Reflective Loss & Personal Rights of Members Flashcards
What is a reflective loss?
A reflective loss arises where a diminution in the value of a member’s shares or a loss of dividends was caused by a wrong done to the company.
Who should sue when a wrong is done to the company?
The company and the board of directors, who have the power to manage the affairs of the company.
What happened in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)?
It was alleged that the directors’ fraudulent actions had caused a loss to the company, which led to a reduction in the value of Prudential’s shareholding
The Court of Appeal held that it was not possible for a shareholder to bring a personal claim against a wrongdoer in respect of the decreased value of the shareholding
What did the Irish courts decide in O’Neil v Ryan & Ryanair?
The Supreme Court accepted the principles laid down in Prudential and held that the plaintiff had no right to take a personal action in respect of the resulting reduction in the value of his shareholding and there was no legal authority which supported such a claim.
What is the difference between reflective loss and oppression?
Reflective loss involves a ‘wrong’ to the company, whereas the oppression involves a wrong to the specific member or members. (O’Connor v Atlantis Seafood Wexford Ltd [2017])
What does the rule in Foss v Harbottle not prevent?
The rule does not prevent individual members from bringing actions to defend their own personal rights
Who is the proper plaintiff when a member seeks to enforce their personal rights?
The member may do so in their own name and and on their own behalf and separate to any wrong done to the company.
What case is authority for the fact that it is not always obvious whether a wrong is done to a member or to a company?
MacDougall v Gardiner
What happened in MacDougall v Gardiner?
The chairman of the company, in breach of the articles of association, refused a request by some members that a poll be held on the question of whether or not a general meeting should be adjourned.
The plaintiff sought a declaration that the chairman’s action was improper.
The declaration was refused on the grounds that the ‘irregularity’ in the internal procedures of the company was one which could have been ratified by the majority.
What is the effect of MacDougall v Gardiner?
The case led to a growing acceptance that the a failure to comply with the constitution may be an infringement with the personal rights of a member, enforceable under the s.31 contract or the oppression provisions under s.212
Is the personal rights category a true exception to Foss v Harbottle?
Although it is often said that abridging or removing the personal rights of a member is an exception to the rule in Foss v Harbottle, this is not in fact the case. (Fanning v Murtagh)
The wrong is to the member and not the company and therefore the rule in Foss v Harbottle has no application at all.
