The Duomatic Principle derives from case law (Re Duomatic Ltd [1969]) and overrides the formalities required by company law in regards to shareholder consent in certain circumstances. It recognises shareholder decision-making by informal, unanimous consent.
Shareholder Approval
Under the Companies Act 2006, a decision requiring shareholder consent may be lawfully passed by the directors of a company if it has been agreed to by a ‘simple majority’ of shareholders. i.e. over 50% or, where a special resolution is needed, at least 75% of shareholders. Shareholder agreement is either obtained by votes on a resolution at a general meeting, or by agreement under the written resolution procedure.
Requirements for Application of the Duomatic Principle
The Duomatic Principle negates the need to obtain shareholder consent by any formal means, however, consent must be provided by all shareholders who would have a right to attend and vote at a general meeting, not simply those that may be available at the time the consent needs to be provided. Shareholder consent must be:
- Unanimous; and
- Fully informed
The procedure can prove especially useful for companies whose directors are also its only shareholders. It can be used to enable director-shareholders to circumvent the requirement for formal resolutions and instead to make decisions informally, at a board meeting, provided that they can demonstrate that unanimous, informed consent was given to the matter concerned.
However, evidence of unanimous consent can be hard to prove and reliance on the Duomatic Principle can leave a company in a vulnerable position. A company may find itself having made fundamental changes to its constitution and powers, without any documentation as to how decisions were taken. The uncertainty created by this can leave certain actions of the company then open to challenge by creditors and dissatisfied shareholders.
Practicalities
The Duomatic Principle should not be relied upon as a matter of course and has limited scope; however, the doctrine’s existence is a valuable tool of last resort where no formal records of shareholder decisions exist. It should not be used as an alternative to compliance with company law requirements.
If you are concerned about the way that your company’s decisions have been taken or documented and would like further advice, please contact our Corporate and Commercial Team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.