Cockerill, Alan

Mendelsohn, James

English

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Directors and the missing 'articles'

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University of Huddersfield RepositoryCockerill, Alan and Mendelsohn, JamesDirectors and the missing ‘articles’Original CitationCockerill, Alan and Mendelsohn, James (2008) Directors and the missing ‘articles’. Solicitor's Journal, 152 (2). ISSN 0038-1047This version is available at http://eprints.hud.ac.uk/1753/The University Repository is a digital collection of the research output of theUniversity, available on Open Access. Copyright and Moral Rights for the itemson this site are retained by the individual author and/or other copyright owners.Users may access full items free of charge; copies of full text items generallycan be reproduced, displayed or performed and given to third parties in anyformat or medium for personal research or study, educational or not-for-profitpurposes without prior permission or charge, provided:• The authors, title and full bibliographic details is credited in any copy;• A hyperlink and/or URL is included for the original metadata page; and• The content is not changed in any way.For more information, including our policy and submission procedure, pleasecontact the Repository Team at: E.mailbox@hud.ac.uk.http://eprints.hud.ac.uk/ing terms:‘Adirector may not be removed by ordi-nary resolution, notwithstanding the termsof s.168 (1) of the Companies Act 2006, whichshall have no application to these articles.’Will the inclusion of such a provision be ofany benefit to a ‘non-member director’ or a‘member-director’.Change or no changeAconventional view is that s168 (1) has noteffected any change in the law because:(a) the term ‘any agreement’ in s168 (1) is suf-ficiently wide in meaning to include thestatutory contract, whether constitutedunder s14 (1) or s33 (1);(b) thus, any provision in the articles pur-porting to restrict the removal of a director byordinary resolution would be of no effect,being overridden by s168 (1).But, another, albeit unconventional, viewis possible:(a) the term ‘any agreement’ does not extendto the articles because the phrase ‘any agree-ment between it and him’ is a reference to‘him [the director]’ only in his capacity as adirector; it does not relate to an agreementbetween [it] the company and [him] thedirector in some other capacity, such as amember. Therefore, the articles cannot be classifiedas falling within the term ‘any agreementbetween it and him’;(b) it is a membership right to require thecompany to act in accordance with its arti-cles, even if that has the effect of indirectlyenforcing an article not relating  directly tomembers qua members;(c) thus, a member-director can enforce a pro-vision in the articles purporting to restrict hisremoval by ordinary resolution, providedthat he does so on the basis that he is suing inhis capacity as a member to enforce a mem-bership right. This approach would alsoassist a non-member director if there was abenevolent member prepared to intervene.However, this second view flies in the faceof the long established judicial approachencapsulated by Astbury J in Hickman v Kentor Romney Marsh Sheepbreeders’ Associa-tion (1915) 1 Ch 881:‘An outsider to whom rights purport to begiven by the articles in his capacity as suchoutsider, whether he is or subsequentlybecomes a member, cannot sue on those arti-cles, treating them as contracts between him-self and the company, to enforce those rights.’It will be a brave litigant who will be pre-pared to challenge the general judicialapproach, which has been to adopt the Hick-man principle. However, commentators (forexample, Lord Wedderburn) have justified adifferent approach, citing cases such asQuinn & Axtens Ltd v Salmon [1909] AC 442 insupport.Securing positionsIt was not the intention of the legislation tomake any change, but the point could havebeen put beyond doubt if the words withinthe sqaure brackets had been included ins.168(1) as follows:(1) Acompany may by ordinary resolution ata meeting remove a director before the expi-ration of his period of office, notwithstand-ing anything [in the company’s constitutionor] in any agreement between it and him.’In practice, it is still prudent for member-directors wishing to avoid the impact ofs.168(1) to negotiate weighted voting rightsfor their shares on any ordinary resolution toremove them.Further, those weighted voting rightsshould be extended to any special resolutionproposing to remove such weighted votingrights, even though any such purportedremoval may constitute a variation of classrights requiring the member-director’s con-sent.In addition, the relevant points should becovered in a shareholders agreement. Norshould the new ‘entrenching’ provisions ins.22 of the 2006 Act be overlooked, but, asthey are not due for implementation until 1October 2009, they must be left for futureconsideration.Alan Cockerill and James Mendelsohn are seniorlecturers in law at Huddersfield University Law School22  SJ 15 January 2008company lawIt is still prudent for member-directors wishingto avoid the impact of s.168(1) to negotiateweighted voting rights for their shares on anyordinary resolution to remove themSJ_15Jan2008_p20-22  11/01/08  10:22 AM  Page 26

Directors and the missing ‘articles’

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