High Court
Phoenix Shannon Plc And Others v Harold Purkey 
1997 No 3661P

7 May 1997 

COSTELLO P: 

THE FACTS 

Phoenix Shannon plc is a public limited company and was incorporated in the State on 11 November 1985. It carries on business manufacturing and distributing dental products. In March of 1996 Mr George Wolfe (sixth named Defendant) was co-opted onto the board of directors of the company. He was the President of Nen Dental Incorporated (an American wholly owned subsidiary of the company). On 21 October 1996 Mr Harold Purkey, Mr Keith Hartley, Mr Philip Platek, Mr Nico Pronk and Mr Benjamin Swirsky (first to fifth named Defendants) were co-opted as directors of the company. They had been nominated to act as directors by the company's merchant bankers, Noble Investment Bankers, and a United States Corporation, Forum Capital Markets, which had been instrumental in raising $20,000,000 by way of a bond for the company. It is common case that the company was then in serious financial difficulties. At the time of the second co-option all but three of the existing directors resigned, except for Mr Ola Johansson, Mr Brian Boland and Mr Keith Westrich. In December of 1996 Mr Westrich resigned. These three are now the second, third and fourth named Plaintiffs in these proceedings. This action arises from serious disputes between the six directors co-opted in 1996 and the three other directors to whom I have referred. 

The last annual general meeting of the company was held on 30 November 1995. By s 131 of the Companies Act 1963 (as well as by article 52) the company was required to hold its annual general meeting at intervals of no more than 15 months and the Plaintiffs' contention is that the annual general meeting for the year 1996 should, at the latest, have been held on 28 February 1997. In fact no meeting was held for 1996. The reason for the failure to convene it is a matter of dispute, the Defendants claiming that it was not possible to finalise the audit of the company's accounts for presentation to the meeting because of the lack of co-operation of Mr Johansson. Mr Johansson is the major shareholder in the company, owning 39% of its issued share capital. He and Mr Boland (his co-Plaintiff) control 42% of the shares of the company. It is relevant to note that both agreed to the co-options which took place last year. 

It is agreed that on 26 March 1997 Mr Johansson and Mr Boland decided that because the annual general meeting had not been held by 28 February 1997 all the directors co-opted as required in 1996 under article 92 (that is the six Defendants) had automatically vacated office on that day. They accepted that Mr Johansson was also deemed to have vacated office because of his obligation to retire by rotation at the annual general meeting which should have been held in 1996. He had been the company's managing director and as such he would not have been liable to retire by rotation but he had been dismissed by the company as its managing director by the new board. For the avoidance of doubts Mr Johansson was prepared, for the purposes of the steps then to be taken, to accept that although continuing as director he was not the company's managing director and accordingly he also automatically vacated office because of the failure to hold the annual general meeting. Mr Johansson and Mr Boland concluded that the company had only one director, namely Mr Boland, arising from the aforesaid failure. 

Mr Boland then purported to exercise the powers conferred on him by article 106 of the company's articles of association. This provides as follows: 

The continuing director or directors may at any time act notwithstanding any vacancy in their body but if the directors shall at any time be reduced in a number of less than the minimum number fixed by or in accordance with these articles, the continuing director or directors may act for the purpose of appointing an additional director or directors to make up such minimum, or for summoning a general meeting of the company, but for no other purpose. 

The quorum necessary for the transaction of the business of directors was two (article 105) but Mr Boland as the only continuing director firstly appointed Mr Johansson as a director. Under article 106 Mr Boland and Mr Johansson then co-opted Mr Westrich as a director (who, it will be recalled, had resigned in December of 1996). These three persons then co-opted three additional directors, Mr Jason Fensterstock, Mr George Skakel and Mr Hugh Regan. These six gentlemen now claim that they constitute the board of directors of the company and on their authority the company is joined as a Plaintiff in this action. This claim is hotly contested by the six Defendants who say that the steps taken by Messrs Johansson and Boland were invalid and who claim that they are members of the company's board. 

THE PROCEEDINGS 

Mr Johansson commenced proceedings against the company in December of 1996 challenging his dismissal as managing director. Mr Boland also instituted proceedings against the company challenging his dismissal as an executive of the company (a dismissal which did not affect his position as a director of the company) and on 18 April 1997 he was granted interlocutory relief. The third set of proceedings arising from the internal disputes in this company is the present one. In these the Plaintiffs have claimed various reliefs including an injunction restraining the Defendants from acting as directors of the company. Interlocutory relief was refused to the Plaintiffs by order of 1 March 1997 but by agreement between the parties the court has now been asked to determine two issues as follows: 
  
1. Whether the Defendants as persons co-opted onto the board of directors of Phoenix Shannon plc in 1996 are deemed to have retired as directors on 28 February 1997, the last annual general meeting of the company having taken place on 30 November 1995. 
  
2. If so, was the third named Plaintiff Mr Brian Boland, as a continuing director entitled to exercise the powers of co-option construed in article 92 of the articles of association to co-opt onto the board of directors Messrs Ola Johansson and Keith Westrich, the second and fourth named Plaintiffs. 

THE PLAINTIFFS' SUBMISSIONS 

I can summarise the Plaintiffs' submissions on the first issue as follows. S 131 of the Companies Act 1963 provides that every company shall in each year hold a general meeting and not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next. This is replicated in article 52. Article 92 provides as follows: 
  
92. The directors may from time to time and at any time appoint any person to be a director either to fill a casual vacancy or as an additional director provided that the total number of directors shall not exceed the maximum number fixed by or in accordance with these articles. Subject to the provisions of the Acts, a director so appointed shall hold office only until the commencement of the annual general meeting following next after his appointment, when he shall retire. A director who retires under this article shall be eligible for re-appointment at the meeting at which he retires. 

Article 82 provides that unless otherwise determined by the company the number of the directors shall not be less than three and not more than ten and article 87 that 'one-third of the directors for the time being (other than a managing director . . . or a director holding an executive office with the company') or, if their number is not three or a multiple of three then the number nearest to, but not exceeding, one-third shall retire from office at each annual general meeting . . .' 

The Plaintiffs submit that the clear meaning of article 92 is that the directors co-opted under this article (as all the Defendants were) are required to retire pursuant to its provisions, that this is a mandatory requirement insofar as it provides that a director so appointed 'shall hold office only until the commencement of the annual general meeting following next after his appointment' and by providing that such director 'shall retire'. The obligation to retire must be read in conjunction with article 52 and s 131 of the 1963 Act which oblige the directors to convene annually an annual general meeting in accordance with their terms. It follows therefore that the 'annual general meeting following next' referred to in article 92 after a co-option must mean that which should be held in accordance with those provisions. The Plaintiffs then submit that should the directors fail to comply with these provisions and neglect to convene an annual general meeting then those directors who should have resigned will be deemed to have vacated their office on the last day on which the 'next annual meeting' should lawfully have been held. In this case the annual general meeting for 1996 should have been held on or before 28 February 1997 and so it is claimed that after that all the directors co-opted in 1996 vacated office on that day. 

In support of this submission the Plaintiffs refer to In re Consolidated Nickel Mines Ltd [1914] 1 Ch 883 and a number of subsequent decisions of the English courts. It is agreed that there is no decision in the Irish courts on the issue which I now have to determine. In the first instance I propose to consider the Plaintiffs' construction of the articles and the relevant statutory provisions without reference to the authorities to which I have been referred. I will then examine those conclusions in the light of those authorities. 

CONCLUSIONS 

It is clear that the company is required to hold an annual general meeting every year and that not more than 15 months may elapse between the date of one annual general meeting and that of the next annual general meeting (see article 52 and s 131 of the 1963 Act). I agree that the 'annual general meeting next following' the date of co-option referred to in article 92 must refer to the annual general meeting which should be held under article 52 and s 131. But the article is silent as to what is to happen if the directors fail in their duty to convene the meeting. In effect the Plaintiffs require the court to imply a provision in article 92 to the effect that should the directors fail to convene an annual general meeting as required by the article the co-opted directors will automatically vacate office on the last day on which the meeting should lawfully have been held. 

There are two reasons why I think the court should not imply the suggested provision. 
  
(a) S 131(3) of the 1963 Act makes express provision as to what is to happen should the directors default in convening an annual general meeting. 

It provides that: 

The minister may, on the application of any member of the company, call or direct the calling of a general meeting of the company and give such ancillary or consequential directions as the minister thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the company's articles, and it is hereby declared that the directions which may be given under this subsection include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. 

The next subsection, subs (4) provides that a general meeting held in pursuance of subs 3 shall: 

be deemed to be an annual general meeting of the company but, where a meeting so held is not held in the year in which the default in holding the company's annual general meeting occurred, the meeting so held shall not be treated as the annual general meeting for the year in which it is held unless at that meeting the company resolves that it shall be so treated. 

These provisions not only provide a practical remedy should the directors fail to convene an annual general meeting but also a means by which the default can be legally rectified. In this case this means that any member could request the holding of a meeting after 28 February 1997 and that meeting could be treated as the 1996 annual meeting at which the co-opted directors would be required to resign. In the light of this express statutory provision should default occur I do not think the court should imply into the article the suggested provision of automatic resignations. 
  
(b) There is another reason, derived from the articles themselves, which suggests that no provision should be implied. Article 93 provides: 

The office of a director shall be vacated forthwith; 
  
(a) If a receiving order be made against him, or he makes any arrangement or composition with his creditors generally; 
  
(b) If he becomes of unsound mind; 
  
(c) If he ceases to be a director, or be prohibited from being a director by any order made under the provisions of the Acts; 
  
(d) If he is absent from meetings of the directors for six successive months without leave and his alternative director (if any) shall not during such period have attended instead of him and the directors resolve that his office be vacated; 
  
(e) If he (not being a director holding an executive office in his capacity as a director) resigns his office by notice in writing to the company; or 
  
(f) If he be required in writing by all his co-directors, not being less than two in number, to resign they having shown cause for such resignation. 

It is submitted by the Defendants, and it is a submission with which I find myself in agreement, that had it been intended that the failure to hold an annual general meeting as contemplated by article 92 would result in the automatic vacation of office by co-opted directors that such a provision would have been made in article 93. It seems to me that the failure to make such an express provision in article 93 is a compelling reason why the court should not imply one in article 92. 

I think the same arguments apply to the provisions of article 87 relating to the resignation of directors by rotation. At 'each annual general meeting' one-third are required to retire from office, but I do not think that the court should imply a provision into their article to the effect that should the company fail to hold an annual general meeting the directors whose turn it is to retire should be deemed automatically to have vacated office. 

THE UNITED KINGDOM AUTHORITIES 

The judgments of the courts of the United Kingdom have, of course, persuasive authority in this jurisdiction and I will now turn to examine those relied on by the Plaintiffs with a view to considering whether I should alter the conclusions which, in the absence of authority, I have reached on the Plaintiffs' construction of the articles. 

The first, and indeed the authority which forms the basis of the Plaintiffs' contentions, is In re Consolidated Nickel Mines Ltd [1914] 1 Ch 883, a case relating to a claim in the liquidation of a company for arrears of remuneration by persons claiming to have been directors of the company. The liquidator denied the claims contending that by virtue of the company's articles the directors had vacated office and accordingly no remuneration was payable. The court upheld the liquidator's contention. It is, however, important to note that the relevant article which the court construed was significantly different to that in the present case. Consolidated Nickel Mines Ltd had been incorporated on 25 June 1903 and article 101 provided: 
  
101. At the ordinary meeting in 1906 all the directors and in every subsequent year one-third of all the directors shall retire from office. A retiring director shall retain office until the dissolution of the meeting at which his successor is elected. 

No general meetings of the company were called in 1906 or in 1907 but two persons, Mr Steele and Mr Phillips continued to act as directors. The court held that 'the meaning of article 101 is that the holding of the office of director was only to last until the end of 1906, or until the earlier date on which the ordinary meeting for that year was held . . . The duty of the directors was to call a meeting in 1906 and 1907, and they cannot take advantage of their own default in that respect and say that they still remain as director . . . Steel and Phillips are therefore not entitled to any remuneration for the period between December of 1906 and August of 1930, when Steel was again a director' (pp 888-889). 

I will accept for present purposes that this construction of article 101 is correct. The court decided that the ordinary and natural meaning of the words used in the article was that, having specified the year in which the directors were to resign, vacation of office would occur at the end of that year even if the company failed to hold an annual general meeting at which the resignations would formally take place. The construction does not assist the court in construing an entirely different clause, one which provides for the resignation of co-opted directors not in a specified year but at the happening of a future event, the 'annual general meeting next following' their appointment. In Consolidated Nickel Mines the court construed the article in accordance with the words used -- in this case the court is required to imply a provision into the relevant article, and for this purpose the decision in Consolidated Nickel Mines affords no assistance. I am satisfied that the views which I have expressed on article 92 of Phoenix Shannon plc need not be qualified in any way by this authority. 

I was referred to three later cases which considered the effect of a failure of directors to convene annual general meetings on articles which required a proportion of directors to resign by rotation at such meetings. In each of these cases it was (a) assumed without argument that the construction of article 101 of Consolidated Nickel Mines Ltd established a principle which applied to a differently drafted provision relating to resignations by rotation and (b) it was accepted without argument that a failure to hold an annual general meeting as required by the articles (and the law) resulted in the automatic vacation of office of the directors who should have resigned. In a fourth case an article relating to the resignation of co-opted directors similar to article 92 Phoenix Shannon plc was considered and the same comments I have just made apply to the decision in that case. 

The consequences of a failure to hold an annual general meeting on the operation of article 93 in Table A to the Companies Act 1929 was considered in Kannsen v Rialto (West End) Ltd [1944] Ch 346. This article (amended in the company's articles in a way not relevant for present purposes) dealt with the rotation of directors and provided that at the first general meeting of the company all the directors would retire and at 'the ordinary meeting in every subsequent year one-third of the directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third shall retire from office'. It was established that an annual general meeting at which a Mr Cromie should have retired was not held in the year 1941 and the Master of the Rolls held (p 352) that 'Mr Cromie had been a director but he had vacated office on 31 December 1941 by reason of article 73 of the company's articles of association; (see In re Consolidated Nickel Mines Ltd).' The effect of the distinction between article 73 of Rialto (West End) Ltd and article 101 of Consolidated Nickel Mines was not discussed, nor was it considered in the House of Lords (see [1946] AC 459) in which it was pointed out (p 467) that it was admitted in the course of the trial and before the House of Lords that the effect of article 73 was that Cromie had not been a director since the end of 1941. 

The same situation occurred in Alexander Ward & Co Ltd v Samyang Navigation Co Ltd. In that case (as appears from p 80 of the Scots Law Times, 1973) the defenders submitted that that company had ceased to have any directors because its articles provided that all the directors should retire at the annual general meeting which was held in each calendar year. No such meeting was held in 1969 nor in 1968. The report went on: 

After hearing evidence Lord Brand held that no meeting of the company was held in 1968 or 1969 and that accordingly when the action was raised on 5 November 1970, there was no person capable of giving instructions on behalf of the company. 

In the House of Lords ([1975] 2 All ER 424) the finding that there were no directors at the relevant time and no relevant general meeting was not challenged (see pp 427, 428). 

Re Zinotty Properties Ltd [1984] 3 All ER 754 was another case in which the effect of a failure to hold annual general meetings was considered in relation to an article dealing with the rotation of directors. The company adapted article 89 of Table A to the Companies Act 1948 (as adapted) with the result that the company's articles provided that 'at the first annual general meeting and at the annual general meeting in every subsequent year one-third of the directors for the time being, or, if their number is not three or a multiple of three, then the number nearest one-third, shall retire from office'. The court held without discussions that as no annual general meetings were held this fact coupled with article 89 meant that the original directors 'must both be deemed to have retired by 1970' (p 783). 

The final case to which I was referred was In re New Cedos Engineering Co Ltd [1994] BCLC 797. This was a case in which one of the issues turned on the operation of clause 95 of the company's articles which contains provisions relating to the appointment of directors to fill casual vacancies similar to those in the present and a similar provision to the effect that a director so appointed shall hold office 'until the next following annual general meeting'. The court held that a Mr NJ Green, who had been co-opted under clause 95 was bound to retire at the next annual general meeting, that a meeting called on 27 November 1972 was a nullity and so either this was no meeting at all, in which case Mr Greene and another director who was due to retire by rotation retired under the principle of Re Consolidated Nickel Mines Ltd or if the so-called meeting was effective at all it was effective to bring about the retirement of the directors but was ineffective to re-appoint them (p 810). 

As the issues raised in the proceedings before me were not considered in the cases to which I have referred they do not afford any compelling reasons for departing from the conclusions which I reached on an examination of the relevant articles without their assistance. 

FINAL CONCLUSIONS 

I must hold therefore that the construction placed by the Plaintiffs on the articles is incorrect, that the failure to hold an annual general meeting on or before 28 February 1997 did not mean either that the six directors co-opted in 1996 had vacated office or that Mr Johansson (who was due to resign by rotation) had vacated office. Accordingly, since the resignation of Mr Keith Westrich in December of 1996 the directors of the company have been and still are the six Defendants namely Mr Purkey, Mr Hartley, Mr Platek, Mr Pronk, Mr Swirsky, and Mr Wolfe, together with Mr Johansson and Mr Boland (the second and third named Plaintiffs). I will answer the question raised in the first issue 'no' and because of the views I have expressed on that issue it is not necessary to express any on the second.