Corporate governance & directors' duties

Question 1

Howard Smith Ltd v Ampol Pertoleum Ltd (1974)

Answer 1

Shareholders who held 55% of the issued shared intended to reject a take-over bid for the company. The directors honestly believed that the bid’s success was in the company’s interest and so allotted new shares to the prospective bidder so that the shareholders opposed to the bid would then have less than 50% of the enlarged capital and the bid would succeed
HELD: The allotment was invalid. “It must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority or creating a new majority which did not previously exist.”

Question 2

Bamford v Bamford (1969)

Answer 2

The directors of Bamford Ltd allotted 500,000 unissued shares to a third party to thwart a take-over bid. A month after the allotment, an ordinary resolution was passed ratifying the allotment, the holders of the newly-issued shares not voting. The claimants (minority shareholders) alleged that the allotment was not made for proper purpose.
HELD: The ratification was valid and the allotment was good. There had been a breach of fiduciary duty but the act had ben validated by an ordinary resolution passed in general meeting.

Question 3

Lexi Holdings plc (in administration) v Lugman (2009)

Answer 3

Two sisters and their brother were directors of a company. The brother had convictions for offences of dishonesty in the part. The sisters know this but played no part in the company, demanded no explanations from their brother of his business dealings and did not advise the other directors, auditors and the bank of his convictions. The brother took nearly £60m in fictions loans, false facility letters and by misappropriation of company funds.
HELD: The sister were, or ought to have been, aware of various matters in relation to the fraud perpetrated on the company by their brother. As a result, they were in breach of their fiduciary and common law duties of care owed to the company.

Question 4

Aberdeen Railway Co V Blaikie Brothers (1854)

Answer 4

Blaikie - chairman of railway co is also a partner in a firm supplying track parts used his position to make a contract between the company and his firm on ordinary commercial terms without disclosing involvement.
HELD: Contract was voidable as rule against conflict of interest is strict - “no question is allowed to be raised as to the fairness or unfairness of a contract so entered into”