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articles | 17 December 2019 | Soteris Pittas & Co LLC

Cyprus: Deadlock at the Level of Board of Directors and the Power of the General Meeting to Act Despite Provisions in the Articles of Association Reserving the Matter for the Board

According to the English case of Barron v Potter [1914] 1 Ch 895 which has been cited with approval in the Cypriot 1st Instance case of RE PRINOS LAHANAGORA LTD, if the Board of Directors in some form or another (eg. due to deadlock) is incapable of taking action, the power to conduct the company’s affairs will revert to the General Meeting.

In short, the facts of this case were as follows:

The company had two directors which were not on speaking terms and thus no effective board meetings could be held. For this reason, the Plaintiff requisitioned a general meeting at which he appointed additional directors. The Defendant argued that according to the Articles of Association of the Company the power to appoint directors was vested with the Board and not with the General Meeting.

In the course of his judgment, Warrington LJ stated inter alia the following:

‘’…It is true that the general point was so decided by Eve J in Blair Open Hearth Furnace Co v Reigart (1913) 108 LT 665) and I am not concerned to say that in ordinary cases where there is a board ready and willing to act it would be competent for the company to override for the purpose of altering the articles. But the case which I have to deal with is a different one. For practical purposes there is no board of directors at all. …… In such a case a general meeting duly summoned for the purpose must have power to elect a new board so as not to let the business of the company be at a deadlock…. If directors having certain powers are unable or unwilling to exercise them – are in fact a non-existent body for the purpose – there must be some power in the company to do itself that which under other circumstances would be otherwise done. The directors in the present case being unwilling to appoint additional directors under the power conferred on them by the articles, in my opinion, the company in general meeting has power to make the appointment…..’’

The above English decision has been cited with approval in many English and common law judgments.

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