Harman v BML [1994] 1 WLR 893

Court: Court of Appeal

Facts: The company's shareholding structure comprised 190,000 B shares held by B and 310,000 A shares, of which 260,000 were held by H and M. According to a shareholders' agreement, the two classes of shares were ranked equally. The agreement also stipulated that a shareholders’ meeting could not be quorate unless at least one B shareholder or proxy was present. H and M, who faced allegations from B, applied to the court to modify the quorum requirement. The judge ordered that a quorum would consist of any two members of the company, disregarding the class rights. The company appealed the decision, referring to the predecessor of section 306 of the Companies Act 2006, which was section 371 of the Companies Act 1985.

Issue: Was the judge's modification of the quorum requirement valid, considering it disregarded the class rights of B?

Held: The appeal was allowed. The court held that section 371 (now section 306) was not intended to override the class rights of shareholders, even if they are in the minority. B’s right to be present at meetings was deemed a class right protected by the shareholders' agreement and could not be disregarded under the statute.

Key Judicial Statement: Dillon LJ noted, “It is not right, in my view, to invoke section 371 to override class rights attached to a class of shares which have been deliberately — in this case by the shareholders’ agreement — imposed for the protection of the holders of those shares, although they are a minority.”

💡 Leveluplaw: For an order to modify quorum requirements, the prosecution must prove that such a change does not infringe upon the class rights of any shareholder. Class rights that have been deliberately protected in a shareholders' agreement cannot be overridden by statutory provisions intended for procedural matters.