Greenhalgh v Arderne Cinemas Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 1950 |
| Date | 1950 |
| Year | 1950 |
| Court | Court of Appeal |
Company law - Private company - Articles restricting transfer of shares to members - Majority resolution authorizing sales to strangers - Validity - Whether resolution passed bona fide for benefit of company.
The authorities establish that a special resolution can be impeached if it is not passed “bona fide for the benefit of the company as a whole”. That phrase means that a shareholder must proceed upon what in his honest opinion is for the benefit of the company as a whole. “The company as a whole” does not, however ordinarily mean the company as a commercial entity as distinct from its corporators. It means the corporators as a general body.
A special resolution may be impeached if its effect is to discriminate between the majority shareholders and the minority shareholders so as to give to the former an advantage of which the latter are deprived. The persons voting for a special resolution are not required to dissociate themselves from their own prospects and consider what is for the benefit of the company as a going concern. If an outside person offers to buy all the shares, prima facie, if the corporators think it is a fair offer and vote in favour of a resolution accepting the offer, it is no ground for impeaching the resolution that in passing it they considered their own individual positions.
The first defendants were a private company with a nominal capital of 31,000l. divided into 21,000 preference shares of 10s. each and 205,000 ordinary shares of 2s. each. All the ordinary shares had been issued, 155,000 shares being fully paid up and 50,000 shares being paid up to the extent of twenty per cent. The plaintiff was the holder of 4,213 ordinary shares. The second defendant and his family and friends were the holders of 85,815 shares. The 50,000 partly paid up ordinary shares were held by the last two defendants as nominees of another company.
The articles of association provided by cl. 10 (a): “No shares in the company shall be transferred to a person not a member of the company so long as a member of the company may be willing to purchase such shares at a fair value to be ascertained in accordance with sub-clause (b) hereof”.
By an agreement dated June 4, 1948, made between the second defendant and the third defendant (hereinafter called “the purchaser”) which recited that the second defendant owned or controlled 85,815 ordinary shares and 50,000 partly paid ordinary shares, the second defendant agreed to sell the ordinary shares to the purchaser at 6s. a share. On June 7, a notice was sent out calling an extraordinary meeting of the company for the purpose of passing the following resolution: “That the articles of association of the company be altered by adding at the end of art. 10 the following additional clause: ‘Notwithstanding the foregoing provisions of this article any member may with the sanction of an ordinary resolution passed at any general meeting of the company transfer his shares or any of them to any person named in such resolution as the proposed transferee, and the directors shall be bound to register any transfer which has been so sanctioned’”.
On the footing that that resolution had been passed, it was proposed to pass an ordinary resolution sanctioning the transfer of 500 shares to the purchaser. These resolutions were duly passed by the requisite majorities at a meeting of the company held on June 30, 1948. Thereupon the plaintiff issued the writ in this action claiming, inter alia, that the two resolutions passed on June 30, 1948, were void and to restrain, in effect, transfers of shares to the defendants who were nominees of the purchaser.
The plaintiff contended that the resolutions of June 30, 1948, were invalid on the ground that the interests of the minority of the shareholders had been sacrificed to those of the majority.
Held, that, the special resolution having been bona fide passed, it was not an objection to it that, by lifting the ban in the original articles on sales to persons who were not members of the company, the right on a sale to tender for the majority holding of shares would be lost to minority shareholders, and that accordingly the special resolution could not be impeached.
APPEAL from Roxburgh, J.
The first defendants, Arderne Cinemas, Ld. were a private company. Their issued capital consisted of preference shares (with which the action was not concerned) and 205,000 ordinary shares of 2s. each. Of the ordinary shares 155,000 shares had been issued and were fully paid up, the remaining 50,000 shares having been issued but were only partly paid up. Article 10 of the articles of association of the company provided:
“(a) No shares in the company shall be transferred to a person not a member of the company so long as any member of the company may be willing to purchase such shares at a fair value to be ascertained in accordance with sub-cl. (b) hereof.
(b) If any member desires to sell or transfer his shares or any of them, he shall notify his desire to the directors by sending them a notice in writing (hereinafter called a ‘transfer notice’) to the effect that he desires to sell or transfer such shares. The receipt by the directors of the transfer notice shall constitute an authority to them to offer the...
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