What’s the value in updating my articles of association?

This guide is particularly useful for private companies, limited by shares or by guarantee, that have not changed their articles since 1 October 2009. That date was when most of the Act’s provisions came into force. Companies limited by guarantee should ignore references to “shares” and read “member” instead of “shareholder”.

Why update?

Updating your articles should enable you to:

• avoid being misled by, and perhaps even doing something unlawful because of, provisions in your articles that are inconsistent with the current law;
• take advantage of the Act’s deregulatory provisions;
• no longer be subject to some administrative burdens that the Act imposes; and
• remove provisions that are no longer applicable to you and add provisions to assist the smooth operation of your company. 

Where might old articles be inconsistent with current law?

• Article providing for the passing of a shareholders’ resolution by written resolution signed by all the members now ineffective. This article should not be used. There is now only one method for the passing of written resolutions of shareholders and that is as specified by Part 13 of the Act. Only private (not public) companies may use this method. A purported written shareholders’ resolution following this provision in the articles may now be invalid.

The statutory written resolution method only requires a 75 per cent majority to pass a special, and a simple majority vote for an ordinary, resolution; whereas this article specified unanimous agreement from shareholders. 
In rare cases, a decision which all shareholders have agreed to by following the procedures in that article, could be effective under the Duomatic principle. This principle should not be relied on when planning shareholders‘ resolutions in advance.

• The chair of a shareholders’ meeting is no longer given a casting vote. Unless your articles, which were in force just before 1 October 2007, gave the chair of a shareholders’ meeting a casting vote, in general the chair no longer has that right. So, shareholders’ resolutions that are passed by using the chair’s casting vote may now be invalid. In any case, we would recommend its removal and suggest other potential dispute resolution mechanisms.
• Rights of proxies extended. A proxy – a person appointed by a shareholder to attend a shareholders’ meeting on their behalf - is now entitled to attend, speak and vote, on a show of hands as well as on a poll, at a shareholders’ meeting. “Old” articles commonly state that all a proxy is allowed to do is vote on a poll. If a company were to prevent a proxy from voting on a show of hands, it could be faced with a legitimate claim that it is in breach of the Act.
• You can communicate electronically. The Act contains provisions for communicating electronically. These apply even if the articles don’t mention or even prohibit or restrict electronic communications. The company could take advantage of the Act’s electronic communications provisions by adding further provisions in its articles to facilitate communication via a website and alter the Act’s timing for the deemed delivery of notices and documents.
• Remove article which terminates a director’s appointment automatically upon the making of a mental health court order removing their powers. This method of terminating a director’s appointment was deleted from the Model Articles on 28 April 2013. It was considered that its effect could be discriminatory. It would therefore be advisable, to avoid the risk of a discrimination claim, to consider deleting this provision if it applies to your company. 

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