Company Must Follow Rules

Posted: 18th July 2011

When a company is in financial difficulties, the details of its internal regulations tend to be near the bottom of the list when directors are making decisions. Regrettably company law doesn’t make allowances for that, which led to a recent case in which the validity of the appointment of an administrator was challenged.

The decision was supported by a majority of the directors, but no quorate board meeting had been convened, no notice had been given to the members of the board. The appointment was challenged by a director who had not been present at the meeting.
The first question the court dealt with was whether or not a majority of the board of directors could ratify a decision which was not taken in accordance with the company’s articles of association.
The second questicompany registeron was whether or not the company could dispense with issuing notices to ‘concerned persons’ regarding the intention to appoint an administrator.
The High Court ruled that the answer to both questions was ‘no’ and therefore the appointment of the administrator was invalidated by each of the failures.
This case shows that when a company is in trouble, although compliance matters may be far down one’s list of priorities, failure to abide by the internal regulations of the company, or company law in general, can cause far more problems than one might think.
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