An extraordinary resolution was a form of decision-making in corporate governance that required a heightened level of approval. It was pertinent for significant decisions, such as winding up a company, as stipulated under the Companies Act 1985. Despite its removal under the Companies Act 2006, it may still appear in the articles of certain companies.
Historical Context
Under Companies Act 1985
The Companies Act 1985 mandated that extraordinary resolutions required:
- 14 days’ notice of the meeting.
- Approval by 75% of those voting to pass the resolution.
Under Companies Act 2006
The Companies Act 2006 abolished the requirement for extraordinary resolutions, although it allowed for similar provisions to be included in a company’s articles of association.
Types/Categories of Resolutions
Ordinary Resolution
- Majority needed: More than 50%.
- Notice period: Typically 14 days.
Extraordinary Resolution
- Majority needed: At least 75%.
- Notice period: 14 days (under Companies Act 1985).
Special Resolution
- Majority needed: At least 75%.
- Notice period: 21 days (under Companies Act 2006).
Key Events
- 1985: Implementation of the Companies Act 1985, defining and formalizing the use of extraordinary resolutions.
- 2006: Companies Act 2006 eliminates the requirement for extraordinary resolutions but maintains the concept of special resolutions with similar approval criteria.
Detailed Explanations
Requirements for Passing an Extraordinary Resolution
Notice
A 14-day notice was mandatory under the Companies Act 1985, ensuring that all shareholders had adequate time to consider the implications of the proposed resolution.
Voting Threshold
A supermajority (75%) of voting shareholders was required to approve an extraordinary resolution, reflecting the significant impact such decisions had on the company.
Applicable Scenarios
Common scenarios where extraordinary resolutions were required included:
- Deciding to wind up a company.
- Significant alterations to the company’s memorandum and articles of association.
- Reorganizing share capital.
Mathematical Formulas/Models
While mathematical formulas do not directly apply to extraordinary resolutions, here’s a simple representation of the voting requirement:
Example Calculation
If 300 votes are cast in a meeting, at least 225 must be in favor for an extraordinary resolution to pass.
Charts and Diagrams
graph LR
A[Company Decision] -->|Ordinary Resolution| B(Majority: >50%)
A -->|Extraordinary Resolution| C(Supermajority: >=75%)
A -->|Special Resolution| D(Supermajority: >=75%)
Importance and Applicability
Importance
Extraordinary resolutions served as a check against arbitrary decision-making by requiring a higher consensus for decisions with major implications.
Applicability
Even post-Companies Act 2006, companies may include provisions in their articles to require extraordinary resolutions for specific decisions, thus maintaining a higher approval threshold.
Examples
- Winding up a company: Before the Companies Act 2006, such decisions required an extraordinary resolution.
- Amendments to Articles of Association: Significant changes typically necessitated a supermajority.
Considerations
- Company Articles: Post-2006, review company articles to determine if similar provisions are still in place.
- Voting Power: Assess the influence of major shareholders who can sway decisions requiring a supermajority.
Related Terms
- Special Resolution: Similar voting threshold, with different procedural requirements under the Companies Act 2006.
- Ordinary Resolution: Requires a simple majority.
Comparisons
| Feature | Ordinary Resolution | Extraordinary Resolution | Special Resolution |
|---|---|---|---|
| Voting Threshold | >50% | >=75% | >=75% |
| Notice Period | 14 days | 14 days (1985 Act) | 21 days (2006 Act) |
| Applicability | General decisions | Significant decisions | Significant decisions |
| Legal Requirement (Post-2006) | Optional (Company Articles) | Optional (Company Articles) | Mandated under 2006 Act |
Interesting Facts
- Historical Significance: The stringent requirements underscored the gravity of decisions necessitating extraordinary resolutions.
Inspirational Stories
- Company Safeguarding: A UK firm successfully avoided a hasty takeover by invoking an extraordinary resolution, demonstrating its protective role.
Famous Quotes, Proverbs, and Clichés
- Proverb: “Measure twice, cut once.” - Reflects the importance of thorough decision-making in corporate settings.
- Cliché: “The devil is in the details.” - Highlights the critical nature of reviewing and understanding resolutions.
Jargon and Slang
- “Supermajority”: Refers to a significant majority greater than a simple 50% majority, often required in extraordinary resolutions.
FAQs
What replaced extraordinary resolutions under the Companies Act 2006?
Extraordinary resolutions were essentially replaced by special resolutions, which have similar approval requirements.
Can a company still require extraordinary resolutions?
Yes, if stipulated in the company’s articles of association.
References
- Companies Act 1985.
- Companies Act 2006.
- Legal interpretations and applications in corporate governance literature.
Final Summary
Extraordinary resolutions played a crucial role in corporate decision-making, necessitating higher approval for significant decisions under the Companies Act 1985. Although the Companies Act 2006 removed their necessity, the principles behind them persist in modern corporate governance through special resolutions and company-specific articles. Understanding the historical and legal context of extraordinary resolutions enriches comprehension of corporate governance’s evolution.
This article offers a detailed exploration of extraordinary resolutions, elucidating their relevance, historical context, and continued applicability in corporate governance.
