Members, meetings and disputes Flashcards
What can the right to become a new member result/arise from?
A contract between the company and the allotee of new shares or arise where an existing member transfer shares or where shares pass to personal representatives or a trustee in bankruptcy
With the exception of subscribers, no person will become a member of a company until…
His name is entered on the register
Barry and Knight Ltd and Anor v Knight 2014
Access to the register of members does not have to be given if one of the purposes of the request is not a proper one
What does the no notice of any trust shall be entered rule mean in practice?
That the company must treat the registered holder of shares as beneficially entitled to those shares even if it knows that they are held on trust
Pender v Lushington 1877 (2)
- the company must pay dividends to the trustee and allow the trustee to exercise any voting powers attached to the shares
- a member can exercise his voting rights in any way he chooses, to the exclusion of any conflicting rights of the members
What does the registered holder of the shares who is a trustee have to do?
Account to the beneficiary for any dividend he receives and vote in accordance with the beneficiary’s instructions
Burns v Siemens Brother Dynamo Works Ltd 1918
The court may order rectification of the registrar of members if it’s just and equitable (like here with joint holders where only the first named can vote)
Which powers are exercisable by the members?
Powers of the company which not have been or cannot be delegated to the members
Powers of the members exercisable by virtue of statute (4)
- alteration of company’s articles
- appointment and removal of auditors
- removal of directors
- winding up of the company
Standard Chartered Bank v Walker 1992
Court may order a creditor to vote in a certain way to protect creditors
Barron v Potter 1914
If the directors are unable to act (e.g. because of their personal interests), their powers will revert to the shareholders
What are the members not allowed to commit?
A fraud on the minority, so e.g. an alteration to the articles will be invalid if it discriminates against some of the members
Clemens v Clemens Brothers Ltd 1976
A fiduciary duty to act bona fide in the benefit of the company as a whole arises where voting rights are capable of being exercised in an oppressive manner
Where any provision of CA 2006 requires a resolution and does not specify what kind of resolution…
An ordinary resolution will be required unless the company’s articles stipulate otherwise
What is the common factor for circumstances in which special resolutions are required?
They are matters on which minority shareholders need protection
The business of a GM cannot be properly transacted or relied upon unless…
Proper notice has been given
As regards notices, where there are shareholders who are not directors, it may be advisable to include with the notice a…
Circular setting out the reasons for the proposed resolution and the views of the directors
The only business that can be transacted at the meeting is the business…
Of which a notice has been given
Musselwhite v C H Musselwhite and Son Ltd 1962
A deliberate omission to give notice of a meeting, even if grounded on a mistaken belief, will invalidate the meeting
Smith v Butler 2012
Court ordered a meeting to be held at which one shareholder - chairman - constituted a quorum, in spirit of the articles though
The function of the chair
To ensure that the business of the meeting is conducted in an efficient manner and it is his duty to preserve order
Standard Chartered Bank v Walker 1992
Court had the power to grant an injunction to prevent a shareholder from voting if, without the injunction, there would be injury to the company
In the event of the equality of votes, CA and MA do…
Not permit the chair to have a casting vote at GMs
Re Duomatic Ltd 1969
A decision taken at a meeting properly conducted will bind the company the same way as the passing of a formal resolution at a GM provided that the matter is intra vires the company
Because of the Duomatic principle, if all the directors are also all the members…
They can unanimously pass a resolution in board meetings which should strictly have been passed at a GM
Where does the Duomatic principle not operate?
Where the interests of others with a legitimate interest in the procedure are involved
Is it possible to dispense with a meeting to remove a director or auditor?
No
Does the Duomatic principle override the requirement for a special resolution approving a purchase of own shares
No
Henry and Another v Finch and Another Subnom Re Finch (UK) plc (in Liquidation) 2015
The Duomatic principle not applicable where the company in question is insolvent or the creditors are at risk
Sharma v Sharma 2014
Duomatic can be used to establish assent to a director’s conflict of interest
Randhawa and Another v Turpin and Another 2017
Appeal, Duomatic requires the assent of all registered shareholders and here one of them was incapable of consenting, consent cannot be inferred
Which companies can pass written resolutions?
Only private companies
Who are eligible members for the purposes of written resolutions?
Those members who would have been entitled to vote on the resolution on the circulation date of the resolution
A private company can use the written resolution procedure to do anything which can be done in a GM except for:
Removing a director/auditor before the expiration of his term of office
Once a member has signified his agreement to a written resolution…
It cannot be revoked
The power of shareholders to remove directors by ordinary resolution…
Overrides anything in the company’s articles
A shareholder who wants to propose a resolution for the removal of a director under s168 must…
Give special notice in accordance with s312
Two ways in which the effectiveness of s168 (removal of director) is reduced
- the director is not deprived of any right to compensation or damages which he may have
- the articles may validly give special voting rights to some of the shareholders either generally or in special circumstances
Bushell v Faith 1970
A clause giving a director that is proposed to be removed 3 votes per share held to be valid
If a shareholders’ agreement had the effect of altering the articles…
It would be registrable because of s30 CA
When a wrong is done to a company…
It is up to the company as a separate legal entity to take action and not a member in his own name
The Foss v Harbottle rule is…
Intended to prevent a multiplicity of actions and is a statement of majority rule, closely allied to the ratification by majority shareholders of directors’ unauthorised acts
Exceptions where a member may sue to remedy a wrong done to the company (5)
- the majority exercise their votes so as to defraud the minority shareholders
- the company is proposing to act ultra vires or illegaly
- the company has purported to pass an ordinary resolution where special resolution is required
- the company proposes to act on the authority of a resolution which is defective as a result of inadequate notice
- the court decides that an action by a member is in the interests of justice
Foss v Harbottle 1843
When a wrong is done to a company, it is up to it as a separate legal entity to take action and not a member in their own name
Johnson v Gore Wood and Co Ltd 2001
An individual may not bring a personal action against a wrongdoer for reflective loss e.g. a reduction in the value of one’s shares caused by a wrong committed against the company
Giles v Rhind 2003
Exception to the reflective loss principle, action possible if loss so devastating it leaves the company unable to pursue a claim
Gardner v Parker 2004
The reflective loss principle bars double recovery
Simpson v Westminster Palace Hotel Co 1860
A member can bring an action in his own name to prevent a company acting ultra vires
Pender v Lushington 1877
A member can bring an action in his own name to enforce his right to vote
Alexander v Automatic Telephone Co 1900
A derivative action will lie even where the directors believe they are doing no wrong but the court considers they are in breach of duty
Cook v Deeks 1916
Court will not necessarily apply the principle of majority rule to permit a GM to ratify an unauthorised act of the director where they control the company
Airey v Cordell and Ors 2006
To bring a derivative action, the court must be satisfied that a reasonable board of directors would have been of the view that it is appropriate for the minority to bring proceedings
Personal action
A member may bring an action in his own name to enforce his right
Representative action
This is similar to personal action except that an action may be brought by a member on behalf of himself and others to enforce their collective personal rights where all such members have a common interest
Derivative action
An action by a member in the name of himself and all other members to remedy a wrong done to the company, can be used where the company is defrauded by insiders who control its affairs and who use their control to prevent an action being brought by the company
Where a member is able to bring an action under one of the exceptions to Foss v Harbottle, he is really doing so…
On behalf of the company and his interests are the same as those of the other shareholders
In derivative claims under CA, the court is required to take the view of…
An uninterested shareholder, which makes it harder for a shareholder to bring a claim against the general wishes of the shareholder body
Re Bird Precision Bellows Ltd 1986
The s994 remedy is restricted to a member’s capacity as a member but his interests may extend beyond mere rights attaching to shares
Re Bovey Hotel Ventures Ltd 1982
UP possible in a husband-wife quasi-partnership
Re Noble & Sons (Clothing) Ltd 1983
Test for UP: a reasonable bystander, observing all the consequences of the respondent’s conduct, would regard it as having unfairly prejudiced the petitioner’s interests
Re Soundcraft Magnetics Ltd ex p Nicholas 1992
UP test must be judged objectively
The ability of a shareholder to complain successfully of unfair prejudice depends to a large extent on whether the company is…
A quasi partnership
Ebrahimi v Westbourne Galleries 1973
Test for a quasi partnership: whether the company is formed on the basis of personal relationships between the members
If it is, and a ‘partner’ is excluded from the management of the business, the company can be wound up
Re Coroin Ltd 2013
A company comprising of only 4 shareholders who are very sophisticated investors bound by carefully drafted articles and shareholders agreements not a QP
Sikorski v Sikorski 2012
Two parties entered into a specific bargain about dividends, when departed from, UP
Re Saul D Harrison & Sons Plc 1995
Conduct contrary to the articles might be unfair and conduct in accordance with the articles might be unfair when the shareholder has legitimate expectations not reflected in the articles
Re Saul D Harrison & Sons Plc 1995 - fairness must be considered in the context of various factors:
- the commercial context
- the contents of the articles and the powers of the board
- the shareholder’s legitimate expectation beyond what has been stated in the articles
O’Neill and Another v Phillips and Others 1999
Unfairness to members occurs only if there had been a breach of the agreed terms on which the affairs of the company were to be conducted
Is it possible for a petition issued by a shareholder of a holding company to be founded on conduct relating to its subsidiary?
Yes
Wootliff v Rushton-Turner and Others 2016
Claim for UP can be pursued in tandem with a claim for wrongful dismissal
Re Home and Office Fire Extinguishers Ltd 2012
Sometimes, the court will order the respondent to sell his shares to the petitioner (no discount)
Re Red Rock Goldmining Co Ltd 1889
Even if the majority shareholder wants to keep the company going, an objecting minority may still successfully petition for winding up if objects unachievable
Re Yenidje Tobacco Co 1916
Company that is a QP can be wound up if there is a deadlock between the ‘partners’ even if it’s highly profitable
Loch v John Blackwood Ltd 1924
QP can be wound up if the member ‘lacks confidence’ in another resulting from a wrongdoing
For a company to be wound up where the conduct of the company’s affairs is oppressive to some part of the membership…
The petitioner mus show a continuous process of oppression
Grounds for equitable and just winding up (4)
- the company can no longer, or never could, achieve its main object
- the company was formed to resemble a QP and there are grounds that would justify the dissolution of a true partnership
- one ‘partner’ is excluded from managing the business
- the conduct of the company’s affairs is oppressive to some part of the membership
