Borland's Trustee v Steel Brothers & Company Ltd

JurisdictionEngland & Wales
Date1901
CourtChancery Division
[CHANCERY DIVISION] BORLAND'S TRUSTEE v. STEEL BROTHERS & CO., LIMITED. [1900 B. 1253.] 1900 Nov. 13, 14. FARWELL J.

Company - Articles of Association - Shares - Restrictions on Transfer - Compulsory Transfer at specified Price in Event of Shareholder's Bankruptcy - Repugnancy - Rule against Perpetuity - Fraud on Bankruptcy Law - Companies Act, 1862 (25 & 26 Vict. c. 89), s. 16.

Provisions in a company's articles of association compelling a shareholder at any time during the continuance of the company to transfer his shares to particular persons at a particular price are not void as being repugnant to absolute ownership, or as tending to perpetuity.

There is nothing obnoxious to the bankruptcy law in articles which bonâ fide provide that a shareholder shall, in the event of his bankruptcy, sell his shares to particular persons at a particular price, which is fixed for all persons alike, and is not shewn to be less than the fair price which might otherwise be obtained.

A share in a company cannot properly be likened to a sum of money settled upon and subject to executory limitations to arise in the future; it is rather to be regarded as the interest of the shareholder in the company, measured, for the purposes of liability and dividend, by a sum of money, but consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with s. 16 of the Companies Act, 1862, and made up of various rights and liabilities contained in the contract, including the right to a certain sum of money.

The rule against perpetuity has no application to personal contracts.

TRIAL OF ACTION.

The plaintiff was the trustee in bankruptcy of Mr. J. E. Borland, and he claimed a declaration that the defendant company were not entitled to require the transfer of certain shares held by the bankrupt at any price whatever, and that the transfer articles of the company purporting to give them power to compel such transfer were void. He also claimed an injunction to restrain the company, their officers and agents, from calling for, enforcing, or effecting, a transfer of all or any of the bankrupt's ordinary shares at any price, or, alternatively, at any price less than the fair and actual value of such shares.

The defendant company was a private company formed in 1890 to acquire the business of Steel Brothers & Co., East India merchants, in which the bankrupt had been a partner. The capital of the company at its incorporation was 400,000l. in 4000 shares of 100l. each. At the date of the incorporation Mr. Borland had 20,000l. capital in the business.

The company carried on business as merchants and commercial agents and rice millers in Burma and other countries in the East, and in London. The business was carried on abroad by agents, called managers and assistants, and in London by managing directors; and its success depended to a very large extent upon the exertions of the managers and assistants in the East.

Prior to the year 1897 the managers and assistants were paid for their services by way of salary and commission, and some discontent appeared to have existed among them as to the sufficiency of their remuneration, having regard to the large profits which were enjoyed by the shareholders. This led to the adoption of new articles of association to the exclusion of the then existing articles, the alteration being approved by special resolution duly passed and confirmed at extraordinary general meetings of the company held on May 24 and June 11 respectively. It was admitted that the adoption of the new articles was rendered necessary by the position of the company in 1897, and there was no suggestion of mala fides with regard to any part of the transaction.

The memorandum of association stated (clause 3 (d)) that one of the objects for which the company was established was “to transact and carry on all kinds of agency business.”

By the new articles the original capital was divided into preference and ordinary shares. Of the 3200 shares already issued 1600 (upon which 100l. per share had been paid up) were to be preference shares, and 1600 (upon which 80l. per share had been paid up) were to be ordinary shares. The bankrupt received in exchange for his original shares 160 preference and 80 ordinary shares.

Art. 47 provided that as regards all the ordinary shares (specified in a certain table) each of the respective then holders thereof (of which Mr. Borland was one) should be entitled to continue to hold the shares then held by him or any of them until he should die or voluntarily transfer the same or become bankrupt.

Art. 48 provided that no preference or ordinary share which should for the time being remain entitled to the exemption or special right conferred by art. 47 should be liable to be compulsorily taken or purchased under any provision of the articles enabling shares to be compulsorily taken or purchased.

Art. 49 provided that no share should, save as therein provided, be transferred to any person not being a manager or assistant, so long as any manager or assistant should be willing to purchase the same at the fair value. “Managers or assistants” were defined by the articles to be persons receiving remuneration from the company for managing or assisting to manage the business of the company at home or abroad otherwise than as a director only (but including a director also acting as manager or managing director).

By art. 50, in order to ascertain whether any manager or assistant was willing to purchase a share, the proposing transferor was to give a transfer notice to the company, specifying the sum which he fixed as the fair value, and such transfer notice was to constitute the company the transferor's agent for the sale of the share to any manager or assistant at the price so fixed.

Art. 52 provided that if the company should, within fourteen clear days after being served with such transfer notice, find a manager or assistant willing to purchase at the price aforesaid any share comprised in the transfer notice, and should give notice thereof to the intending transferor, he should be bound, on payment of the purchase-money, to transfer such share.

Art. 53 provided that the sum fixed by a transfer notice as the fair price for a share should in no case exceed the par value of the share; and that the par value of a share should, for the purpose of the article, be deemed to be the amount paid up, or properly credited as paid up, on such share, plus, in the case of an ordinary share, (a) a sum bearing the same ratio to the market value of the investments of the reserve fund account of the company as the capital paid up on the share sold should bear to the total paid-up ordinary capital; (b) a sum equal to one quarter of a sum bearing the same ratio to the company's “plant depreciation account” as the capital paid up on the share sold should bear to the total paid-up ordinary capital; and (c) interest at 5 per cent. per annum on the total sum arrived at after making such additions as aforesaid, computed from such times and in such manner as were therein more particularly specified. And it was further provided by the same article that a certificate of the auditor of the company should be final and conclusive on all parties as to the par value of any share.

Art. 55 provided that if the company should not within the space of fourteen clear days after being served with the transfer notice find a manager or assistant willing to purchase the share and give notice in manner aforesaid, the intending transferor should, at any time within three calendar months afterwards, be at liberty, subject as therein specified, to sell and transfer the shares, or those not placed, to any person and at any price, provided that such price should not be, without the consent of the directors, lower than the price fixed by the transferor in the transfer notice as the fair value.

Art. 57 provided that on any manager or assistant ceasing to be such, or on his death or bankruptcy, he must, on receiving certain notice, transfer his shares.

Art. 58 provided that in every case where ordinary shares were held by a person not being a manager or assistant, the directors might at any time give to such person notice requiring him forthwith to transfer all or any of such shares, and unless within fourteen days afterwards he should give a transfer notice in respect thereof, he should be deemed to have given such notice in accordance with the articles, and to have specified the par value as defined by art. 53 as the fair value of the shares, and the subsequent proceedings might be taken on that footing.

Art. 58A provided that no notice should be given under the two last preceding articles requiring...

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76 cases
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