Northern Rock's small shareholders yesterday voted down three out of four resolutions proposed by hedge funds that have bought 18 per cent of the shares in the stricken mortgage lender.
At a special meeting in Newcastle yesterday, all the resolutions were supported by holders of 66 per cent of the shares. But three of them required backing from 75 per cent.
The successful proposal - limiting the directors' ability to issue new shares - needed only a simple majority.
The defeated resolutions would have restricted the board's ability to sell off large slices of its assets, a strategy the bank - which recently sold a portfolio of mortgages for £2 billion to help pay off its £26 billion debt to the Bank of England - had warned could hinder a private sector rescue.
After the meeting Northern Rock's chairman Bryan Sanderson acknowledged the support that the hedge funds' resolutions had attracted and promised to work tirelessly to find a solution to the mortgage bank's difficulties.
"Whilst we are pleased that all but one of the resolutions proposed by (the hedge funds) SRM and RAB Capital were not carried, we recognise that a material number of shareholders did vote in favour of these resolutions," he said.
A spokesman for RAB said: "We are pleased with the fact that we have raised the issues. They got a very good airing and the comments made at the meeting were helpful and we are pleased to have got the support of two-thirds of the shareholders.
Some 600 of Northern Rock's estimated 100,000 small shareholders attended the meeting. Most received their shares when the former building society was de-mutualised in 1997.
Speaking after the results of the votes were known, Mr Sanderson sought to reassure shareholders, saying he is "reasonably confident" the bank can avoid nationalisation, which shareholders fear would leave them with little or nothing.
"Nationalisation is looming up more than a few weeks ago," he said. "But I still think the Government would prefer a private sector solution."
He added that "self-help" or a stan-dalone solution remains an option, alongside proposals from Sir Richard Branson's Virgin and Olivant, headed by Luqman Arnold, former chief executive of Abbey National. Both have stalled in recent weeks, apparently unable to raise the necessary funds.
RAB and SRM asked investors to give shareholders more power, hoping to ensure they get what they consider a fair price for their shares in any rescue and to avoid a firesale of Northern Rock's assets.
"I would urge the Bank of England to continue to lend money and (Northern Rock) not to sell assets on the cheap," SRM's Jon Wood said. "It is a great bank. Do not sell out and panic."
The hedge funds also warned shareholders against state control.
"We believe nationalisation would be a slow death for Northern Rock and should be resisted," RAB's Philip Richards declared.
Mr Sanderson told the meeting: "We cannot reverse history, but with your support we can set the company on the road to recovery.
"Northern Rock has been propelled into the eye of a very big storm indeed. We need patience and cool heads."
David Fulton, a shareholder who voted his 30,000 shares to restrict the board's powers, explained: "I have faith in the management and they have presented themselves well, but I want to make sure that as and when valid issues come up, they come back to the shareholders. We are entitled to an opinion."
Others said they were concerned a decision was not imminent.
Rock shares tumbled 13.25p to 69.25p amid fears that shareholders may be left with little or nothing if the Government nationalises...SUPL: