Thursday 29 October 2015

Ireland: general meetings, resolutions and shareholder expressions of opinion

Earlier this month judgment was given in Petroceltic International PLC v Worldview Capital Management SA [2015] IEHC 612 by Mr Justice Abbott sitting in the High Court. The case arose following a disagreement between a company's directors and some of its shareholders in respect of a plan for fund-raising. The decision is noteworthy because it required the trial judge to consider an important aspect of corporate governance: the balance of power between the shareholders in general meeting and the board of directors.

More specifically, at issue was the legitimacy of certain resolutions - tabled by shareholders (including the company's largest shareholder) at an extraordinary general meeting (EGM) that they had requisitioned - which provided that those voting in support did not approve of (i) a bond issue and (ii) the company incurring new borrowing or issuing any debt securities.  These resolutions, it was argued by the shareholders, were not designed to direct the board to act in a particular way or to bind or constrain the directors in the exercise of their powers under the articles of association; they were instead designed to give the shareholders the opportunity to express an opinion on what was being proposed by the board.

The court granted an injunction which prevented the shareholders from requisitioning the EGM and tabling the resolutions. In doing so, the judge explained (at para. [29]):
To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to 'disenfranchisement and marginalisation' of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was 'counter intuitive' that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such 'expressions of opinion'."

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