Can Shareholders Override Management Decisions of the Board?: Att-General v Ririnui in the New Zealand Court of Appeal

Abstract

Can shareholders of a company override a management decision made by the board? The answer, at least since Automatic Self-Cleansing v Cuninghame [1906] 2 Ch 34 (CA) in 1906 has been an unequivocal no. In fact, as implied by Cozens-Hardy LJ in Cuninghame, the answer has been no since the statutes permitting incorporation by registration were enacted in the middle of the nineteenth century. And it is surely correct that the answer be no. When limited liability decoupled the fortunes of shareholders from the fortunes of the companies they held shares in, it at the same time changed the role of the directors comprising the board from an agency relationship with shareholders to a role that necessitated consideration of the interests of the company as a separate legal entity from its shareholders. In New Zealand, in common with most jurisdictions, the power to manage the company is derived statutorily. Shareholders cannot legitimately override management power statutorily allocated to the board. This article discusses why an apparently long settled question of company law reach the New Zealand’s highest Court, the Supreme Court.

Keywords: company law, corporate law, corporate governance, division of powers, role of board