Under the Isle of Man’s Companies Act 1931 (as amended) (the “Act”), “ordinary”, “extraordinary” and “special” describe meeting-based resolution types with prescribed notice and voting thresholds; for example, an extraordinary or special resolution requires not less than a three-quarters majority at a general meeting, with a special resolution also needing not less than 21 days’ notice stating the intention to propose it (s.116(1) and (2) of the Act). A meeting for other business may be called on 14 days’ notice where the articles are silent (s.114(1)(a) of the Act).

By contrast, the statutory written resolution route, available only to private companies, dispenses with the need to convene a meeting and give prior notice, but demands unanimous consent. Anything that can be done by resolution in general meeting or by a class meeting “may be done… by resolution in writing signed by or on behalf of all the members” entitled to vote (s.118A(1) of the Act), and a resolution so agreed “has effect as if passed” in general meeting; statutory references to meetings and to special/extraordinary resolutions are to be read accordingly (s.118A(4) and (6) of the Act). Filing and administrative requirements continue to apply: section 117 of the Act captures special and extraordinary resolutions and unanimous member agreements that stand in their place (s.117(1) and (4)(c) of the Act), and written resolutions with meeting-equivalent effect must be recorded like minutes (s.119A of the Act).

It follows that it is inaccurate to call a resolution passed by written means “ordinary”, “special” or “extraordinary”; the more precise formulation is that the unanimous written resolution is deemed to take effect as if it had been passed as the relevant meeting-based resolution (s.118A(4) and (6) of the Act).

It is common for companies also to include in their articles a separate, unanimous written-consent mechanism distinct from the section 118A procedure. That articles-based process co-exists with the statute (s.118C(1) of the Act provides that ss.118A–118B have effect “notwithstanding” the memorandum or articles, but s.118C(2) of the Act preserves things done otherwise than by passing a resolution), and it is often more convenient because it usually avoids the auditor copy/veto mechanics in section 118B of the Act. Under s.118B(1) of the Act a copy of any written resolution proposed under s.118A must be sent to the company’s auditors (unless exempt from audit), and if the resolution “concerns the auditors as auditors” they may, within seven days, require it be considered at a meeting; until the period expires or they indicate no objection, the resolution has no effect (s.118B(2)–(4)). An articles-based unanimous consent is not caught by s.118B, which is why many drafters prefer it where available.

In addition to the formal meeting-based or written decision-making procedures prescribed by statute or a company’s constitutional documents, the courts recognise that decisions made informally and unanimously by all shareholders entitled to vote, with full knowledge of the material facts, can in certain circumstances constitute a valid decision of the members. This common law principle was articulated in Re Duomatic Ltd [1969] 2 Ch 365 and has since been reaffirmed and refined by the Privy Council in Ciban Management Corp v Citco (BVI) [2020] UKPC 21. Although applied successfully in a range of contexts, its scope is not universal and remains the subject of debate. It should therefore be treated as a safety-net that may validate unanimously approved decisions where prescribed statutory or constitutional formalities were inadvertently not observed, rather than as an alternative approval route; it does not disapply mandatory statutory mechanics or third-party protections.

Common pitfall: citing s.118A when the articles procedure was intended

A common drafting error is to state that a written resolution will be “passed pursuant to section 118A”, assuming it is equivalent to an articles-based unanimous consent. It is not: invoking s.118A triggers s.118B (i.e. a copy of any proposed s.118A written resolution must be sent to the auditors (if the company has them)) (s.118B(1)); if it “concerns the auditors as auditors”, they have seven days to require a meeting, during which the resolution has no effect (s.118B(2)–(4)). An articles-based unanimous consent is not caught by s.118B, and the two routes remain distinct (s.118C(1)–(2)). Mis-labelling can therefore cause delay or, if the s.118B step is missed, leave a unanimously signed resolution not yet effective.

Practitioners should also keep in mind the express limits on the statutory written-resolution route: a s.118A written resolution cannot be used to remove a director (s.141A of the Act) or to remove an auditor (s 13 of the Companies Act 1982), as set out in Schedule 6A, Part II (para 2) of the Act. In addition, certain buy-back/out-of-capital procedures are adapted specifically for s.118A written resolutions (Schedule 6A, Part III of the Act).

Conclusion

Under the Act, a written resolution is a unanimous, non-meeting route for private companies that often stands in place of an ordinary, extraordinary or special resolution, but it is not any of those meeting-based forms. The accurate description is that the written resolution is deemed to take effect as if it had been passed as the relevant type. Practitioners should keep the s.118A and articles-based procedures analytically distinct; they should be alert to the auditors’ copy/veto mechanics when the statutory route is used, to the s.117 filing regime for unanimous agreements and special/extraordinary matters, and to the narrow exceptions where s.118A cannot be used. In many cases, it is more efficient to use an articles-based written consent mechanism than the section 118A procedure.

Disclaimer

The information and/or opinions contained in this article is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter. Any reliance on such information and/or opinions is therefore solely at the user’s own risk and DQ Advocates Limited (and its associates and subsidiaries) is not responsible for, and does not accept any responsibility or liability in connection with any action taken or reliance placed upon such content.