Monday 14th October sees a second “First Hearing” in what is prosaically listed on the court sheets as “P996/13 Pet: Paul Murray &c for orders under Companies Act 1988”. The case is scheduled, according to the list, to go before Lord Tyre.
The case had originally called on 4th October and had led to two Stock Exchange announcements by RIFC PLC, the relevant parts of each being at the foot of this post.
The Board’s position was summed up in the pre-hearing announcement where it was stated:-
Whilst the Company intends to strongly resist the Petition the Board intends to take all possible steps to avoid unnecessary cost and disruption to the Company.
The case first called in court later on 4th October and after that hearing Paul Murray, prime mover in the Rebels and erstwhile Blue Knight, issued the following statement:-
We are delighted with today’s hearing and we look forward to having the opportunity of establishing the validity of our proposed director nominations on Monday 14 October at the full hearing.
In the meantime we would ask shareholders to firstly DO NOTHING until it is clear what they are being asked to vote upon at the AGM and secondly note the actions of this Board of Directors who seem hell bent on putting up every legal and technical blockage to our nominations.
Why are they so scared of a vote if they have all the shareholder support they claim to have? It is ridiculous that we are forced into going to the Court of Session in order to give the shareholders a democratic vote at the AGM.
The stalling tactics of this Board are indicative of why the shareholders felt compelled to make these requisitions in the first place.”
The Board responded with its own “post hearing” announcement, the most relevant part of which said:-
“Whilst the Company considers its legal position on these matters to be robust, the Petitioners have also confirmed that if their arguments succeed in relation to the validity of the s338 notices, the Petitioners agree that the Annual General Meeting should proceed to take place on 24 October 2013 as long as their proposed resolutions are circulated as soon as reasonably practicable after the hearing concludes and before the date of the Annual General Meeting.”
Can we piece together then exactly what is being argued about on Monday?
The starting point is Section 338 of the Companies Act 2006. It is shown in full at the foot of this post. Looking at it closely we see that the company must include a resolution on the agenda for the AGM as long as the following are satisfied:-
- The resolution will not be “ineffective” if granted
- The resolution is not defamatory
- The resolution is not “vexatious” or “frivolous”
- The resolution is moved by shareholders representing at least 5% of the voting shares or by at least 100 shareholders each having an average shareholding worth £100 (based on the issue price)
- The resolution must be authenticated by the people moving it
- The resolution is received by the company not later than 6 weeks before the AGM or not later than the time at which notice of the AGM is given.
The Board refused to put the resolution, which related to the proposed appointment of 4 new (or re-tread) directors, on the agenda. The Rebels therefore went to court looking for an order to prevent the AGM going ahead on the basis that the Board had failed to abide by the law and had illegally refused to consider the resolution.
The issue is therefore whether or not the conditions detailed above were met or not.
In its initial response on 1st October, copied at the foot of the post, the Board seemed to make its position clear.
As far as its statement went the resolution was ineffective for the following reasons:-
- The company required the shareholders proposing the resolution to “authenticate” their signatures – did they did not accept that the resolution came from the people who were stated as having framed it?
- The resolution was vexatious because the EGM Requisition had been dropped and the appointment of the 4 new directors had not been separately mooted until the proposed resolution was sent to RIFC. Some of the shareholders (but not all) of those proposing this resolution were the same as those requisitioning the EGM.
- The resolution might be ineffective because appointment of new directors might, in some unspecified way, not comply with the Articles of Association or would not have the required “prior regulatory approval”.
- The resolution might be frivolous for the same reasons.
- The Notice of the AGM had been sent to the printers on 27th September so, impliedly, this resolution, even if valid, was too late.
What approach will the court take to the issues?
The first thing to note is that Lord Tyre will not be determining the full legal and factual rights and wrongs of the situation. Monday’s hearing is not the forum for that to happen. Instead the Rebels have applied for an interdict to stop the AGM going ahead until the resolution can be put before it. The court is being asked to put a hold on matters just now until either the Rebels get what they want or until a full hearing takes place.
The judge has to decide two things. First of all, is there are prima facie case? Secondly, where lies the “balance of convenience”?
If there is a case which seems to have some merit (and this would be that the resolution was, on the face of it, valid and sent in time but the Board have unlawfully refused to deal with it) then the court can consider the second part. Monday’s hearing is not for witnesses to give evidence although sworn affidavits can be produced on factual matters. If both sides present versions of events which are clearly different and which would require a hearing of evidence to decide, then this would often in itself be enough to get the case from stage 1 to stage 2.
On the face of it the Board seems to have refused a valid resolution, so we then come to the “balance of convenience”. Where there are legal grounds for an interdict, which side is prejudiced more by grant or refusal of an interim order? In this case, if Lord Tyre thinks that the Board has failed to deal correctly with the resolution, but he refuses the interim interdict, then the AGM will go ahead. The Rebels will be forced, if they want to proceed with the vote on 4 new directors, to requisition a new EGM. They will be caused expense and delay as a result. If the interdict is granted, then RIFC PLC will have to cancel the AGM, issue new circulars notifying shareholders of the new date and of the new resolution and fix a new date. This will cost the company money. However, the reason for this would be that the company had acted unlawfully and therefore it would be its own fault.
So, if the judge accepts that, on the face of it, the resolution was validly submitted and has been unlawfully ignored by the Board, I think it is much more likely than not that an interdict would be granted.
(The parties are free to discuss arrangements which might allow the AGM to go ahead as scheduled, and Mr Murray’s statement hints at that.)
Looking at the Board arguments in turn, how might Monday’s hearing deal with them?
Authentication – the 2006 Companies Act changed the former requirement which was that such a document had to be signed. The use of the word “authenticated” is not to require some additional method of proof, but rather to allow electronic submission where a “signature” can be appended by other means. Unless there is some real concern that (a) the shareholders whose names have been used have not actually consented to this or (b) that they do not own the required percentage of shares, this issue seems to be of little use to the Board on Monday. As long as the resolution seems to be in order, at this stage in proceedings the court will not look behind it.
Vexatious – This term is used to describe resolutions which are initiated maliciously by an individual or group not acting in good faith for the purpose of annoying or embarrassing the company or its Board. The Board might think that this is a vexatious resolution but it is not identical to that which was part of the EGM requisition and it seems that the parties seeking at are not identical. Circumstances have changed since the EGM requisition was dropped. Whilst the resolution might succeed in embarrassing the Board, I think it would be hard to argue convincingly that it has been advanced “maliciously” and in “bad faith”.
Ineffective – this implies that, even if the shareholders vote in favour of the new directors, they cannot be appointed to the Board. The Board have not made clear how the appointment of Rebel directors by a vote at an AGM might not comply with the Articles of Association. Nor have they explained what “prior regulatory approval” is needed – is this a reference to the mythical “fit and proper person test”? In either event one doubts that this argument has much mileage in it.
Frivolous – This falls somewhere on the spectrum between ineffective and vexatious. It refers usually to an issue which is of little or no practical importance. For example, if the resolution was to appoint Barack Obama as a Rangers director, despite him never having heard of Ibrox (for example) this might be seen as frivolous. (I will ignore the issues that would come from trying to appoint a director without his consent). Or, if the famous Mr Custard was nominated, this might too be frivolous. None of the 4 men in line for appointment can be compared however to Mr Custard.
The resolution was received too late – this seems to be, from what has been said and made available publicly, the only substantive ground of argument. But even here it looks as if the Board is fighting a losing battle. The statements produced below are carefully worded. Nowhere does it say that the resolution was received after the notice of the meeting was given. Instead it was received, says the 1st October statement, after it had gone to the printers. If it had arrived after the notice of the AGM had been given, then one suspects that RIFC would have said so. If they were now to say that the resolution was not received until 1st October 2013, when the notice of the AGM was given, then the judge might wonder why the statements to the AIM did not say that.
The Act, as you will see below, makes clear that the cut-off is the giving of notice of the AGM, not the dispatch to the printers.
Therefore, based on the publicly available data, if the matter goes to a decision on Monday I would expect that Lord Tyre would grant the Rebels the interdict they have asked for and thus postpone the AGM.
Reading each side’s statements one could be confused as to the respective strengths of argument, but rarely will someone at the door of the court say that they think their own case is hopeless!
Why then have the Board fought this? The simple answer is that they clearly did not expect that the Rebels would take court action. Their bluff though was called.
What I expect to happen therefore is that, in line with Paul Murray’s statement, there will be an effort to agree to out the resolutions about the new directors on the agenda for the AGM. As this will allow the AGM to go ahead as scheduled, the Board will claim victory on the basis that the Rebels failed to have it cancelled. However what the Rebels want is not postponement of the meeting but consideration given to their resolution.
If matters are not settled by the time the hearing starts in Monday, I suspect they will by the time it ends. The judge might well, after hearing legal argument, say that he is minded to grant the interdict but give parties a few minutes to come to an accommodation.
Either way the Rangers Board has, in my opinion, seen itself out-manoeuvred by the Rebels, and are likely to be ordered to pay the costs of the case as a consequence.
And then we will see what happens at the AGM itself…
Posted by Paul McConville
On 1st October the RIFC Board issued the following statement:-
The Board of Rangers confirms that it has received a notice dated 27 September 2013 from certain minority shareholders (“Notifying Shareholders”) under section 338 of the Companies Act 2006 requesting the Company to circulate certain resolutions to shareholders for inclusion in the business at the forthcoming Annual General Meeting of the Company (the “Notice”). The Notice puts forward resolutions for the appointment of Malcolm Murray, Paul Murray, Scott Murdoch and Alex Wilson as directors of the Company.
Whilst the Board has requested the Notifying Shareholders to authenticate their signatures on the Notice and their shareholdings as required under section 338 of the Companies Act 2006 in order to validate the Notice, the Board notes that the Notice has been received by certain of the minority shareholders who were involved with the Requisition, the receipt of which by the Company was announced by the Company on 2 August 2013.
The Board further notes that on 12 September 2013 the Company announced that the Requisitioners had agreed the withdrawal of the Requisition including their proposal for the appointment of directors on the condition only that the Company convened and held its Annual General Meeting no later than 31 October 2013. The Board notes that no variation or amendment to the terms of the withdrawal of the Requisition has been discussed or agreed with the Requisitioners.
The Board considers that the Notice, if authenticated, is unlikely to be properly constituted under s338 of the Companies Act 2006. Given the basis upon which the Requisitioners had agreed the withdrawal of the Requisition and as the Notifying Shareholders have not requested to discuss this prior to sending the Notice, the Board currently considers the proposed resolutions to be vexatious. The Board is also concerned that the contents of the proposed resolutions may also be either ineffective or frivolous as any director appointment must comply with the Company’s articles of association and is subject to prior regulatory approval.
The Board further notes that the notice for the Annual General Meeting of the Company to be held on 24 October 2013 had in any event been sent to the Company’s printers for printing on Friday 27 September 2013.
On 4th October 2013, at 7 am, RIFC PLC had announced the following to the Stock Exchange:-
The Board further notes that on 4 October 2013 the Company received notice of a petition filed in the Scottish Courts (the “Petition”) by Paul Murray, Malcolm Murray, Ian Cormack, John Graham and Colin Howell representing 0.71 per cent of the voting rights of the Company (the “Individual Shareholders”). The Petition requests an order to be granted by the court, inter alia, to require the Company to circulate the Notices to shareholders and not to hold the Annual General Meeting of the Company for 2013 until such time as the Individual Shareholders have received 21 clear days’ notice of any such Annual General Meeting and the Notices have been circulated.
The Board offered to meet with the Notifying Shareholders to discuss their concerns but had not received a response. The Board then received notice of the Petition. Whilst the Company intends to strongly resist the Petition the Board intends to take all possible steps to avoid unnecessary cost and disruption to the Company.
The Board issued this further statement following the hearing:-
Further to the announcement earlier today on 4 October 2013 regarding the petition filed in the Scottish Courts (the “Petition”) by Paul Murray, Malcolm Murray, Ian Cormack, John Graham and Colin Howell being shareholders representing 0.71 per cent of the voting rights of the Company (the “Petitioners”), the Company confirms that the Petition was called in the Scottish courts to be heard today, Friday 4 October, 2013 by Lord Kinclaven.
The Petitioners sought interim orders to prevent the Annual General Meeting of the Company from taking place on 24 October 2013. No such orders were granted by the court.
Certain legal arguments in relation to the validity of the section 338 notices have been continued to a new hearing to take place on Monday 14 October 2013 at the Court of Session in Edinburgh. Whilst the Company considers its legal position on these matters to be robust, the Petitioners have also confirmed that if their arguments succeed in relation to the validity of the s338 notices, the Petitioners agree that the Annual General Meeting should proceed to take place on 24 October 2013 as long as their proposed resolutions are circulated as soon as reasonably practicable after the hearing concludes and before the date of the Annual General Meeting. The Annual General Meeting of the Company is, therefore, set to proceed on 24 October 2013.
Companies Act 2006 Section 338
338 Public companies: members’ power to require circulation of resolutions for AGMs
(1) The members of a public company may require the company to give, to members of the company entitled to receive notice of the next annual general meeting, notice of a resolution which may properly be moved and is intended to be moved at that meeting.
(2) A resolution may properly be moved at an annual general meeting unless—
(a) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the company’s constitution or otherwise),
(b) it is defamatory of any person, or
(c) it is frivolous or vexatious
(3) A company is required to give notice of a resolution once it has received requests that it do so from—
(a) members representing at least 5% of the total voting rights of all the members who have a right to vote on the resolution at the annual general meeting to which the requests relate (excluding any voting rights attached to any shares in the company held as treasury shares), or
(b) at least 100 members who have a right to vote on the resolution at the annual general meeting to which the requests relate and hold shares in the company on which there has been paid up an average sum, per member, of at least £100.
(4) A request—
(a) may be in hard copy form or in electronic form,
(b) must identify the resolution of which notice is to be given,
(c) must be authenticated by the person or persons making it, and
(d) must be received by the company not later than—
(i) 6 weeks before the annual general meeting to which the requests relate, or
(ii) if later, the time at which notice is given of that meeting.