Euro Brokers Holdings Ltd v Monecor (London) Ltd

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Euro Brokers Holdings Ltd v Monecor (London) Ltd [2003] 1 BCLC 506


Ordinarily directors are required to follow a strict set of procedures in order to pass resolutions and special resolutions. These resolutions represent the decisions made by the company and are necessary for the decisions to be held valid. These procedures are identified in the Companies Act 2006 and primarily seek to protect the interests of the shareholders. Euro Brokers Holdings Ltd v Monecor,1 determined that it was possible for decisions to be valid in certain situations where the strict procedural requirements had not been followed. Nonetheless, the formal requirements could only be disregarded where the procedures existed merely to protect the interests of members making the decision.2 Provided that all of the shareholders who were entitled to vote assent to the decision then it will be treated as a binding resolution despite the lack of formalities.3 However, where the decision affects third parties, such as creditors, the court will require the procedural requirements to be complied with in order for a decision to be valid.4


The case concerned a joint venture company (EBF) holding within its articles a minimum capital requirement which exceeded the regulatory minimum set by the Financial Services Authority (FSA). The two shareholders Euro Brokers Holdings Ltd (EB) and Monecor, each holding 50% of EBFs shareholding, had agreed the company’s capital requirement which determined that failure to pay the capital call would require the director to sell their shares. Following director resignations, the board was inquorate but meetings were continued by the shareholders. The shareholders had agreed in these meetings to meet the capital call without the board issuing the required notice. This was held to be as binding upon the shareholders as if the notice had been given, on the basis that the decision only affected the shareholders. Everyone who was entitled to vote at the meeting has agreed to the requirements of the capital call and were therefore held to be bound by them.


Monecor had argued that the inquorate board had nullified the company’s decision for a capital call and therefore was invalid. They also argued that as the sum exceeded the capital holding requirements set by the FSA, meant that such capital holding was excessive and as such could not be binding. The court however, concluded that the Duomatic principle applied,5 allowing the members of a company “to reach an agreement without the need for strict compliance with formal procedures, where they exist only for the benefit of those who have agreed not to comply with them”. 6 It was not therefore possible for the members to subsequently state that the agreement was invalid on the basis that the procedures had not been complied with. There was nothing to restrict companies from holding higher reserves of capital than that set by the FSA and hence this was not something that could invalidate the agreement between the shareholders. In this case the court also concluded that estoppel applied on the basis that Monecor had agreed to pay half of the capital call and by such conduct had waived the procedural defect. Estoppel would therefore prevent any subsequent challenge by Monecor on the validity of the capital call.

The court reinforced the earlier courts provision of an order for specific performance in accordance of the agreement reached between the members. Namely, to sell their shares if they failed to meet the capital call. In this regard the court ordered Monecor to sell their entire shareholding in EBF to Euro Brokers Holdings Ltd. Notably they did not give Monecor the opportunity at this stage to meet the capital call.

Issues Raised

The decision assesses the validity of a company’s articles in addition to the statutory formalities that are required for any decision to be valid. Where the parties have agreed not to follow their strict adherence there are relatively few instances where the decision will nonetheless be treated by the court as valid. Whilst it only applies to decisions where there are no other parties affected it nonetheless questions the validity and purpose of certain formalities when they can be undermined in this way. In this case, the board was inquorate and thus the company at that time was not able to make valid decisions. Mummery L.J. identified that Monecor had the capacity to rectify this issue by appointing representative directors but had failed to do so. In instances where the board is inquorate, it is both necessary and acceptable for the shareholders to make the decisions on behalf of the company.7

The procedural provisions contained within the Companies Act 2006 clearly states that a resolution is necessary in order for company decisions to be valid however, whilst section 281(4) determines that this does not affect any other rule of law it is generally thought not possible for a members agreement to represent a valid resolution.8 In this regard, the rule is quite restrictive and identifies that the case operates outside the requirements for a valid resolution. Nonetheless there are limited examples where the Duomatic principle will be held to apply and Euro Brokers Holdings Ltd determines that it can apply only where the decision only affects those who have reached agreement outside of a formal resolution.

The restrictions imposed by the various Companies Acts and most notably the Companies Act 2006 suggest that the Duomatic Principle will not be widely applied.9 It is possible that this is why Mummery L.J. identified that estoppel also applied in this instance. Moreover the decision disregards many of the provisions outlined in the Companies Act 2006 in relation to meetings in particular the notice period that should be given in relation to calling a meeting.10 Given that the Duomatic principle is very limited and the fact that the case would not be followed in instances where a third party would be affected, it be better attributed to the principles of Estoppel. Nonetheless, it does create some uncertainty for the parties who are rightly entitled to believe that formalities are in place and should therefore be followed.


1 Ibid.

2 S Mayson, D French and C Ryan, Company Law (29th edn, Oxford University Press 2012) 417.

3 Re Duomatic Ltd 1969 2 Ch 365, per Buckley J at 373.

4 Dipping Ltd v Precision Dipping Marketing Ltd 1985 B.C.L.C. 385.

5 As derived from Re Duomatic Ltd 1969 2 Ch 365.

6 Euro Brokers Holdings Ltd v Monecor (London) Ltd 2003 1 BCLC 506, Per Mummery L.J. at 62.

7 Foster v Foster 1916 1 Ch 532.

8 Re Barry Artist Ltd 1985 1 WLR 1305.

9 P Davies, and S Worthington, Gower and Davies: Principles of Modern Company Law, 9th edn, Sweet and Maxwell 2012) 15:21; Wright v Atlas Wright (Europe) Ltd 1999 2 BCLC 301.

10 Mayson, French and Ryan, n3, 14.13.4

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