In Kamenetskiy and others v Zolotarev and others the High Court held, amongst other matters, that two directors of a holding company (“Mr S and Mr F”) had not been validly appointed and therefore had no authority to act and make decisions on behalf of the company’s board of directors.
The company in question was incorporated in 2018 as a holding company (“Company”) with the purpose of helping to expand a group of Russian and Swiss companies which provide cybersecurity services in the IT industry.
A dispute arose over two individuals who had allegedly been appointed as directors of the Company in January 2021, using the written resolution procedure. The dispute came about as a result of discourse between the Company’s shareholders around how the Company was funding its activities. Mr Kamenetskiy (“Claimant”), who at the time was the sole director of the Company, invited the Company’s shareholders in December 2020 to subscribe for additional shares to assist with funding the Company’s activities, with a deadline for acceptance of offers being 20 January 2021.
The day before the deadline, on 19 January 2021, Mr Zolotarev (“First Defendant”) emailed the Claimant, asking for the Company to circulate written resolutions on 19 January (WR). This contained resolutions to appoint Mr S and Mr F as additional directors and impose a maximum number of 3 directors that can be appointed for the Company. A PDF was sent of the WR, signed by the First Defendant and a second defendant, and it was announced the same day that the WR had been passed and Mr S and Mr F were now on the board of directors for the Company.
Mr S and Mr F then proceeded to pass a number of written resolutions of the Company. This included changing the web filing code at Companies House and the Company’s registered office address without the Claimant’s consent. As a result of this, the Claimant was no longer able to access the Companies House web filing system for the Company.
The Claimant disputed the validity of the WR for several reasons. One of the central reasons was that the First Defendant and a second defendant, who circulated the WR, were only shareholders of the company, and not directors.
Had the WR been validly passed to appoint Mr S and Mr F as additional directors of the Company?
The High Court agreed with the Claimant, that the WR had not been validly passed, on any date, because there must be a decision of the board of directors of the Company to circulate a written resolution on the Company’s behalf. Therefore, there is no alternative method that would allow the First Defendant and a second defendant to circulate a written resolution themselves.
Although section 292 of the Companies Act 2006 permits members holding 5% of a company’s issued share capital to require a company to circulate a written resolution, there must still be a valid decision of the board to circulate such resolution on a company’s behalf.
If the shareholders of a company are dissatisfied with the way a Company responds to their request to circulate written resolutions, the shareholders can require that a general meeting be held. Alternatively, shareholders can pursue reliance on the Duomatic principle, where shareholders of a company can informally consent unanimously to a company’s actions, without needing to hold a general meeting. However, in this case, the First Defendant and a second defendant did not action either of these remedies in order to ensure the WR were validly passed.
As Mr S and F were never validly appointed as directors of the Company, the documents submitted by them to Companies House to change the registered office of the Company and other filings were invalid. The Claimant was still held to be sole director of the Company throughout the disputes.
It’s important that the relevant provisions of the Companies Act 2006 relating to the written resolution procedure for companies, including sections 291, 292 and 293 are adhered to (as applicable). This will avoid dispute as to the validity of a written resolution and the implications such invalidity can have on the company. This includes void decisions being made by the board of directors and having to incur significant administrative burden and costs in addressing inconsistencies at Companies House.
For more information, please contact the corporate team.
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