What is a board deadlock?
In this context a 'deadlock' is a situation where it is not possible for directors to pass resolutions. Deadlocks may be caused by a number of factors including:
- particular directors refusing to attend board meetings (meaning that quorum requirements cannot be met and a board meeting cannot be validly held);
- directors disagreeing on decisions and there being no clear majority (boards usually operate on the basis of one vote per director and majority rule); or
- a director (or a member) exercising a veto right (commonly in the context of a reserved matter in a shareholders’ agreement), preventing resolutions being passed.
Why are deadlocks a problem?
The directors of a company are responsible for the day to day operation of a company's business and have wide ranging powers to enable them to fulfil that function. Although it may be possible for certain responsibilities and decisions to be delegated to a particular director or committee of directors, most of the powers of the board have to be exercised collectively. While the boards of most small private companies tend to operate on a fairly informal level, best practice dictates that key decisions should be taken at properly convened board meetings and that the decisions should be formally minuted.
A deadlocked board may mean that important business decisions cannot be taken in a timely manner or even at all and lead to a business becoming paralysed.
Can anything be done in advance to help prevent or resolve deadlocks?
If the possibility of a deadlock is anticipated (for example, where the intention is for there to be an even number of directors) it may be possible to put in place documentation that provides a pre-agreed mechanism for dealing with deadlocks.
Shareholders' agreements
Shareholders' agreements sometimes contain specific provisions for dealing with board (or even member) deadlocks often, as noted above, in the context of reserved matters. These provisions can, for example, dictate that deadlocks are referred to the members (in the case of a board deadlock) or a third party (such as an expert or an arbitrator) for resolution or are resolved through some form of buy/sell mechanism (a topic for another article).
Articles of association
Articles of association may give a particular director (usually the chair of the company) a 'casting vote' at board meetings. The holder of a casting vote can use it to push through a resolution where there are an equal number of votes for and against it. However, a casting vote puts quite a lot of power in the hands of one person and so it is often not included.
A casting vote does not deal with the problem of a lack of quorum. However, it is possible to incorporate provisions which provide that if a board meeting has to be adjourned for lack of quorum, the quorum requirement is reduced for the purposes of the adjourned meeting.
Unfortunately, many companies do not put these types of agreements/provisions in place and it is generally too late to do so when a deadlock arises.
What can the members do to resolve a deadlock if there are no pre-agreed mechanisms in place?
In some circumstances it may be possible for the members of a company to break a deadlock by passing a resolution to approve certain decisions or appoint/remove directors and thereby change the composition of the board. However, this assumes that there is no deadlock at member level and that a member or a group of members have a sufficient majority to pass the relevant resolution. Even assuming that is not a problem, it is sometimes difficult to get to the point where the resolutions can actually be passed.
Member resolutions will typically be passed at a general meeting or by way of written resolution. However, the power to call a general meeting or circulate a written resolution typically rests with the board of directors and if the board is deadlocked that power cannot be exercised (and any attempt to do so without a valid board resolution will result in the general meeting or written resolution being open to challenge). However, there are some ways that this issue can be potentially be resolved.
General meeting requisitioned by the members
A member or members holding at least 5% of a company's voting shares can require the directors to call a general meeting. If the board fail to call the meeting within a set time, the requisitioning members can call the meeting themselves. The main problem with this method is it is potentially quite slow (it could take over a month).
Court order
Members can apply to court for an order convening a general meeting on such terms as the court thinks fit (section 306 of the Companies Act 2006 ("CA 2006")). The main downside to this is that involves a court application which comes with time and cost implications.
Informal unanimous consent
In company law there is what is known as the 'Duomatic principle'. This principle (derived from Re Duomatic Ltd [1969] 2 Ch 365) states that if all members who have a right to attend and vote a general meeting of the company agree to something that a general meeting could decide, that agreement is as binding as if it had been passed as a resolution of the company. This potentially allows the members to sidestep certain procedural requirements of CA 2006. However, it is not always possible to rely on this principle as there are limitations on its use including the fact that it requires all the relevant members to agree (a majority is not sufficient).
Written resolution
Providing they hold at least 5% of the total voting rights (or a lower percentage set by the company's articles) a member or members can submit a request to the company for it to circulate a written resolution. However, unlike with a requisition for a general meeting, CA 2006 contains no power for the members to circulate the resolution themselves if the directors fail to do so. However, in the recent case of Webster v ESMS Global Ltd [2025] EWHC 3107 (Ch), the High Court ruled that it had jurisdiction to grant (among other things) a mandatory injunction compelling the company to circulate a written resolution.
Conclusion
While having pre-agreed mechanisms for preventing or dealing with deadlocks is always advisable, there are at least options available to members who are seeking to resolve deadlocks that arise. The decision in Webster v ESMS Global Ltd [2025] EWHC 3107 (Ch) opens up another potential solution.
