26. General provisions as to alteration of constitution Flashcards
- General provisions as to alteration of constitution
- by a special resolution passed by at least 75% of the members’ votes at general meetings
General overview
[26.01] The constitution of the company may always be altered by a special resolution passed by at least 75% of the members’ votes at general meetings. The common law principles on the alteration of the constitution apply to ensure that when altering the company’s articles, shareholders must exercise their powers bona fide for the benefit of the company as a whole. This section is subject to s 26A where an entrenchment of a company’s articles can be carried out in accordance with the provisions therein.
Constitution altered by special resolution
- alteration deemed to form part of the original constitution on and from the date of the special resolution
- if adopt whole or part of model constitution , need not set out all text - can make ref to its title or para numbers
[26.02] Section 26(1) provides that the constitution may be altered or added to by special resolution. Any alteration or addition to the constitution shall be deemed to form part of the original constitution on and from the date of the special resolution: s 26(1AA). A special resolution adopting the whole or part of the model constitution prescribed under s 36 may do so by reference to the title of the model constitution or to the paragraph numbers of the model constitution. The whole text need not be set out: s 26(1AB).
Alteration of constitution
[26.03] The rules for the alteration of the memorandum and articles are the same. These two documents have been merged into the constitution. A company may alter its articles to extend its lien (which originally attached to shares not fully paid up) to fully paid up shares: Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656, CA . A company cannot contract itself out of the right to alter its articles. However, the court will not enforce such a contract by an injunction: Punt v Symons & Co Ltd [1903] 2 Ch 506, Ch D . An agreement by members not to vote in favour of altering its capital structure is binding although a company cannot bind itself not to exercise its powers to alter its articles under the Companies Act 1985 (UK): Russell v Northern Bank Development Corp Ltd [1992] 1 WLR 588, HL . A company could not restrict the right to alter its articles by a provision in the articles themselves: Walker v London Tramways Co (1879) 12 Ch D 705 . A company may validly alter its articles to remove a managing director from his office but it will be liable in damages to the managing director under a separate agreement: Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701, HL ; followed by Diplock J in Shindler v Northern Raincoat Co Ltd [1960] 1 WLR 1038 ; Nelson v James & Sons Ltd [1914] 2 KB 770, CA ; cf Read v Astoria Garage (Streatham) Ltd [1952] Ch 637, CA where the court held that the managing director had no claim for wrongful dismissal when his appointment was an informal one without any written contract of service. See further where a “permanent” director could be removed by altering an article “allowing a director to be removed if he is so requested in writing by all the other directors to resign his office”: Shuttleworth v Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9, CA ; cf Malaysian case of Pang Ten Fatt & Anor v Tawau Transport Co Sdn Bhd & Ors [1986] 1 MLJ 179, HC where an amendment to articles giving rights and privileges to founder members was null and void.
[26.04] A policy member under a contract incorporating the terms of the articles as they may be varied from time to time had no claim for declaring that he is not affected by the altered articles: British Equitable Assurance Co Ltd v Baily [1906] AC 35, HL .
[26.05] The power to alter a company’s articles must be exercised “bona fide for the benefit of the company as a whole”: Allen v Gold Reefs of West Africa Ltd (above); followed in Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154, CA and Constable v Executive Connections Ltd [2005] EWHC 3, Ch D , where the alteration of the articles to provide that the directors had the power to buy out, at fair price, the shareholding of any member who competed with the company’s business was valid; cf a company cannot alter its articles to empower the majority to expropriate the minority’s shareholdings in the company at fair value as this is not in the benefit of the company: Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124, Ch D . The shareholders’ power to alter the articles is not a fiduciary power. The “company as a whole” is a corporate entity consisting of all the shareholders, and where the interests of the different classes of shareholders conflict, the majority’s vote which is in favour of the alteration will be upheld in the absence of fraud on the minority, oppression or any unjust or reprehensible nature: Peter’s American Delicacy Co Ltd v Heath (1939) 61 CLR 457, HC ; applied in Expo Holdings Sdn Bhd & Ors v Toyo Ink Group Bhd [2014] 10 MLJ 674, HC where the court held that the whole rationale behind the corporate exercise was for the benefit of the company and given that there is no suggestion at all that the exercise was in bad faith, the articles could be amended as proposed. The meaning of “bona fide for the benefit of the company as a whole” means that the shareholder when voting to alter the article must proceed upon what, in his honest opinion, is for the benefit of the company as a whole: Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, CA . A special resolution to double the voting rights of management shares when there was a new issue of shares was valid: Rights & Issues Investment Trust Ltd v Stylo Shoes Ltd & Ors [1965] Ch 250, Ch D .
[26.06] An alteration of articles cannot have retrospective effect: Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385, CA. An interlocutory injunction was granted to restrain an attempted alteration of an article providing for preemption rights: Tong Kok Chai v Ocean Front Pte Ltd & Anor [1988] 3 MLJ 125, HC.
Subject to s 26A
[26.07] Any provision in the constitution may be altered unless it is entrenched by another provision under s 26A: s 26(1A).
Provision in the memorandum immediately before April 1, 2004
[26.08] Any provision which before April 1, 2004 could not be altered may after that date be altered only if all the members agree: s 26(1B).
