An extraordinary meeting of shareholders may have to be called to sort out the mess, but the company said it would not disrupt the timescale for the current pounds 1.3bn refinancing talks with its 65 banks.
The confusion arose after it was discovered that certain preference shareholders had a unique right to attend ordinary shareholders' meetings. This right was not spotted by the company's solicitors, Allen & Overy, and there is now serious doubt whether the firm will continue to act for Queens Moat.
In a statement last night Queens Moat said: 'In the circumstances, the company has appointed Freshfields and leading counsel to assist the directors in resolving the complex issues raised.'
At an annual meeting on 26 August last year, Queens Moat's ordinary shareholders voted to increase the company's borrowing limits to pounds 2bn. It is now known that the resolution was invalid because holders of 7 per cent convertible preference shares were not invited to attend.
The company said the validity of other resolutions passed at the meeting, and at the reconvened AGM on 29 November last year, was also being reviewed.
Holders of the preference shares, 19 million of which were issued in 1985, were given a right to attend ordinary shareholders' meetings if a resolution at a meeting was likely to affect their interests. This right was overlooked by Allen & Overy. A similar oversight, this time by Clifford Chance, was made for the annual meeting in 1989. Resolutions passed at this meeting are also under review.
The oversight was discovered by Allen & Overy and was said to have nothing to do with Gary Klesch, the arbitrageur buying up Queens Moat stock, who has threatened legal action over unspecified matters.
The preference shareholders were said to be standard institutional investors, and Queens Moat was expecting quick co-operation. A Queens Moat spokesman said it was not yet known whether the company would need to call an extraordinary meeting or separate class meeting for the preference shareholders. 'This has only been brought to our attention in the last few days and there are still many legal matters to be sifted through.' He did not know which other resolutions would be declared invalid.
The company said that 'the validity and effectiveness of the group's existing borrowings cannot be called into question.'