Articles of Association Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

Eley v Positive Government Life Assurance Co (1876) 1 Ex D 88

A

Facts:
- The articles of the company provided that Mr Eley would be the sole solicitor of the company
- Mr Eley later became a member and sued for misconduct following the company not employing him as a solicitor
Judgment:
- This was not a contract between Mr Eley and the company
Lord Cairns LC:
- Res inter alios acts (the plaintiff is no part to it)
- The matter is between the members and directors, not between the company and the plaintiff
- There are his personal rights, not his rights as a member
Lindley LJ:
- “There cannot be a contract between the association and B just because B happens to be a member, and the issue is not related to his capacity as a member”
Further Notes:
- Suggestion that Eley/Browne/Re Dale and Plant Ltd are better dealt with using employment contracts (reason the CRLSG did not want to reform this law for CA 2006)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Hickman v Kent or Romney Marsh Sheepbreeders Association [1915] 1 Ch 881

A

Facts:
- Article 49 of the corporation’s articles stipulated that any disputes between the association and any of its members should be referred to arbitration
Judgment:
- The claimant was allowed to enforce article 49 as a member
Astbury J:
- This is a common type of article of corporations in place to protect members from prejudice in public trials
- There should be a separate contract between outsider and company if they want to enforce those rights
- The company in law is party to its own memorandum and articles… so clear that the company can enforce breaches etc. against members and vice versa
- In the present case P is seeking to enforce his rights as a member, relying on an article clearly intended to apply generally to all members, so it is reasonable on the evidence to allow him to resolve is dispute in arbitration
Notes:
- The CA 2006 makes an explicit mention of both the company and its members having enforceable rights against one-another
- Critique of decision: Asbury J paid little regard to the ratio of some of the cases cited and some statutes, so it is surprising to have been endorsed without any discussion by the CA in Beattie
- The qua member rule has been difficult to reconcile in some cases (see Pulbrook v Richmond, Blackpool v Hampson)
- Lord Wedderburn thinks that the outsider-member distinction should be dropped to allow any member to enforce any right (So in Eley any member could restrain the company from employing another solicitor)
- In Ebrahimi the HL did not feel constrained to put the same restriction on the statutory provision of just and equitable winding up
- ‘Relational’ contract rather than a simple contract, therefore requires some ‘give and take’ rather than outright right and wrong e.g. in MacDougall although wronged, the court declined to come to his aid because the matter could be put right by the company’s own internal mechanisms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Quin & Axtens Ltd v Salmon [1990] AC 442 (House of Lords)

A

Facts:
- S, A and W directors/chairman of the company
- Article 80 stated that the permission of both directors is needed in order to pass a resolution regarding letting or buying a company
- A property was purchased by ordinary GM (S opposed)
Judgment:
- S won, despite this being a right as a director: seen as an example of a member’s right which tangentially effected his rights as a director
- The members’ resolutions where inconsistent with the articles and granted an injunction restraining the company from acting on them
Lord Loeburn:
- The articles contain a bargain between shareholders
- It is not up to the court to decide that it was a failure of the company in not allowing these leases, that is a matter for the directors to resolve
- Suggest that it did effect his capacity as a member, and any non-director could have sought an injunction
Goldburg (MLR Article, 1972):
- This explanation does not seem correct, it would have cause a different result for Eley, displays the battle between majority rule and minority rights
Further Notes:
- Farwell LJ felt the rule in Wood v Odessa should not be followed in most cases, it is a “covenant as between individual shareholders”
- Note, opposite to Beattie

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Allen v Gold Reefs of West Africa Ltd [1990] 1 Ch 656 (Court of Appeal)

A

Facts:
- The company altered its articles so its lien (can refuse to pay dividends etc.) application changed from all shares not fully paid, to all shares
- The only affected shareholder attempted to bring a claim against the enforcement of the lien
Judgment:
- At first instance the lien was refused, but the CA rejected the claim and allowed enforcement of the lien
Lindley MR:
- He joined the company with the understanding that the articles can change your rights as a shareholder by special resolution
- A company’s power to alter regulations is limited only by the provisions contained in the statute and the conditions contained in the company’s memorandum
- The power to alter articles must be exercised for the benefit of the company as a whole
- It is for the company to decide what a company does with its shares, not the courts
- If articles are altered bona fide for the benefit of a company they are valid and binding
- You can exercise your property right to vote (as shareholder) however you chose, you can be malicious (but minority can challenge the majority)
- A company cannot break its contract by altering articles but can break contracts dealing with revocable articles
- Was not in bad faith and was not singling P out just because he happened to be the only person without fully paid up shares…
Notes:
- How articles can be created initially for any purpose, not in good faith, so why can alterations only occur bona fide for the benefit of the company?
- Normal case law only reocgnises shareholders as a voting right, not a proprietary right, so this seems to be incoherent… to what extent should the courts be prepared to intervene in the internal affairs of the company?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Re Isle of Thanet Electricity Supply Supply Co Ltd [1950] Ch 161

A

Facts:
- Articles conferred the rights to assets in winding-up for preferential shares
- The company went into liquidation
- There was still a surplus after the winding up, and the question arose as to whether preferential shareholders could join on the surplus
Judgment:
- The articles of association where exhaustive, the preferential shareholders involvement in surplus was stipulated so they could not be involved
Roxburgh J:
(1) The onus was on the holders of preference shares to satisfy the court that upon the true construction of the document under which they claimed they were entitled to share in a surplus in a winding up
(2) In construing an article of association concerning rights to share in profits, the same principle was to be applied in construing both dividend rights and the rights to share in the company’s property in liquidation
(3) The principle to be applied in construing such an article was that, when the article set out the rights attached to a class of shares to participate in profits while the company was a going concern or to share in the property of the company in liquidation, prima facie the rights so set out of were in each case exhaustive
(4) On the true construction of art 3, the whole of the distributed profits were expressly dealt with
(5) Accordingly, the holders of the preference stock had no discharged the onus of showing that the article was not exhaustive, and they were not entitled to share the surplus assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Herald Newspaper and Printing Co Ltd [1987] Ch 1 (Chancery Division)

A

Facts:
- P acquired 10.67% of the ordinary shares of D as part of an arrangement to concentrate the local newspaper publishing business under one title
- The articles of D were then altered so P had preemption rights over other ordinary shares, rights in respect of unissued shares and the right to appoint a director so long as it held at least 10% of the shares
Judgment:
- These were class rights which could only be altered pursuant to (what is now) CA 2006 s630
Scott J:
- Three categories of rights:
(1) Rights or benefits which are annexed to a particular share (e.g. dividend rights, rights to participate in surplus assets on winding-up)
(2) Rights or benefits connected with administration of the company’s affairs such as in Eley are not class rights
(3) Rights or benefits that are not attached to any particular share but are conferred on the beneficiary in his capacity as a member/shareholder
- Bushell v Faith: triples share value in director votes in order to stop director being voted out, this was the purpose and this is a relevant “category 3” right/benefit
- Rayfield v Hands: presents “other side of the coin” there are members who are for the time being directors, and shareholders who were not for the time being directors (still third category)…
- The fact he needed 10% ownership to activate articles does not dispute their position as third category shares, this is analogous to the situation that the articles apply in their capacity as directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Greenhalgh v Ardene Cinemas Ltd [1946] 1 All ER 512 (Court of Appeal)

A

Facts:
- The capital of the company consisted of 50p shares and 10p shares which each had 1 vote
- G owned most of the 10p shares and held nearly 40% of the shares, so was able to block a special resolution
- By ordinary resolution the other shareholders sought to subdivide their 50p shares into 5 individual shares and therefore increase their voting power (s.618(1)(a)(3) confers this power)
- G attempted to claim that the rights attaching to his 10p shares were varied by this manoeuvre
- G challenged the special resolutions as they had not been passed bona fide
- A confusing and contradictory judgment from Evershed J which is often cited
Lord Greene MR:
- The right to vote had not been taken away, that is the only right attached to these shares regarding voting
- If they had attempted to change it so there was only 1 vote attached to each 5 of those shares that would have been changing the rights of the shares
- In losing control his rights are affected as a matter of business, and not as a matter of law
(Unanimous decision)
Notes:
- In Re Saltdean Estate and House of Fraser plc v ACGE Investments Ltd, the cancellation of a class of shares on a reduction of share capital was allowed as it was consistent with the terms of issue of the shares in question
- Re Hellenic and General Trusts Ltd seems to dispute but is concerned with classes of members and not classes of shares
- There may still be a grant of relief to minority members under CA 2006 994

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Clemens v Clemens Bros Ltd [1976] 2 All Er 268

A

Facts:
- P held 45% of shares in D and her aunt X owned 55% of shares in D
- Shareholders had a preemptive rights if another member wished to transfer their shares
- P had negative control and expected to take over full control following her aunt’s death
- The directors proposed to create more shares to increase the company’s capital (by selling to directors and an employee’s trust); X passed this at ordinary resolution
- It was claimed to be in the general interests of the company
Judgment:
- The court took the view that the real object was to deprive P of her degree of control and the resolutions where set aside
Foster J:
- P believe to be an oppressive resolution whereas X claimed to be acting honestly…
- Notes director’s fiduciary, but should there be a similar restraint on shareholders exercising their powers?
- There shouldn’t be a principle of bona fide rights for the company as a whole, it depends on the circumstances of each case… quotes Lord Wilberforce declaring that you cannot exercise aright as you freely please but that a right is ‘subject… to equitable considerations… which may make it unjust… the exercise [it] in a particular way’
- Although X may like to see shares in the hands of the directors, Foster J believes the construction of this resolution was for the sole purpose of depriving P of control and this is inequitable…
- Foster J cannot comment on whether it is good for the company or not (commercial considerations; not the judges place?)
Notes:
- It is felt that the judge’s use of authorities contrasts with other approaches, such as quoting Greenhalgh… he considered whether passing the resolution is for the benefit of P, which goes beyond the general equity test (this may be seen as contrary to the ruling in Bentley-Stevens v Jones, 1974)
- Judge did not disagree that was benefit of the company, but felt for equitable reasons the resolutions had to be set aside, as where only to reduce her into negative control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Cream Holdings Ltd v Davenport [2011] EWCA Civ 1287

A

The court may at common law imply supplementary provisions into the articles, such as in this case an implied term of co-operation of reasonableness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 3

A

Lord Wilberforce highlights that directors can make managerial decisions against the wishes of the shareholders while in office, shareholders do not hold such powers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

CA 2006, s.33(1)

A

“The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company of each member to observe those provisions”

  • Improvement on s.14 of the 1985 Act
  • Odd contract, can constantly be varied by special resolution, even where all parties do not agree… binds parties who are not privy to it (such as future shareholders)
  • This allows shares to be freely transferable by removing the need for each member to formally agree to the constitution each time shares are traded
  • Before Companies where recognised as separate legal entities in statute the courts found them so (Hickman v Kent)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Wood v Odessa Waterworks Co (1889) 42 Ch D 636

A

Stirling J: “The articles of association constitute a contract not merely between the shareholders and the company, but between each individual shareholder and every other”
(In Salmon v Axtens it was thought this should not be followed in most cases)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Welton v Saffery [1897] AC 324

A

Lord Herschell:

  • Clearly no contract between the individual members
  • The articles do have effect inter se, only enforceable through the company
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Rayfield v Hands [1960] Ch 1

A

Vaisey J:
- Focuses on Welton v Saffery
- There is a contract which is directly enforceable inter se
- It is not a rule of general application and only in quasi-partnership companies
[Viewed by Lord Herchell (dicta)*need to see what case? and Barc and Bowen (1988) as in line with quasi-partnership exception, as the correct position]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Foss v Harbottle (1843) 67 ER 189

A

Individual members cannot enforce a rule against the company, except for the exceptional circumstances where the majority commit fraud against the minority… and depending on how the breach is perceived, they may be able to enforce s.33 on the company

  • Wrong to the company: only the company can sue
  • Wrong to the shareholder’s personal right: the individual shareholder can sue
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Mozley v Alston (1847) 1 Ph 790

A

Directors failing to retire by rotation is a wrong to the company, not individual rights regarding re-election - therefore no personal right of action to bring a claim

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

MacDougall v Gardiner (1875) 1 Ch D 13

A

The right to vote is not recognised under the constitution if it could be ratified by the majority of shareholders in vote.
Rights given in the constitution may not be enforceable if the breach complained of could be ratified by a majority resolution… court refused to recognise an individual member’s rights to poll

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Pender v Lushington (1877) 6 Ch D 70

A

Every member was entitled to 10 votes per share, to a maximum of 100 votes over-all. Pender transferred his share to various nominees, and the BoD refused to count the votes of the nominees. He got an injunction stopped the directors from refusing to count his votes. This was an individual right in which Pender could take action….
Gained an injunction against and action that had been passed at a meeting where his votes where refused… Jessel MR consider that the shareholder is entitled to have this vote recorded…
Seems to be the opposite to Mozley

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Edwards v Halliwell [1950] 2 All ER 1064

A

Two members of a trade union wanted to prevent the union from increasing members subscriptions. The union rules required a member ballot and 2/3 majority vote. The court did not allow the increase, the failure to follow procedure, the rule in Harbottle does not apply and the members individual rights had been violated.
Allowed a declaration invalidating a resolution (both this and Pender explicitly differentiate from the doctrine of F v H), Jenkins LJ recognised the importance of the individual rights of members not being invaded, they have a right to be protected

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Lord Wedderburn (1957) [article]

A

Lists the rights the courts have considered personal:
- Voting rights
- Share transfer rights
- A right to protect class rights
- Preemption rights
- The right to be registered as a shareholder and obtain a share certificate
- The right to enforce a dividend that has been declared and enforce the procedure for declaring a divdend
- The right to have directors appointed in accordance with the articles
- Other procedural rights: such as notices of meetings
- This list is not strict to be followed: many issues in application may go either way
He makes the point that cases such as Salmon and Beattie see the court recognising a general personal right to have the articles enforced, and he feels this was the correct way to deal with the matter… plenty of academic approval

21
Q

Browne v La Trinidad (1887) 37 Ch D 1

A
  • A shareholder who had a right to be director (conferred in the articles) was removed by valid resolution of the GM
  • Great emphasis paced on Eley: a contract not concerning the enforcement of rights connected to the shares should not arise
  • Could not enforce the right to be a director
22
Q

Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881

A

The court considered the matter settled, articles do not create a contract between a party and a third person. Members can only enforce rights in their capacity as a member

23
Q

Beattie v E. & F. Beattie Ltd [1938] Ch 708

A

Shows how matters concerning s.33 are now straightforward…
Facts:
- The company was engaged in an action against a director
- The director attempted to enforce his member rights and have the dispute referred to arbitration
- The CA relied on Hickman and held that he could not rely on his member rights as the dispute related to his status as a director
- The directors outside rights were central rather than tangential
- The MoR (need to look at what MoR is shorthand for?) suggested that had the action been framed as a member-director action in which the central issue was a member suing to enforce the articles which had the tangential effect of enforcing an outside right it might have been successful…

24
Q

Puddephat v Leith (No 2) [1916] 2 Ch 168

A

The courts are willing to enforce shareholder agreements (note, the do not bind new shareholders)

25
Q

Punt v Symons Co Ltd [1903] 2 Ch 506

A

A company cannot contract out of its statutory obligations, but are free to alter its constitution… however note how in Bushell v Faith (1970) they were almost able to with the triple vote argument (loopholes) - this is because the HoL held this did not affect someone’s right to vote… people are free to allocate votes however they like

26
Q

Russell v Northern Bank Development Corp Ltd [1992] BCC 578; [1992] 1 WLR 588 (House of Lords)

A

Facts:
- Shareholder agreement with company not to increase share capital of the company without the agreement of all the parties in the agreement, but the company attempted to
Judgment:
- The HL held the agreement was void with the company as it went against the CA 1985, s.121 right to increase share capital, so shareholders who object cannot enforce against the company
- However the agreement was still in force between the shareholders, and all the members of the company were subject to the agreement so it was still in force to the same degree
- The shareholders could therefore not vote to increase share capital
- The judgment greatly enhances the ability of shareholders’ agreements to contract out of statutory provisions

27
Q

Re Duomatic Limited [1969] 2 Ch 365

A

The court allowed a decisions not made at the GM but which clearly had the backing of all the shareholders to stand

28
Q

Read v Astoria Garage (Streatham) Ltd [1952] Ch 637

A

Facts: the constitution adopted Table A, art 68, which said that a director can be appointed as managing director but this appointment ceases if he ceases to be a normal director. There was no express contract for the appointment, only a board resolution passed at the first meeting of directors of the company that the plaintiff “be and he is hereby appointed managing director of the company at a salary…”. When the plaintiff was in ill health and the company was doing badly the directors resolved that the plaintiff’s employment be terminated. Subsequently an extraordinary general meeting of the company was held at which a resolution approving the directors’ action in removing the plaintiff was passed. The plaintiff sued for damages for wrongful dismissal and breach of contract on the basis that he had not been given reasonable notice
Held: since the company had the power to dismiss, they could breach the contract because every contract entered into by the company is subject to the power of the company. There is no cause for wrongful dismissal unless it can be shown that the terms of the contract of employment were inconsistent with the powers to determine a MD’s appointment at a GM.
The constitution gave no right to receive any particular notice of termination of employment in the event of a resolution at a GM. A managing director who has been dismissed in this way cannot claim for wrongful dismissal unless he can show that an agreement between himself and the company has been entered into, the terms of which are inconsistent with the exercise by the company of the power conferred on it by the article to determine a managing directors appointment in a GM
No evidence here of the existence of any such contract so no wrongful dismissal.

29
Q

Greenhalgh v Mallard [1943] 2 All R 234

A

3 directors/shareholders agreed to vote with M, sold shares - new shareholders are not bund by the agreement

30
Q

Re National Telephone Co [1914] 1 Ch 755

A

Sarjant J makes it clear that any class rights are exhaustive to their express provisions

31
Q

Will v United Lankat Plantations Co [1912] 2 Ch 573

A

Facts:
- Preference shares were issued which carried an entitlement to a cumulative preferential dividend at the rate of 10 per cent per annum on the amount for the time being paid up on such shares
- The issue before the House of Lords was whether the preference shareholders were also entitled to share in any surplus profits after the ordinary shareholders had also received 10 per cent
Judgment:
- They were not, the court cannot look beyond express terms in order to imply additional preferential rights

32
Q

Scottish Insurance Corp Ltd v Wilsons & Clyde Coal Co Ltd [1949] AC 462

A

Without express right of participation preferential shareholders do not have a claim to any surplus profits

33
Q

White v Bristol Aeroplane Co Ltd [1953] Ch 65

A
The company's articles of association provided that the Rs attached to any class of shares may be 'affected, modified, varied, dealt with, or abrogated in any manner' with the approval of an extraordinary resolution passed at a separate meeting of the members of that class. The preference shareholders argued that an issue of additional shares, both preference and ordinary, 'affected' their voting Rs and therefore fell within article 68. However, the company contended that the proposal did not amount to a variation of class Rs but rather it was the effectiveness of the exercise of those Rs that had been affected and therefore a separate meeting of the preference shareholders was not required.
CA rejected the preference shareholders' contention. Romer LJ explained that the proposal would not affect the Rs of the shareholders: 'the only result would be that the class of persons entitled to exercise those Rs would be enlarged...'
34
Q

Re Old Silkstone Collieries Ltd [1954] Ch 169

A
As a result of nationalisation the company's colliery was taken into public ownership by the National Coal Board
The proposal to introduce compensation scheme (which reduced the company's capital for the third time by returning all outstanding capital to the preference shareholders) would cancel the class completely and they would no longer qualify for compensation...
This is an unfair variation of class rights in so far as the preference shareholders had been promised that they would be able to participate in the compensation scheme
35
Q

House of Fraser plc v ACGE Investments Ltd [1987] AC 387

A

In general cancellation of class shares on a reduction of capital will not be held to constitute a variation of class rights because it is normally consistent with the terms of issue of the particular shares in question

36
Q

CA 2006, s.630

A

Procedure to vary rights attaching to a class of shares, can only be varied:
(a) In accordance with the relevant provisions in the articles; or
(b) If no such provision is made in the articles, if the holders of three-quarters in value of the shares of that class consent either in writing or by special resolution (passed at a separate meeting of the holders of such shares)
The company must the notify the Registrar (ss.637&640)

37
Q

British America Nickel Corporation Ltd v MJ O’Brien Ltd [1927] AC 369

A
The shareholders voting at a class meeting must have regard to the interests of the class as a whole (is this similar to a bona fide right???)
Viscount Haldane draws the analog between shareholders voting for a special resolution to alter the articles of association and voting on a resolution to class rights
Sealy and Worthington (2013) note that this rule has the unintended consequence of only varying class rights to the holders' advantages and subordinates the interest of the company as a whole
38
Q

CA 2006, s.168

A

Giving shareholders/members of the company the right to remove directors by simple majority (cannot be taken away by the articles, greatest power of the shareholders, gives them ultimate control)

39
Q

CA 2006, s.21

A

On alteration of articles, companies have the power to alter articles

40
Q

CA 2006, s.22

A

This section deals with entrenched provisions

41
Q

CA 2006, ss.281-335

A

Law on GMs

42
Q

Re Dorman Long & Co Ltd [1934] 1 Ch 635

A

Proxy voting may appear on the surface to enhance shareholder democracy, but has not proved to be the case in reality.
Maugham J highlights how majorities/the views of directors dominate as shareholders have minimum information, little personal interest in the matter, knows few people in the same position, difficulty raising the funds to bring a court case…

43
Q

Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34

A

Suggested that once power has been given to the BoD by the articles, the GM cannot unsurp it, other than by special resolution (Gap between owners and the company). This goes against the traditional company=shareholders conception. The directors are no longer the agents of shareholders, directors are the agents of teh company as a separate legal entit

44
Q

Shuttleworth v Cox Bros and Co (Maidenhead) [1927] 1 Ch 154

A

Atkin J:

  • The only question to consider when altering articles is whether they “honestly intend to exercise their powers for the benefit of the company”
  • “It is not matter of law for the Court whether or not a particular alteration is for the benefit of the company” - Judges are not in the best position to make commercial decisions
  • “The circumstances may be such as to lead to one conclusion only that the majority of the shareholders are acting so oppressively that they cannot be acting in good faith”
  • It is for members, not the court, to decide what is for the benefit of the company… but also the court may intervene if it thought that no reasonable man could ave thought the alteration was for the benefit of the company (a sort of objective bad faith proviso)
45
Q

Brown v British Abrasive Wheel Co [1919] 1 Ch 290

A

A case concernig the expropriation of the minority members’ shares
Facts:
- Public company needed further capital, majority where willing to provide further capital but only if they could buy out minority 2% to have complete control
- They proposed a special resolution so were bound to sell shares
Astbury J (first instance):
- Granted an injunction preventing an alteration which would have enable the majority to compulsorily purchase the shares of the minorit
- He made use of Allen, but interpreted the test as involving two questions:
(1) Did the majority bona fide act for benefit of the company? (subjective)
(2) Was the change actually for the benefit of the company? (objective)
- His answer to the latter was no, casting doubt on subjective bona fides of the majority

46
Q

Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154

A

Facts:
- A small private company was controlled by directors
- A minority shareholder had an interest in a competing business
- Majority wanted to alter articles to transfer shares of competing interest
Judgment:
- Upheld, but dispute as to the reasoning… according to the CA it was whether the directors did it bona fide for the benefit of the company… in other words: the test was subjective entirely
- The court also made it clear that it was clear to them that the alteration was objectively for the benefit of the company
- A small company should not be obliged to follow reasoning of competing minority members

47
Q

Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124

A

Facts:
- Dafen bought its steel from and was a minority shareholder in a company
- They began to buy steel from a rival company so the majority used their votes to alter articles to give majority a right to compel a member to sell shares… Dafen disputed
Peterson J (first instance):
- The alteration was invalid as it was not for the benefit of the company as a whoe
- It went further than was necessary to protect Llanelly Steel; it was wider than necessary
- Suggested the test was objective: the question is whether the alteration is genuinely for the beefit of the company (this is a far more difficult test)

48
Q

Citco Banking Corporation NV v Pusser’s Ltd [2007] UKPC 13

A

Facts:
- A was prepared to finance only if in control, changed the articles to give weighted voting rights to A
- Citco argued that the resolutions where invalid as they were passed in the interest of A and not the interest of the company
- 1st instance agreed with Citco, both CA and HL decided against Citco
Judgment:
- Hoffman felt that the judge had made the mistake of “stepping into the commercial arena” (as had judge Peterson in Dafen Tinplate) and favoured the approach in Shuttleworth (PC agree)
- He said that although there were no statutory limitations on the power of a 75% majority to amend the AoA of a company, the courts had always treated the power as subject to limitations
- He didn’t think these limitations came into play here
- In other words, he tried to decide himself whether the amendment was for the benefit of the company rather than leave it to the shareholders