The Case of 25 Chesham Place

25 Chesham Place is a terraced building converted into six flats. The six original leaseholders formed a company ’25 Chesham Place Ltd.’, to be owned by the tenants, which would own the freehold and act as a management company for the building.

Everything, as often happens, went well for a while, but around 1990 the role of the company started to fade away. As tenants had moved out and assigned their leases to other people the membership of the company had never changed, and the departed tenants had little interest in what was now happening. To fulfill legal requirements minutes of Annual General Meetings were filed, but these meetings never actually happened.

An two-storey rear extension was built to the house, and Mr. Croom, who lives on the third and fourth floor, wanted to extend his flat out onto the top of this extension. As there would need to be scaffolding and the like around the house for this, he also suggested that the exterior of the building be repainted and repaired, and the lift be repaired.

The other tenants, whose approval is needed for these changes, did not agree to them.

So, in June 1999, Mr. Croom called a board meeting of the company, but the only other person who turned up was his aunt, who lives in one of the other flats.

Naturally, they took this opportunity to vote on the matter, and, naturally, the board agreed to his proposals.

The other tenants got together, and discovered that they could challenge this matter on the grounds that gradually, due to the absence of board meetings, every member of the board would be deemed to have ‘retired’ from the board.

The Articles of the company stated that each year one third of the directors would retire from office. If the director chooses to stand for re-election, he will automatically be re-elected unless someone else is elected in their place, or the shareholders explicitly vote not to re-elect them.

It is also stated that if the number of directors is not an exact multiple of three, then the number nearest to one third shall retire.

The other tenants argued that this would have left the board with either no directors, or a single director (neither Mr. Croom, nor his aunt), and so the board meeting was invalid, and Mr. Croom still had no right to make his changes.

This came before the High Court, and Judge Boggis gave his opinion:

The first question is how to deal with partial people: if one third of the directors are to resign, what happens if there are two, and what happens if there is only one? The articles already cope with there being two (1 resigns), but Boggis decided that if there was only one, then that one director should also retire.

But what if there was no actual board meeting at which the directors should retire? Well, in that case, following the case of Consolidated Nickle Mines [1914], the resignation is deemed to have happened on the last date on which the board meeting could have happened (board meetings must happen every year, no more than 15 months from the previous one).

But what about re-election? If there is no meeting, does the director have to make it clear that they are standing for re-election, or are they deemed to be standing unless they state otherwise? Here Boggis decided that you need to explicitly state your intention to stand
for re-election, claiming that it was common sense: “If a company cannot be run properly by holding AGMs, why should the incompetent director be deemed to stay in office merely if he says nothing?”

In response to this Mr Croom’s lawyer argued that even if the director had retired, then following the case of Consolidated Nickle, the retirement does not remove all power of directorship. However the judge sided instead with the precedent of New Seddos, where retirement cannot be only for some purposes.

So Mr Croom’s lawyer attempted to argue that the Companies Act states that the acts of a director are valid, even if later any defect is found in how he was appointed. The judge happily agreed with this, but stated that the issue wasn’t in how the directors were appointed, but that they have simply retired and not been reappointed.

This leaves the curious position where the board meeting attended by Mr Croom and his aunt was invalid, as the company had no directors. So, where now? The judge could see no reason why any of the tenants should not be members of the company, so he used the power of the court to reconstitute the membership of the company to be each of the current tenants, and forced them to call a meeting to get the company running again, and get on with the business of properly managing the property.

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