When the directors of a small company fall out, things can get difficult: when they are also the sole shareholders, the result is usually an impasse. In a recent case, this happened and the director who was the majority shareholder went to court to force the removal of another director. The second director held more than 25 per cent of the shares in the company, which meant that a resolution could not be passed to remove him.
The majority shareholder was faced with a position in which he could not remove the other shareholding director or a third director who had ‘sided’ with him (but who held no shares) because a quorate board meeting could not, in practice, be held. The other two directors therefore ran the business without reference to the majority shareholder.
He had to go to court to obtain permission to hold a board meeting with a quorum of one (i.e. alone), so that he could pass a resolution to call an extraordinary general meeting in order to remove the other directors (by a vote of the shareholders).
Internal squabbles in companies are often very difficult and require delicate negotiation if court proceedings are to be avoided.
Dean Parnell, Sydney Mitchell
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