Re Duomatic Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 1969 |
| Date | 1969 |
| Court | Chancery Division |
Company - Director - Misfeasance - Payment for loss of office - No consideration - Failure to take legal advice -
A company incorporated in 1960, with a share capital of 100 £1 ordinary shares and 80,000 £1 non-voting redeemable preference shares, had originally three directors, E., H., and T., who held all the ordinary shares. E. and T. became critical of the way in which H. performed his duties and could have voted him off the board, but since he threatened, if dismissed, to sue the company they paid him £4,000 to leave the company. He ceased to be a director on April 1, 1963, and later transferred his shares to E. On April 17, 1964, W., a representative of a finance company, B. Ltd., who were financing the company's hire-purchase business, became a director. In July, 1964, E. transferred some of his shares to W., and some to C. and K., two other officers of B. Ltd. On August 13, 1964, the capital of the company was increased by the creation of 25,000 additional ordinary shares and thereafter the ordinary shareholders consisted of E., T., W., C., K., B. Ltd. and another company.
The company's articles of association incorporated article 76 of Table A in the Schedule to the Companies Act, 1948, F1 but no resolution authorising directors to receive remuneration was ever passed. None of the directors had contracts of service. They drew sums according to their personal needs, and at the end of each financial year the sums so drawn were totalled, grossed up for tax and entered in the accounts as “directors' salaries.” In the year ending April 30, 1963, E. drew £10,151 0s. 8d., and H., £5,510 1s. 0d., and on that occasion the accounts showing these figures were signed and approved by them as directors, at a time when they were also the only ordinary shareholders. In the year ended April 30, 1964, when E. was in control of the company, E. drew £9,000, but no final accounts were agreed. When W. had become a director in April, 1964, E. had agreed with the shareholders to draw a lower rate of remuneration of £60 a week, although no meeting was held or resolution passed, but in the period May 1, 1964, to October 23, 1964, when the company went into voluntary liquidation, he drew a sum in excess of that rate.
On a summons by the liquidators seeking (1) repayment of the sums paid to E. and H. respectively as salaries on the ground that such sums had never been voted in general meeting, (2) repayment of the £4,000 paid to H. as compensation for loss of office on the ground that the sum was excessive unauthorised and not bona fide for the benefit of the company, and (3) declarations that both E. and H. were guilty of misfeasance:
Held, (1) that where it could be shown that all the shareholders with the right to attend and vote at a general meeting had assented to some matter which a general meeting of the company could carry into effect, the assent was as binding as a resolution in general meeting, and that since the preference shareholder had no right to attend and vote at general meetings, and since E. and H. had, at a time when they were the only ordinary shareholders, approved the accounts showing the payments to them of £10,151 0s. 8d. and £5,510 15s. 0d. respectively, the payments could not now be disturbed (post, pp. 119G–120A, C–G).
(2) That similarly E. was entitled to retain a sum calculated at the rate of £60 a week for his services between May 1 and October 23, 1964, but that any excess over and above that figure must be repaid (post, pp. 120H–121E).
(3) That although there had been no resolution approving the payment to E. of £9,000 for the year ending April 30, 1964, and the draft accounts had not been approved by the ordinary shareholders, since E. was then the majority shareholder, and was continuing a practice adopted in the preceding year and since it was mere oversight that no resolution had been passed, E. had not acted unreasonably and that in the special circumstances he ought to be excused under section 448 of the Act of 1948 and could accordingly retain the £9,000 (post, pp. 120G, 122C, D–H, 123A–D).
(4) That since no disclosure of the payment of £4,000 to H. as compensation for loss of office had been made to the preference shareholders pursuant to section 191 of the Act of 1948 it was ultra vires, and E. and H. were liable for misapplication of the company's funds; and that as E. had failed to take legal advice he had not acted reasonably and therefore ought not to be excused under section 448 of the Act, and accordingly, E. and H. were jointly and severally liable to repay the sum of £4,000 to the liquidator (post, pp. 121E–122B, C, 123D–E, F–G, 124A–E, F).
The following cases are referred to in the judgment:
Express Engineering Works Ltd., In re [
Newman (George) & Co. Ltd. In re [
Parker & Cooper Ltd. v. Reading [
Salomon v. Salomon & Co. Ltd. [
The following additional cases were cited in argument:
City Equitable Fire Insurance Co. Ltd., In re [
Claridge's Patent Asphalte Co., Ltd., In re [
Richmond Gate Property Co., Ltd., In re [
Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [
ORIGINATING SUMMONS.
The following statement of facts is taken substantially from the judgment of Buckley J.:
Duomatic Ltd., (hereinafter called “the company”) was incorporated in January, 1960, with an issued share capital of 100 ordinary shares and 80,000 non-voting redeemable preference shares, all of £1. The ordinary shares were held by the three directors, Mr. James Elvins, Mr. William Hanly, and Mr. Patrick East, in the following proportions:- Mr. Elvins 76, Mr. Hanly 22, and Mr. East two. The non-voting preference shares were all held by a Dutch company, A. G. Bondo N.V. Mr. Hanly quarrelled with his co-directors, who felt that they had reason to be extremely critical of him in regard to the performance of his duties and wished to be rid of him. They could, of course, have voted him off the board at any time, but since he threatened, if dismissed, to sue the company, and generally to make the position of the company as awkward as he could, he was paid £4,000 as an inducement to leave the company without making trouble, although he has no contract of service with the company. On April 1, 1963, he ceased to be a director, and in May, 1963, he transferred his 22 shares to Mr. Elvins. The company's business of selling washing machines was not prospering, when, on April 17, 1964, Mr. Wood, a representative of Bentworth Credits Ltd., the finance company that was financing the company's hire-purchase business, joined the board of directors. In July, 1964, Mr. Elvins transferred 32 of his shares to Mr. Wood, and 32 shares each to Mr. Weikersheim and Mr. Conisbee, two other officers of the finance company, and he was thus left with only two shares.
On August 13, 1964, the capital of the company was increased by the creation of 25,000 ordinary shares of £1 each, and thereafter the ordinary shareholders consisted of Mr. Elvins, Mr. East, Mr. Wood, Mr. Weikersheim, Precast Concrete Ltd., and Bentworth Credits Ltd. At the same time Mr. Middleton-Smith joined the board of the company, so that thenceforth the board consisted of Mr. Elvins, Mr. East, Mr. Wood and Mr. Middleton-Smith.
The articles of the company incorporated by reference article 76 of Table A in the Schedule to the Companies Act, 1948, which required that the remuneration of directors should be determined from time to time by the company in general meeting. However, no resolution was ever passed authorising the directors to receive any remuneration. The directors drew sums from the company from time to time as their personal needs required, and at the end of each financial year these drawings were totalled and the totals were then grossed up in order to account for tax. In the year ended April 30, 1963, Mr. Elvins drew £10,151 0s. 8d., and Mr. Hanly, £5,510 1s. 0d., and the total of those amounts was shown in the profit and loss account as “directors' salaries.” These accounts were signed and approved by Mr. Elvins and Mr. East as directors. In the following financial year Mr. Elvins drew £9,000...
To continue reading
Request your trial
-
Inderjit Singh Bhullar v Jatinderjit Singh Bhullar and Others
...to the wishes of any creditors and Inder has not sought to allege the contrary. 5.8. In those circumstances, the principle in Re Duomatic applies." 90 In my view the concession in paragraph 5.5 is a realistic acceptance of the position. Insofar as relevant I would go further and hold that: ......
-
Guinness Plc v Saunders and Another
...but non-existent. In support of a quantum meruit claim, counsel for Mr. Ward relied on the decision of Buckley J. in In re Duomatic Ltd. [1969] 2 Ch. 365. In that case a company sought and failed to recover remuneration received by a director when the shareholders or a voting majority of th......
- Suthan a/l Mookaiah and Another v Zed Mobile Malaysia Sdn Bhd and Another
-
Patrick Mckillen (Petitioner) v Misland (Cyprus) Investments Ltd (a company registered in Cyprus) and Others
...there were no other parties to the agreement, the company is, in my judgment, properly considered a party by virtue of the principle in In re Duomatic Ltd [1969] 2 Ch 365 and other authorities. I should record that counsel for the company, which was not represented in court during the main ......
-
Powers To Remunerate Directors Of Jersey Companies
...of the company. Whilst an informal agreement between all the members might have the same result (under the principle in Re Duomatic Ltd [1969] 2 Ch. 365) this would be very much a fall-back position and dependent on establishing such an agreement on the precise The point is illustrated by t......
-
2020 Summer review M&A legal and market developments
...but also that they have fully documented that process and related discussions, decisions and approvals.Click here to read more2 [1969] 2 Ch 365.92020 Summer reviewAt the time of most of the transactions C had been facing large claims for environmental nuisance, and subsequently went into li......
-
Fang Ankong And HWH Holdings Limited V Green Elite Limited
...The ECSC Court of Appeal's analysis: The Duomatic Principle The Court of Appeal began by considering the principle In Re Duomatic Ltd [1969] 2 Ch 365 and held "The Duomatic principle recognizes a situation where members of a company can reach a unanimous agreement on its affairs without the......
-
Compensation For Loss Of Office Board Members Beware!
...approval of a termination payment for a departing Board member. Footnotes 1 Connolly v Independent News & Media Plc [2012/4106 P] 2 [1969] 2 Ch 365 3 [2001] S.L.T.945 Court of Session (Outer House 4 This section has since been repealed and the present provision relating to compensation ......
-
SELF-DEALING AND NO-PROFIT RULES: COMPANIES ACT 2016
...Ltd v Say-Dee Pty Ltd (2007) 236 ALR 209 at [107]. 55 A manifestation of this is the principle of unanimous consent. See Re Duomatic Ltd [1969] 2 Ch 365; EIC Services Ltd v Phipps [2004] 2 BCLC 589; and Jarret v Perpetual Trustee Co Ltd (2008) 64 ACSR 552. 56 [1995] 1 CLJ 741. 57 [1995] 4 C......
-
Table of Cases
...728 81 Dorman Long & Co, Re [1934] Ch 534 33, 36 Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 237 Duomatic Ltd, Re [1969] 2 Ch 365 419 Eaton v Caulfield [2011] EWHC 173 (Ch), [2011] BCC 386 443, 483 Ebrahimi v Westbourne Galleries and Others [1973] AC 360 170, 332, 443 ......
-
The Continuing Value of Relief for Directors' Breach of Duty
...dividends (based on true results);therefore the former directors were acting honestly and reasonably.4538 See Re Duomatic Ltd. [1969] 2 Ch 365 where, at 375–376, the failure to take legal advice,commonly regarded within the section’s concept of fairness, was taken to affect thereasonablenes......
-
Liquidation: LLPs
...within 14 days, 28 and it and every officer of it (defined in regulation 4(1)(g) of the LLP Regulations 2001 as an 21 Re Duomatic Ltd [1969] 2 Ch 365. 22 Re Bailey Hay & Co Ltd [1971] 1 WLR 1357. 23 Re D’Jan of London Ltd [1993] BCC 646. 24 Re New Cedos Engineering Co Ltd [1994] 1 BCLC 797.......