Inspection provision is for the protection of shareholders and can be waived by the informal, unanimous agreement of those shareholders entitled to vote
A private company limited by shares is conducting an off-market purchase of its own shares, financed out of distributable profits. One of the requirements of the share buy-back procedure is that the written contract (or a memorandum recording its terms) for the purchase must be available for inspection by the shareholders at least 15 days before the meeting to consider the special resolution approving the purchase. This requirement is set out in section 696(2)(a) of the Companies Act 2006, which restates the requirement of section 164 of the Companies Act 1985.
Can this inspection requirement be waived by the shareholders, so that – for example – the contract can be drawn up and the special resolution approved on the same day?
A case and a provision in the Companies Act 2006 suggest that the answer to this question is yes.
The case: Kinlan v Crimmin
In Kinlan, the judge referred to Re R.W. Peak (King’s Lynn) Ltd [1998] 1 BCLC 193, where Lindsay J took the approach that:
the extent to which the Duomatic principle may apply in relation to adherence to the specific requirements of s. 164 [of the Companies Act 1985] turns on the question whether any particular requirement of those sections which is sought to be waived is properly to be regarded as a provision for the protection of the current members of the company or as a provision to confer protection on a wider class of persons (in particular, in relation to the creditors of the company)
We discussed the Duomatic principle of informed unanimous consent in this post.
In Kinlan, the judge took the view that the contract inspection requirement was for the benefit of the shareholders (and the wording of section 696(2)(b) refers to the contract being available for inspection by shareholders, rather than generally) rather than for a wider class of persons, and therefore the Duomatic principle could apply to the waiving of the statutory requirement for a 15 day inspection period. The Kinlan judgement is here.
The Companies Act 2006 provision regarding written resolutions
The Companies Act 2006 enables private companies to pass written resolutions as ordinary or special resolutions with the relevant majorities required for those resolutions. Section 696(2)(a) only requires, where a buy-back special resolution is being passed as a written resolution, that the contract only be supplied or submitted to shareholders “at or before” the time that the proposed written resolution is sent to the shareholders.
As the requirement for a 15 day inspection period does not apply in relation to written resolutions approving a buy-back, this lends force to the view that the inspection provision is for the benefit of shareholders rather than creditors (who would have no opportunity to be put on notice of the proposed contract) and so can be waived by the relevant shareholders acting informally but unanimously in accordance with the Duomatic principle.
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