64. Rights and powers attaching shares Flashcards
- Rights and powers attaching shares
General overview
[64.01] This section lays down the default rule that each share carries one vote on a poll at a meeting or on any resolution. However, such voting rights may be negated, altered or added to by the constitution of the company through an alteration of the constitution subject to ss 64(3) and 64A. By and large, a member’s vote is a property right which passes along with the share to his transferee or any successor in title. Any member holding a share may exercise the votes in his own interest and as he thinks fit. Generally speaking, shareholders do not owe any fiduciary duty to the company or to each other except in the exceptional circumstances stated below. On the other hand, a shareholder may enter into voting contracts to exercise his votes in a particular manner.
Voting power of shares
[64.02] Section 64 provides that each share shall carry one vote on a poll at a meeting of the company or on any resolution. A member’s vote is a property right which, prima facie, may be exercised in his own interest and as he thinks fit. He owes no fiduciary duty to the company, and even when he is a director but voting in his member’s capacity International Inc (Holding) Sarl v Guernroy Ltd [2005] EWHC 1968 ; Peter’s American Delicacy Co Ltd v Heath (1939) 61 CLR 457, HC ; North-west Transportation Co Ltd v Beatty (1887) 12 App Cas 589, PC ; Mills v Mills (1938) 60 CLR 150, HC. A court will not substitute its own judgment on what is in the best interest of the company. It is for the shareholders to decide so: Citco Banking Corp NV v Pusser’s Ltd [2007] All ER (D) 369; [2007] UKPC 13 ; Gambotto v WCP Ltd (1995) 182 CLR 432 not followed. The voting power attached to the share extends to a member’s right to transfer his shares to a person of his choice, subject to any preemption rights in the constitution: Stothers v William Steward (Holdings) Ltd [1994] 2 BCLC 266 .
[64.03] Quite exceptionally, the courts have, on rare occasions, intervened to restrain a member from acting perversely: Standard Chartered Bank Ltd v Walker [1992] 1 WLR 561; [1992] BCLC 603 (minority ordered not to vote in favour of a restructuring scheme that will cause the company to collapse). Where the majority restrained by injunction from voting to remove directors and replaced them with a board which had the intent to carry out asset-stripping: Theseus Exploration NL v Mining & Associated Industries Ltd [1973] Qd R 81. For a case on the equitable limitation on a member’s voting power to vote bona fide for the benefit of the company
The “majority rule”
[64.04] The general rule in company administration and governance is the majority rule: AG v Davy (1741) 2 Atk 212 . Hence, the minority may be subject to the majority’s tyranny. The statutory provisions and common law protecting the minority are ss 26A, 216, 216A, special resolutions and class rights. See the cases on alteration of articles and class rights: s 74. Special voting rights may protect directors against removal under the Act
Voting contracts
[64.05] A contract by a member to vote in a particular way, or as directed by another person, is binding and may be enforced by a mandatory injunction: Puddephatt v Leith [1916] 1 Ch 200, Ch D . The voting agreement signed by the directors of a company that “Party A shall not vote against party B in all directors’ meetings or members general meetings,… and shall vote in accordance to party B’s decision and vote. Party A shall not vote against party B in any directors’ meetings or members general meetings, unless the resolution to be passed is against the company’s interest or against party A’s interest…” is a valid and binding agreement: Ang Kong Meng v Lim Teck Boon & Anor [1998] SGHC 110, HC. Further, see Stedman @ Jones, Shareholders’ Agreements (2nd edn) (1990, Longman, London) pp 51–53; Greenwell v Porter [1902] 1 Ch 530 ; Puddephatt v Leith (above); Russell v Northern Bank Development Corp Ltd [1992] 1 WLR 588 ; Thorby v Goldberg (1964) 112 CLR 597 ; Dawson International plc v Coats Patons plc [1989] SLT 655 .
[64.06] For “standstill agreements” where a contract is made between a company and a major shareholder for the shareholder not to buy or sell any of the company’s shares and to vote as the company directs on certain issues, see Re The Topps Co S’holders Litig, 926 A 2d 58, 91 (Del Ch 2007) ; Re Transatlantic Holdings, Inc S’holders Litig, CA Nos 6574-CS & 6776-CS ; Re Celera Corp S’holder Litig, CA No 6304-VCP, mem op at 53–54 (Del Ch, March 23, 2012) ; See further, (accessed on June 2, 2017).
[64.07] A sale of a member’s votes is illegal and void under US laws as contrary to public policy. An agreement to vote in a certain manner may be of doubtful efficacy. Firstly, where it provides for a pecuniary benefit to the shareholder, it may amount to a bribe or fraud on other shareholders and against the winding up legislations: Elliott v Richardson (1870) LR 5 CP 744 ; Stanford v Gillies (1880) OB & F (SC) 91 ; cf Greenwell v Porter [1902] 1 Ch 530 ; Thorby v Goldberg (1964) 112 CLR 597 ; upheld if it provides for penalty for not voting in a certain manner: Ringuet v Bergeron (1960) 24 DLR (2d) 449, SCC. See further, the Draft Fifth Company Law Directive of the European Union where agreements to always vote to follow the instructions of the company, or to always approve the proposals of the company, or to vote or abstain to vote in consideration of special advantages are void. Secondly, voting agreements to bind members (qua directors) as to how to vote are void as they fetter a director’s discretion: Motherwell v Schoof [1949] 4 DLR 812 ; Atlas Development Co Ltd v Calof and Gold (1963) 41 WWR 575 ; cf Thorby v Goldberg (1964) 112 CLR 597 where the board has resolved to carry out certain transactions in the interest of the company and directors bound themselves to vote to effectuate that transaction is valid. For agreements to fetter the company’s powers to alter its articles, see Susan Burridge “Wrongful Rights Issues” (1980) 44 MLR 40; LS Sealy, “Shareholders’ Agreements—An Endorsement and A Warning from the House of Lords” (1992) 51 CLJ 437; BJ Davenport, “What Did Russell v Northern Bank Development Corporation Ltd Decide?” (1993) 109 LQR 553; Ellis Ferran, “The Decision of the House of Lords in Russell v Northern Bank Development Corporation Limited” (1994) 53 CLJ 343.
Voting trust
[64.08] Where the voting rights of all or some of the shares are settled upon trust, giving the trustee a free hand or a limited discretion: MA Pickering, “Shareholders’ Voting Rights and Company Control” (1965) 81 LQR 248.
Alteration of voting rights
[64.09] The voting rights attached to a share may be negated, altered or added to by the constitution of the company, subject to subsection (4) and s 64A: s 64(3); Rights & Issues Investment Trust Ltd v Stylo Shoes Ltd & Ors [1965] Ch 250, Ch D . Non-voting shares called “specified shares” may not be altered in two situations: (a) a resolution to wind up the company under s 290; and (b) a resolution to vary any right attached to those shares: s 64(4).
