Smith v Butler & Anor

The Managing Director did not have implied authority to suspend the Chairman or to instruct solicitors and mount an active defence without a board resolution; company funds should not be used for shareholder disputes; the court should order a meeting under section 306 with a quorum of one to allow the majority shareholder to exercise voting rights.

Parties: Claimant: Philip John Smith; First Defendant: James Carl Butler; Second Defendant: Contact Holdings Limited
Jurisdiction: England and Wales
Judgment Date: 01 September 2011
Procedural Posture: Civil / Interlocutory Application for Declaratory and Interim Relief
Outcome: Application granted in part
Legal Topics: Board Authority, Shareholder Rights, Quorum Provisions, Suspension of Directors, Use of Company Funds in Litigation

Company Law Corporate Governance Board Authority Shareholder Rights Quorum Provisions Suspension of Directors Use of Company Funds in Litigation

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Parties

Philip John Smith

Claimant

James Carl Butler

First Defendant

Contact Holdings Limited

Second Defendant

Procedural Posture

Civil / Interlocutory Application for Declaratory and Interim Relief

Legal Issues

1 Whether the Managing Director had authority to suspend the Chairman without a board resolution
2 Whether the Managing Director had authority to instruct solicitors and mount an active defence without board resolution
3 Whether company funds could be used to defend shareholder disputes

Ratio Decidendi

Court Disposition

Application granted in part

Orders

Declaration that the suspension of Mr Smith was unlawful
Order under section 306 Companies Act 2006 authorising a quorum of one at a general meeting for appointment/removal of directors