The Lemon Fool

Hi everyone

I live on a gated estate of about 30 properties, in which a potential dispute has arisen. The property owners are shareholders of the Company, out of which four of them are Directors, one of whom is Chairman. The Directors serve on a voluntary basis.

There is a heated dispute about service charges -the details of which are very complicated. The dispute affects just one sub-area of the estate, which is 8 properties. We were asked to vote on a solution and there was a 7-1 vote in favour of a solution to fix the problem. The "one"property that did not agree is the one that financially benefits by keeping the status quo. In the Board meeting, the Chairman used his casting vote to rule against the 7-1 vote and keep the status quo. By the way, the Chairman and "the One property" are good friends.

SInce then, there has been bitterness and rancour and multiple objections by "the seven" against the Board decision. The Chairman will not move. He is a lawyer. In one email, he declared his decision as "binding" and invited "the Seven" to raise a legal action, including the words "put up or shut up".

So there we have a Chairman, inviting legal action against the company, without any discussion with the other Board members, and without any mandate from the Shareholders, who would ultimately have to pay the legal costs, whetever the outcome.

I want to understand if, in terms of how that works in terms of Fiduciary responsibilities

TIA

NoVoice

Novoiceleft wrote:Hi everyone

I live on a gated estate of about 30 properties, in which a potential dispute has arisen. The property owners are shareholders of the Company, out of which four of them are Directors, one of whom is Chairman. The Directors serve on a voluntary basis.

There is a heated dispute about service charges -the details of which are very complicated. The dispute affects just one sub-area of the estate, which is 8 properties. We were asked to vote on a solution and there was a 7-1 vote in favour of a solution to fix the problem. The "one"property that did not agree is the one that financially benefits by keeping the status quo. In the Board meeting, the Chairman used his casting vote to rule against the 7-1 vote and keep the status quo. By the way, the Chairman and "the One property" are good friends.

SInce then, there has been bitterness and rancour and multiple objections by "the seven" against the Board decision. The Chairman will not move. He is a lawyer. In one email, he declared his decision as "binding" and invited "the Seven" to raise a legal action, including the words "put up or shut up".

So there we have a Chairman, inviting legal action against the company, without any discussion with the other Board members, and without any mandate from the Shareholders, who would ultimately have to pay the legal costs, whetever the outcome.

I want to understand if, in terms of how that works in terms of Fiduciary responsibilities

TIA

NoVoice

What do the Memorandum and Articles of the Company say on how company decisions are made and carried. Does it need to be unanimous, majority, solely binding on the vote of the Chairman etc.?

How are Directors (and Chairman) elected and removed?

Sounds to me as though an oblique approach might be worth considering. Change the chairman.

How is he appointed and there must be some sort of procedure to get rid of a bad apple. An EGM for a confidence vote perhaps.

IANAL. You can probably tell!

I'm not sure I understand. You initially say that there are 4 directors, but then say that there was a 7-1 vote, implying there are at least 8 directors.

Can you clarify?

Clitheroekid wrote:I'm not sure I understand. You initially say that there are 4 directors, but then say that there was a 7-1 vote, implying there are at least 8 directors.

Can you clarify?

I took it there was a shareholder vote, not a director vote.

dealtn wrote:

Clitheroekid wrote:I'm not sure I understand. You initially say that there are 4 directors, but then say that there was a 7-1 vote, implying there are at least 8 directors.

Can you clarify?

I took it there was a shareholder vote, not a director vote.

Which was presumably indicative not legally binding ( perhaps because vote only covered a small group of shareholders) as Chair appears to be able to legally override it.

I would read the Memos, Articles and any Shareholder Agreement/Similar that exists very carefully, if want to pursue get any ambiguities/misunderstanding s first clarified by a solicitor and get him/her to advise possible courses of action if wish to take any further.

I personally would only take further if a positive outcome for me is legally likely and the risk/reward equation is favourable. (especially as the other 6 in the 7 are unlikely to all (any) front up the necessary cash to pursue a legal resolution)

I fail to see why it was necessary for the chairman to use a casting vote.

A casting vote is used to break a tie - 7-1 is not a tie.
(If there was a tie, and the chairman was neutral, I would say it that "Speaker Dennison's rules" would indicate a casting vote in favour of no change and would be appropriate)

Either the vote was inquorate - insufficient people voted or it was valid.
If it was inquorate, the vote was void, ab initio.

It sounds to me as if the chairman is acting ultra vires i.e. they have at least exceeded their powers, if they haven't abused them.
As stated earlier, check the articles of association.
I would suggest that soundings are taken from the other shareholders, and that shareholders requisition a shareholders meeting to discuss and vote on the chairman's future, noting that the first action of the meeting should be to appoint an independent meeting chairperson.

A suitable motion might be to appoint a new chairman...

Alternatively, gather a set of potential directors and get them nominated for election at the next AGM, then at the first board meeting, elect a new board chairman...

Thanks, that's really helpful.

Just to clarify, the 7-1 vote was a shareholder vote on the solution within the sub-unit of the affected properties. We expected that vote to be rubber stamped and ratified at the Board, but it wasn't. There are 4 Directors, and the Directors vote was 2-2, so the Chairman used his casting vote. This is all complicated by the fact that 2 of the Directors are best friends with the owner of "the one" property in the 7-1 vote.

Yes, the Chairman has been overstepping his powers for a long time, and running the Board like a DIctatorship. As it happens, he is feeling the pressure and may be standing down at the AGM next week. But my original question was designed to find a way to nail him. Inviting a legal action against the company, without any mandate to do so from the Shareholders, is that a breach of Fiduciary responsibility?

NoVoice

What was the purpose of the vote of the 8 properties/members which returned a view of 7-1 if that could then be over-ruled by a vote of the directors? (It seems a bit pointless that the Articles or MoA would allow a vote [of presumably shareholders] that could then be overturned by the BoD?)

Novoiceleft wrote:Thanks, that's really helpful.

Just to clarify, the 7-1 vote was a shareholder vote on the solution within the sub-unit of the affected properties. We expected that vote to be rubber stamped and ratified at the Board, but it wasn't. There are 4 Directors, and the Directors vote was 2-2, so the Chairman used his casting vote. This is all complicated by the fact that 2 of the Directors are best friends with the owner of "the one" property in the 7-1 vote.

Yes, the Chairman has been overstepping his powers for a long time, and running the Board like a DIctatorship. As it happens, he is feeling the pressure and may be standing down at the AGM next week. But my original question was designed to find a way to nail him. Inviting a legal action against the company, without any mandate to do so from the Shareholders, is that a breach of Fiduciary responsibility?

NoVoice

So again, if that is your intention, what do the memorandum and articles of the the company say? You need to look there to discover what the correct procedures are, and if they weren't followed, what remedy you have. Asking random strangers won't provide your answer.

By way of an update, the Chairman has been voted out at the AGM, which was pretty rancorous. Turns out that a majority were questioning his judgement call, especially his appetite for litigation.

So now, a small working group are discussing a practical resolution in a more constructive way.

Thanks everyone for your help. I, for one, have found asking "random strangers" very helpful. There are some fine minds in this forum.

NoVoice

Novoiceleft wrote:By way of an update, the Chairman has been voted out at the AGM, which was pretty rancorous. Turns out that a majority were questioning his judgement call, especially his appetite for litigation.

So now, a small working group are discussing a practical resolution in a more constructive way.

Thanks everyone for your help. I, for one, have found asking "random strangers" very helpful. There are some fine minds in this forum.

NoVoice

Well I hope you referred to the Mems and Arts in that case and acted according to them at the AGM. If he has an appetite for litigation as you say, and you didn't, it might not be the end of the matter.