UK: England and Wales: the authority of the managing director

The High Court gave judgment last week in Smith v Butler [2011] EWHC 2301 (Ch). The case concerned a company with two shareholders: Mr Smith (the majority shareholder and chairman) and Mr Butler (the minority shareholder and managing director). Under the company's articles, two directors (one of whom must be Mr Smith) were required for a quorum at a directors' meeting. Mr Butler purported to suspend Mr Smith as chairman at a board meeting (but there was no board resolution). The trial judge held that Mr Smith's suspension was unlawful and rejected the argument that Mr Butler, as managing director, had the implied authority to suspend Mr Smith. It was, he held, for the board and not the managing director to suspend the chairman. The judge also noted that Mr Butler was not powerless: he could, potentially, bring actions under section 994 (unfair prejudice) or section 260 (derivative claims) of the Companies Act (2006).