSTOMER-u6gsvlz4- : I take it therefore that as they did not requisition the meeting first, but just went ahead and organised one, any decisions made by those attending will be invalid..
Customer:

Yes, in theory, that is correct as the meeting will not have been properly called. However, I would caution against relying on technicalities like this, because of what is known as the Duomatic principle. This basically says that there shareholders of companies make decisions etc. and get the procedure wrong, the Court would still enforce them. The principle gets mixed treatment and it can be difficult to say how it would be received in any given case because of this, but the reality is that even if this decision is invalid, the moment they're told that and why, they could just jump through the right hoops anyway. Here is a link to an article on the Duomatic principle for general interest: http://www.mondaq.com/x/167272/Directors+Officers+Executives+Shareholders/Shareholder+And+Director+Decision+Making+Correcting+Defective+Decisions

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Customer: replied 2 years ago.
The five owners who have units in the main original house form the current Board. Now the two who have separate new houses in the grounds wish to become Directors (with the probable intention of trying to prevent enforcement of aspects of the Covenant or allying with two others to cancel the appointment of a new Managing Agent). They have a different Schedule which excludes any requirement to pay towards maintenance of the main house. ( ie they only pay towards grounds, accessway and agent)
Questions:
If they were to become directors would they therefore have voting power in decisions affecting the main house? (We do not have any say in theirs.)
If they would:
Our Articles allow us to create bye-laws. Could we pass one that restricted the involvement of Schedule 2 owners to matters concerning that Schedule?
Customer: replied 2 years ago.

The five owners who have units in the main original house form the current Board. Now the two who have separate new houses in the grounds wish to become Directors (with the probable intention of trying to prevent enforcement of aspects of the Covenant or allying with two others to cancel the appointment of a new Managing Agent). They have a different Schedule which excludes any requirement to pay towards maintenance of the main house. ( ie they only pay towards grounds, accessway and agent)
Questions:
If they were to become directors would they therefore have voting power in decisions affecting the main house? (We do not have any say in theirs.)
If they would:
Our Articles allow us to create bye-laws. Could we pass one that restricted the involvement of Schedule 2 owners to matters concerning that Schedule?

Expert:  tdlawyer replied 2 years ago.

Whether they have voting rights upon appoitnment will depend on what the Aritcles and Memorandum of the company say about this. Normally, yes, all votes/directors are equal, but you need to look at the Articles and see what they say about it.

Whether you can create these types of bye-laws depends again on the Articles, although to create that anyway, I expect you have to have majority or unanimity on the Board, which you may or may not be able to achieve.

Tony