Jordans FAQs: What is the 'Duomatic Principle' & Why is it important?

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Q: What is the “Duomatic Principle” and how does it apply in relation to statutory requirements and/or special resolutions?

A: The case of Re: Duomatic Ltd [1969] 2 Ch 365 firmly established the principle of shareholders being able to make decisions by way of “informal unanimous consent”. The Judge in that case, summarised the principle as:

where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."

This common law position is preserved under section 281(4) of the Companies Act 2006 by the words:

Nothing in this Part affects any enactment or rule of law as to… (a) things done otherwise than by passing a resolution; (b) circumstances in which a resolution is or is not treated as having been passed, or (c) cases in which a person is precluded from alleging that a resolution has not been passed.”

In order to utilise the principle, and therefore allow for greater flexibility with gaining consent of your shareholders, the following elements must be established:

  • The consent of shareholders must be unanimous.
  • The consent must be given by the shareholders in full knowledge of what it is they are consenting to.

Both of the above criteria require some form of written evidence.

The Duomatic Principle has been invoked successfully on many occasions, in particular where the written resolution procedure has been invoked but not necessarily completed in line with the legislation. However, placing any reliance upon the principle against full compliance with statutory requirements should be approached with caution. For example, a recent case has confirmed that its use in removal of a Director would not validate non-compliance with the statutory requirements under the Companies Act 2006 (see Bonham-Carter and another v Situ Ventures Limited [2012] EWHC 230 (Ch). It should also not be relied upon in place of any statutory provisions where creditors of the company (or other external stakeholders) have a vested interest in the transaction.

If a matter agreed to by way of informal unanimous consent would, if passed by resolution, have had to be passed by way of special resolution, a copy of the documentation evidencing the consent must be filed at Companies House.

For more information, visit Jordan's official website.