The Companies Act 1997 reserves its most significant decisions for a special resolution. Section 2 defines it.
The section 2 definition
A resolution approved by a majority of 75% or, where a higher majority is required by the constitution, that higher majority, of the votes of those shareholders entitled to vote and voting on the question.
| Ordinary resolution | Special resolution | |
|---|---|---|
| Majority | Simple majority — s 87(2) | 75%, or higher if the constitution requires — s 2 |
| Measured against | The votes of shareholders entitled to vote and voting on the question — not all issued shares | |
| When it applies | The default for any shareholder power — s 87(1) | Only where the Act or the constitution requires it |
| Constitution can lower it? | Not below a simple majority | No — s 88(1) applies “notwithstanding the constitution” |
| Constitution can raise it? | Yes | Yes — the definition expressly contemplates a higher majority |
The 75 per cent is of the votes actually cast. A shareholder who abstains or does not attend does not count against the resolution. So a company with a low turnout can pass a special resolution on a small proportion of its issued capital — which is why quorum provisions in Schedule 2 and in the constitution matter.
Votes that are of no effect are excluded from the calculation: shares a company holds in itself under section 57B, and shares held by a subsidiary in its holding company under section 64(4)(b).
Section 88 — the five statutory cases
(a) adopt, alter or revoke the constitution;
(b) approve a change of name;
(c) approve a major transaction;
(d) approve an amalgamation under section 234;
(e) put the company into liquidation.
Other provisions require one indirectly. Under section 44A, shares that cannot be issued because of a constitutional restriction may be issued if the board obtains approval in the same manner as approval for an alteration to the constitution — that is, by special resolution. And under section 98, altering the rights attached to a class engages the interest group process.
Sections 88(2) and (3) — undoing one
(2) A special resolution under paragraphs (a) to (d) can be rescinded only by a special resolution.
(3) A special resolution under paragraph (e) — putting the company into liquidation — cannot be rescinded in any circumstances.
Subsection (3) admits of no exception. Once passed, a liquidation commences under section 291, the liquidator takes control, and the directors’ powers cease under section 298. The only route back is an application to the Court under section 300 to terminate the liquidation — a judicial decision, not a shareholder one.
How a special resolution is passed
- At a meeting — an annual meeting under section 101 or a special meeting under section 102, convened on proper notice. Under section 86 these are the only routes for a power reserved by the Act, apart from section 103.
- By written resolution — section 103 allows a resolution in lieu of a meeting, signed by the required majority. This is the usual course in a closely held company.
- By unanimous assent — section 89, where all shareholders agree or concur in writing. This deems the action validly authorised notwithstanding the constitution, and disapplies the provisions listed in Schedule 1.
Schedule 2 governs the proceedings at a shareholders’ meeting except so far as the constitution provides otherwise. A resolution passed without proper notice of its terms is vulnerable, and a shareholder may seek an injunction under section 142 restraining the company from acting on it, or relief as a prejudiced shareholder under section 152.
Under section 106, the shareholders entitled to vote at a meeting are determined as that section provides — so the register as at the relevant date, not at the date of the meeting, fixes who may vote.
What follows a special resolution
| Resolution | What must be filed, and when |
|---|---|
| Adopt, alter or revoke the constitution | Notice in the prescribed form within one month — s 33(3); offence by every director under s 33(4) |
| Change of name | The prescribed application with the name reservation — ss 21, 24(1) |
| Major transaction | No separate filing, but the transaction must be approved or contingent on approval — s 110(1) |
| Amalgamation | The amalgamation proposal and directors’ certificates registered — s 236 |
| Liquidation | Commencement recorded — s 291B; and see the restriction in s 291A on appointment by shareholders |
A 75 per cent majority does not immunise the outcome. Section 152 allows a shareholder or former shareholder to obtain relief where the affairs of the company have been, are being, or are likely to be conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial — and section 153 deals specifically with an alteration to the constitution.
And where a resolution affects a class, section 99 allows a shareholder in the affected interest group to require the company to purchase their shares.
Sources
- Companies Act 1997 — ss 2, 21, 24, 33, 44A, 57B, 64, 86–89, 97–99, 101–103, 106, 110, 142, 152, 153, 234, 236, 291, 291A, 291B, 298, 300; Schedules 1 and 2
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.