Attorney General of Belize and Others v Belize Telecom and another
 UKPC 10
Present at the hearing:-
Lord Rodger of Earlsferry
Baroness Hale of Richmond
Lord Brown of Eaton-under-Heywood
THE COURT OF APPEAL OF BELIZE
[Delivered by Lord Hoffmann]
This appeal raises a question on the construction of the articles of association of Belize Telecommunications Ltd ("the company"), about which there has been a difference of opinion in the courts below. The company was formed to take over the undertaking of the Belize Telecommunications Authority, a public body which had been the monopoly provider of telecommunication services in Belize. The purpose of the transfer was to enable the Government of Belize to sell all or part of its financial interest in the undertaking to private investors while retaining a degree of control. This purpose was reflected in the share structure and the rights conferred upon different classes of shareholders by the articles of association. Since the judgment of the Court of Appeal in this case, the Telecommunications Undertaking (Belize Telecommunications Ltd Operations) Vesting Act 2007 has vested the company's undertaking in a new company, Belize Telemedia Ltd, and dissolved the company. However, since the questions in dispute remain relevant to the rights of the parties, the Board will deal with the case as it stood before the Court of Appeal.
The authorised share capital includes one Special Rights Redeemable Preference Share of BZ$1 ("the special share"), which was issued to the Government. Article 11(A) provides that it can be transferred only to a Minister of the Government of Belize or a person acting on the written authority of the Government. Articles 11(C) and (D) give the special shareholder the right to attend and speak at shareholders' meetings, but not to vote, and to repayment of its BZ$1 capital but not to any further participation in the capital or profits of the company. In other words, the special share confers no economic interest in the company. In itself, it is simply an instrument of control. As the existence of such a share sometimes inhibits private investors from taking up ordinary shares, article 11(E) gives the special shareholder (with the consent of the Government) power to require the company to redeem and thereby extinguish the special share.
The articles protect the interests of the special shareholder at three levels: first, through special rights to appoint and remove directors; secondly, through restrictions on what a majority of the board can do without the special shareholder's consent and thirdly, through restrictions on what a majority of the shareholders in general meeting can do without its consent. This appeal is concerned with the first level of protection, namely, the right to appoint and remove directors. But, in order to appreciate the scheme of the articles as a whole, it is necessary to look also at the other two forms of protection.
The ordinary share capital, apart from the special share, is divided into two classes designated B and C. Article 85 provides that there shall be eight directors. Two (designated B directors) are elected and may be removed by a majority of the B shareholders: articles 90(B) and (C). Up to four (designated C directors) are elected and may be removed by a majority of the C shareholders (articles 90(D)(i) and 90(E)). Up to two (designated Government Appointed Directors) are appointed and may be removed by the special shareholder: article 88(A).
It was however contemplated that, at least in the first instance, the Government as special shareholder would also retain a substantial economic interest through a holding of C ordinary shares. The articles therefore give the special shareholder additional powers or protection if and so long as it also holds a specified proportion of the issued share capital. At the board level, this is reflected in article 90(D)(ii):
"The holder of the Special Share shall so long as it is the holder of 'C' Ordinary shares amounting to 37.5% or more of the issued share capital of the Company be entitled at any time by written notice served upon the Company to appoint two of the Directors designated 'C' Directors and by like notice to remove any Director so appointed and appoint another in his or her place."
In other words, while the special shareholder also holds C shares amounting to 37.5% or more of the issued share capital, it is entitled to appoint or remove two of the four C directors, whether or not it holds a majority of C shares. In such a case, the holders of the majority of the C shares are reduced to appointing only the other two of the four directors allocated to the C shareholders. Ordinary C directors may be removed from office by a majority of the C directors (article 90(E)) or by extraordinary resolution (article 92(A)) but C directors appointed by the special shareholder under article 90(D)(ii) (who will be called "special C directors") can be removed only by a special shareholder which holds the requisite number of C shares.
In addition, at any time when the special shareholder holds C shares amounting to 37.5% or more of the issued share capital, it is entitled to appoint any Government Appointed Director or special C director as non-executive chairman.
Restrictions on the power of the board to act by a majority are contained in article 113. The Government Appointed Directors have the right to veto any resolution in respect of a number of matters listed in paragraph (B) at any time at which the special shareholder also holds C shares amounting to 25% of more of the issued share capital. The listed matters included the disposal or acquisition of valuable assets, the conclusion of unusual or long term contracts and the appointment of senior staff.
Finally, the restrictions on the powers of the majority of shareholders in general meeting are contained in articles 8 and 11. Article 8 gives the special shareholder, at any time when it holds C shares amounting to 25% or more of the issued share capital, a veto over resolutions relating to various specified matters and article 11(B) lists a number of articles which cannot be amended without the consent in writing of the special shareholder, whether it holds any other shares or not.
It will thus be seen that the extent to which the interests of the special shareholder are protected is carefully graduated in accordance with its economic interest in the company. If it holds no other shares at all, it can appoint two directors and block shareholder resolutions to amend certain articles. If its C shareholding amounts to 25% or more of the issued share capital, it can also block important board and shareholder resolutions. And if its C shareholding amounts to 37.5% or more, it can also take over the appointment of two of the four C directors otherwise appointed by a majority of the C shareholders and nominate the non-executive chairman.
The facts which have given rise to the present dispute may be shortly stated. In 2004 the first respondent, Belize Telecom Ltd ("BT"), acquired from the Government the special share and a majority of the issued share capital, including majorities of both the B and C ordinary shares. It purported to appoint all eight directors: two as special shareholder tout court, two as majority B shareholder; two as special shareholder holding more than 37.5% of the issued share capital and two as majority C shareholder. There appears to have been some dispute about the validity of at least some of these appointments, but these questions have not been raised before the Board. It will therefore be assumed that the directors were validly appointed and, in particular, the two special C directors were properly appointed by BT under article 90(D)(ii).
BT pledged the ordinary shares to the Government to secure borrowings which had financed the purchase. Within less than a year, however, it defaulted on its obligations. On 9 February 2005, pursuant to the pledge agreement, the Government took back a substantial number of the ordinary shares. The result was that BT was left with the special share and C shares amounting to less than 37.5% of the issued share capital.
The question which then arose was whether the two special C directors appointed by BT remained members of the board. Under the articles, the only person who has power to remove them is the person who would have had power to appoint them, namely, a special shareholder holding C shares amounting to 37.5% of the issued share capital. But the result of the default and seizure was that no such person existed. Nor is there any express provision in the articles that in such circumstances a special C director vacates office. Article 112 deals generally with the circumstances in which the office of a director (however appointed) is vacated:
"112. The office of director shall be vacated, if the director:
(a) holds any other office of profit under the company except that of managing director or manager; or
(b) becomes bankrupt; or
(c) is found lunatic or become of unsound mind; or
(d) is concerned or participates in the profits of any contract with the company…"
But there is nothing which deals expressly with the position of a special C director when the special shareholder who appointed him no longer holds enough C ordinary shares. Nor, for that matter, do the articles deal with the position of Government Appointed Directors when the special share has been redeemed and no longer exists. The consequence, say the respondents, is that the directors are irremovable. Until they choose to resign, or fall foul of article 112, or die, they remain directors. The appellants say that this would be an...
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