Schemes of arrangement – accidental failure to give notice

29th January 2014

Does the accidental failure to send a notice of a shareholders meeting to all the shareholders necessarily render the meeting invalid?

Under sections 895 to 899 of the Companies Act 2006, the steps required to effect a valid scheme of arrangement are:

• a court order summoning the members to vote on the scheme
• the company sending a notice to members and/or creditors convening the meeting(s) together with an explanatory statement on the effect of the proposed scheme
• attendees meeting to consider the proposed scheme
• approval by a majority in number representing three-quarters in value of the members or creditors who vote (or, if applicable, of each class of members or creditors)
• the company applying to court for the scheme to be sanctioned
  the scheme becomes effective upon delivery of the sanction order to the Registrar of Companies.

In Re Randall & Quilter Investment Holdings plc [1] the notice of the annual general meeting was sent to those members whose name had appeared on the register on 10 May 2013, notwithstanding that the company had instructed the registrars that the record date should be 15 May 2013. There was a significant discrepancy between the numbers of members on the register on the two dates – there were 434 on the later date as against 384 on the earlier date, as a result of a placing of shares having been entered into the register between the two dates.

The issue for determination by the High Court at the hearing to sanction the proposed scheme was whether the accidental error invalidated the business conducted at the general meeting.

The court considered the provisions of the company’s articles of association which dealt with accidental omission and ruled that the accidental omission to give notice to the placees did not invalidate the meeting that took place. The court applied The Peninsular & Oriental Steam Navigation Company v Eller & Co [2] where the Court of Appeal held that in order for an accidental omission when convening a meeting of shareholders not to render the meeting invalid, there must have been a genuine attempt to serve the shareholders in accordance with their rights and that attempt had failed.

In considering the exercise of its discretion whether to sanction the scheme, notwithstanding the accidental failure to serve the notice and scheme documents on the placees, the court was swayed by the overwhelming majorities in favour of the scheme, both by number and value, of the members present and voting at the court meeting and that details of the scheme had been made known to the placees, albeit not in the form of scheme documents. In the circumstances no prejudice was suffered by the failure to serve notice correctly.

Walker Morris comment
Section 313(1) of the Companies Act 2006 provides that accidental failure to give notice of either a general meeting or a resolution to be moved at a general meeting to one or more persons does not render the meeting or resolution invalid. Section 313(1) may be overridden by a company’s articles except in relation to the situations set out in subsections 313(2)(a)-(c) (broadly, notice of meetings called or required by members). For companies with a large shareholder base it may be worthwhile supplementing the statutory provision by dealing expressly with the accidental failure or omission to give notice. Wording along the lines of the following is fairly typical:

“To the fullest extent permitted by law, the accidental omission to give notice of a meeting or send any other notice or circular relating to it or (in cases where proxies are sent out with the notice) the accidental omission to send such proxy to, or the non-receipt of notice of a meeting or other notice or circular relating to it or such proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting.”

[1] [2013] All ER (D) 47 (Jul)
[2] [2006] EWCA Civ 432