Duomatic Principle – What is it and when NOT to use it!
The Duomatic Principle is the common law principle of decision-making by shareholders through informal unanimous consent, preserved in s281(4) of the Companies Act 2006. The Duomatic Principle allows shareholders of a company to informally approve the company’s actions without the need to hold a general meeting, as long as the approval is unanimous. The Duomatic Principle provides for greater flexibility and is primarily used in urgent or time-sensitive cases where shareholder resolution formalities cannot be carried out.
Where a matter is within the scope of Duomatic Principle, the following must be established for the principle to apply:
- The consent of shareholder to the relevant matter must be unanimous
- The consent must be given by shareholders in full knowledge of the relevant matter, if it is not, the principle will not apply.
It is important to be aware of the limitations to the Duomatic Principle. The Duomatic Principle will not apply if a formal member’s resolution would have been invalid, (for example, because an action would have been fraudulent) then assent using the Duomatic Principle would also be considered invalid and during insolvency where the resulting transaction may cause loss to the creditors of the company or the company’s insolvency. This was reiterated in the case of Henry v Finch  ALL ER (D) 96, where the directors had utilised Duomatic Principle to carry out company transactions. The Court held that some of the transactions were invalid and stated that if a formal members’ resolution had been made, the resolution would be considered invalid. As a result, the Duomatic principle was invalid and should not have been relied upon by the shareholders.
There may also be filing obligations involved in relation to decisions as a result of Duomatic Principle. The general rule is, if a matter that has been agreed by Duomatic Principle is required to be filed (had it had been passed by special resolution), then a copy of that agreement or a memorandum of its terms should be filed at Companies House.
The application of Duomatic Principle is a minefield and there has been a lot of case law relating to its use and application over the past 30 years. It therefore remains prudent to utilise he more formal shareholder resolutions. for further details regarding formal shareholder resolutions, please see our 4 part series on Company Resolutions.
For further information regarding Duomatic Principles, or corporate advice surrounding a company transaction, please contact Michelle.Lamberth@herrington-carmichael.com.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to your own particular matter before action is taken.
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