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Company meetings and impracticability
IN order to run a limited company, it is essential to have meetings between directors on a regular basis. These meetings are needed for good corporate governance and for
the efficient management of the company. Directors are responsible for the day-to-day operations of the company and they are the driving force behind a company's success. The shareholders, on the other hand, are required to attend and preside over the Annual General Meeting, where they closely analyse, inter alia, the company's performance in the preceding year, and any other general meetings, if the need arises. Whatever the case, both Board meetings and general meetings are important to maintain the balance and harmony for the smooth functioning of a company.
However, there may be various situations where the directors are unable to hold their Board meetings and the shareholders are unable to attend and/or hold general meetings. In some cases, these unfortunate events of not holding the said meetings in a company are deliberate and, in some cases, they are not deliberate. For example, there are situations when the quorum requirement to hold a Board meeting is not met, or the directors have resigned and the company is left without a functioning Board, or the audit report is not yet ready leading to the inability of the company to call the AGM. There are cases where a minority group, without whose attendance, the quorum requirements laid in the constitution of the company would never be satisfied, deliberately decides not to attend any meetings of the company. As a result, the company is paralysed and cannot function. The list can be endless depending upon the particular facts and circumstances of each case.
Most company law statutes confer on courts the power to convene meetings of a company in situations where it is “impracticable" for the meeting to be called under the provisions of the company's articles. Under the laws of Bangladesh, if any director or member is faced with such a predicament, they can
always seek recourse before the Courts of Bangladesh and pray for their intervention. Under the Companies Act, the Court has the necessary powers to intervene in such circumstances and provide the appropriate remedy to the concerned director or shareholder. The Court's powers are wide in this respect and whenever it is "impracticable" to hold the said meetings, the Court will intervene so that the company, as a separate legal person distinct from its shareholders/directors, does not suffer for the negligence and/or the deliberate malafide acts of its shareholders/directors.
As the term suggests, "impracticability" usually arises when it is not practicable to hold meetings of any kind in a company. The phrase has been referred to in Section 85(3) of the Companies Act, 1994. This section gives the Court wide powers to direct a company to call and hold the said meetings. The term "impracticable" is not defined in the Companies Act. Through different cases, the Courts of Bangladesh have provided some guidance as to what it means. The starting point is that the Courts ought to consider the question of "impracticability* from a reasonable point of view and also a commonsense view of the matter. In short, the Court ought to apply and judge the standard from the perspective of a prudent person
of business. The “impracticability" of calling a meeting may not be equated with impossibility of calling such a meeting. It has been held by Courts that "impracticability" is a concept different from "impossibility" for while the latter is absolute, the former introduces at all events some degree of reason and involves some regard for practice. There is more an element of subjectivity sought to be introduced by this provision of the Companies Act 1994. Impracticability merely requires the Court to examine the circumstances of a particular case and answer the question whether, as a practical matter, the desired meeting of the company could be conducted or not. The Supreme Court in Bangladesh has clearly held that reference to "a meeting* under this section is wide enough to cover an AGM, Board meeting or general meetings, as the case be.
Recently, many companies are facing corporate governance issues due to difference in opinion between the shareholders leading to deadlock in holding general meetings and also facing hostile actions directly from its directors. This is more apparent in case of nominee directors where such directors feel that they do not have any direct fiduciary duties towards the company in which they have been nominated. Due to differences between the parent company and the nominee director, there are cases where the nominee
directors have resigned and left the company without a functioning Board or deliberately put the company in a situation where the quorum is not met. This is harmful for the company and the shareholders in such a case can appropriately seek the intervention of the Court to seek its assistance to dispense with the need of fulfilling the quorum requirements and hold the necessary meetings.
It is during meetings when important decisions concerning a company are made. If the company and/or the innocent parties suffer due to the malpractice of certain shareholders and/or directors, then clearly the innocent party should have the right to seek the intervention of the Courts to prevent such unfortunate events leading to a potential deadlock. Such deadlocks can damage the company and its operations. It is neither fair nor appropriate that companies should suffer for the acts of certain unscrupulous shareholders and directors. The Courts in Bangladesh have rightly intervened in such situations and provided the due remedy sought for by the innocent party so that the company remains functioning without any hindrance.
THE WRITER IS AN ADVOCATE OF THE BANGLADESH SUPREME COURT AND FOUNDER OF SATTAR &CO.