The Gazette 1975

Directing the Directors

By PATRICK USSHER, Lecturer in Law in the University of Dublin (Trinity College).

article 116 says "the company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the directors." Or take article 5 which states that unissued shares " shall be at the disposal of the directors". Where such language is used, it would seem that the directors are being given an exclusive function to be exercised without interference from a majority in general meeting. Secondly, there are those articles giving powers to the directors to be exercised by reference to their own state of mind, in such terms that unless the directors possess the requisite mental state the power cannot be properly exercised at all. Article 117 is a case in point: the directors may pay "such interim dividends as appear to the directors to be justified by the profits of the company." No amount of direction from the general meeting can force the directors to exercise this power if they themselves remain unconvinced. Those articles which confer on the directors a power to be exercised "in their absolute discretion" probably fall into this category as well, the example being article 3 of Part II of Table A which empowers directors of a private company "in their absolute discretion, and without assigning any reason therefor" to decline to register the transfer of any share therein. The third possible category is an extension of the second, and is, perhaps, the most important. These are the numerous instances found throughout Table A where the directors are simply given a power, i.e. an article stating that they "may" do something. As with every unadorned power, the holder has a discretion whether or not to exercise it. Such discretions are usually personal to the holder of the power with the result that no one else can tell him to exercise it. For an example drawn from trust law, see Re Brockbank [1948] Ch, 206 where a trustee possessing a power was held justified in refusing to heed the unanimous clamourings of the beneficiaries that he should exercise it. Conclusions such as this would seem to follow from the juridical nature of a mere power; there should not be any requirement that the power be fiduciary, though it usually will be. Even if there were such a require- ment, it is trite knowledge that powers given by the articles to directors do possess fiduciary characteristics: for an Irish example, see Nash v. Lancegaye Safety Glasi (Ireland) Ltd. (1958) 92 I.L.T.R. 11. So, on the basis of the foregoing, it would seem that discretions given to the directors by articles other than article 80 are personal to the directors and are exclusively theirs with the result that any purported interference by the general meeting with those discretions by way of direc- tion under article 80 would be ineffective as "inconsis- tent with" the other article in question. One could arrive at the same conclusion by a somewhat shorter route, namely by construing article 80 directions as applying only t» -those matters which have not been delegated to the directors by the other articles, the rationale being that it would be "inconsistent with" those other articles if article 80 were to cut down their apparent effect in any way. But whatever the route, the admission of this third category of articles inconsistent with article 80 has far-reaching consequences, and is perhaps the .303

Article 80 of Table A contained in the Companies Act 1963 delegates the power of managing a company's business to its directors. Readers may need reminding that Mr. John Temple Lang ( Gazette 1973, vol. 67, p. 241), brought to the attention of those practitioners who had not already spotted it a slight difference between the wording of article 80 and its predecessor, article 71, of the 1908 Act (faithfully reproduced as article 80 of the British Companies Act 1948). Some of the words which purported to qualify the delegation of the management function to the directors had been covertly excised from the horrible rigmarole of the old article, and substitutes, allegedly of great significance, had been inserted in the new form, so that the qualify- ing words instead of reading "subject, nevertheless, to any of these regulations, to the provisions of the Act and to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the company in general meeting" read instead "sub- ject, nevertheless, to any of these regulations, • to the provisions of the Act and to such directions, being not inconsistent with the aforesaid regulations or provisions, as may be given by the company in general meeting." On the basis of this alteration, Mr. Temple Lang argued that "Table A of the 1963 Companies Act totally altered the balance of power between shareholders and directors in relation to the management of a company .. ."; he says "it is quite clear that for companies which have adopted it, the shareholders in general meeting may, by a 51% majority, give orders to the directors"; indeed, his conclusion is that the majority in general meeting have a right "to give instructions to the direc- tors as to how the business of the company should be run." I venture to throw some doubt on these conclusions. Whilst it is theoretically possible for a Company's Con- stitution to provide that the Directors shall obey the General Meeting in matters of Management, the neyv article 80 when construed in the context of the whole of Table A cannot conclusively be said to have done that. Though the new article 80 makes better sense than its predecessor when viewed in isolation, it exists uneasily in relation to the rest of Table A, and stands as an illustration of the danger, familiar to practitioners, of seeking to "improve" one clause of someone else's draft without thinking through all the possible conse- quences of one's alteration throughout the remainder of the document. The essential point to be grasped in construing the new article 80 is that directions given thereunder are expressly required not to be "inconsistent with" any of the other Articles of Table A. In other words, the other Articles, if inconsistent with a purported direc- tion by the General Meetmg, will be dominant over and thereby negative that direction. The question at once arises : what (if any) other articles of Table A give an exclusive function to the directors such that any pur- ported interference by the General Meeting under article 80 would be merely an ineffective attempt at trespass? One such category of cases might be found in the type of article which uses imperative language to cast a certain function upon the directors. For example,