Hogg v Cramphorn Ltd
| Jurisdiction | England & Wales |
| Date | 1966 |
| Year | 1966 |
| Court | Chancery Division |
Company - Director - Fiduciary duty to company - Use of powers to issue shares and lend money in order to retain control of company - Bona fide belief that transaction in best interests of company - Whether ultra vires - Ratification by general meeting. - Company - Shares - Articles of association - Power for directors to issue shares “with a special or without any right of voting” - Provision that in case of a poll “every member shall have one vote for every share held by him” - Whether directors empowered to issue shares carrying 10 votes each on a poll.
Article 10 of the articles of the defendant company provided that “the shares shall be under the control of the directors who may allot or otherwise dispose of the same … on such terms and conditions … as the directors think fit ….” Article 13 provided that “… new shares shall be issued upon such terms and conditions, and with such rights and privileges annexed thereto … as the directors determine … and with a special or without any right of voting ….” Article 75 provided: “On a show of hands every member shall have one vote only. In case of a poll every member shall have one vote for every share … held by him.”
The directors of the company and their supporters held some 37,000 of the 126,181 issued shares in March, 1963. On March 29, 1963, B offered to buy the whole of the issued share capital at 25s. for each preference share and 50s. for each ordinary share. The directors, acting in good faith and believing that the establishment of a trust and avoidance of the acquisition of control by B. would benefit the company, devised a scheme, the primary purpose of which was to ensure control of the company by the directors. By a deed dated April 18, 1963, the company established a trust for the acquisition of shares in the company to be held by the trustees, the individual defendants, for the benefit of the company's employees. On the same date the trustees applied for 5,707 unissued preference shares on condition that there should be attached to them 10 votes per share on a poll. The directors allotted those shares to the trustees at par with such special voting rights, and made a loan to the trustees out of the company's funds of £5,707 free of interest and not to be repaid until the termination of the trust. The trustees used that loan to pay for the shares. The effect or purported effect of those transactions was that the directors could rely on the support of more than half the total votes. On the same date B. was informed that the directors did not propose to place his offer before the shareholders.
On May 9 the plaintiff became the registered shareholder of 50 ordinary shares. On May 14 the board resolved to advance £28,293 to the trustees on similar terms to enable them to buy further preference shares at 25s. per share, and on May 13 and 15 the board circularised the shareholders informing them of B.'s offer and inviting them to sell their preference shares to the trustees at 25s. per share. On the questions, first, whether the resolution attaching the right on a poll to 10 votes per share to the 5,707 preference shares was ultra vires; secondly, whether the allotment and issue of such shares to the trustees was ultra vires; and, thirdly, whether the trustees held the sum of £28,293 as trustees of the trust deed or in trust for the company absolutely:
Held, (1) that, on the true construction of the articles, any special right of voting attached to any share under article 13 must be one that was consistent with article 75 and so could not confer more than one vote in respect of that share; accordingly, the directors had no power to attach the special voting rights to the 5,707 preference shares; but that the plaintiff, whether suing on his own behalf or in a representative capacity, was not competent to procure the allotment to be set aside, although it might be open to the trustees to do so.
(2) That the power to issue shares was a fiduciary power, and if exercised for an improper motive the issue was liable to be set aside, it being immaterial that the issue was made in the bona fide belief that it was in the interests of the company.
Punt v. Symons & Co. Ltd. [
(3) That the loan of £28,293 was not made with the single-minded purpose of benefiting the company otherwise than by securing control for the directors, and formed part of one scheme for this purpose; accordingly, the issue of the shares, the execution of the deed and the loan were all ultra vires the directors and invalid unless ratified by the company in general meeting.
(4) That the plaintiff was justified in suing in a representative capacity in respect of the loan of the company's money.
ACTIONS.
The plaintiff, Samuel Rolleston Hogg, the holder of 50 ordinary shares in Cramphorn Ltd., brought these actions on behalf of all but three of the shareholders against the company and the three shareholders, John Frederick Cramphorn (“Colonel Cramphorn”), the chairman and managing director, John Carrington Sheldrake, a partner in the firm of accountants who were the company's auditors, and John Gledhill Cottam, an employee of the company.
The company was incorporated in 1896 to acquire and carry on two businesses of corn and seed merchants, previously carried on respectively by Colonel Cramphorn's father and his great-uncle at Brentwood and at Chelmsford Although a public company, its shares were not quoted on any stock exchange. Members of Colonel Cramphorn's family retained a substantial interest in the company. At the date of the action the business carried on through 60 retail branches in East Anglia and the South-East of England.
By the memorandum of association the capital was originally divided into preference and ordinary and deferred shares, but the last-named class had disappeared. The rights of each class to participate in distributed profits and surplus assets were defined, but nothing was said as to voting rights. The relevant articles were as follows:
“10: The shares shall be under the control of the directors, who may allot or otherwise dispose of the same to such persons, on such terms and conditions, and at such times as the directors think fit … 12: The company in general meeting may from time to time increase the capital by the creation of new shares of such amount as may be deemed expedient (subject to the provisions of the memorandum of association and of the articles). 13: Subject as aforesaid, the new shares shall be issued upon such terms and conditions, and with such rights and privileges annexed thereto as the general meeting resolving upon the creation thereof shall direct, and if no direction be given, as the directors determine; and in particular such shares and any shares forming part of the original capital of the company may be issued with a preferential or qualified right to dividends and in the distribution of the assets of the company and with a special or without any right of voting (subject to the provisions of the memorandum of association and of the articles). 14: The directors may, before the issue of any new shares, determine that the same, or any of them, shall be offered in the first instance to all the then members, or to the members and holders of debentures or debenture stock of the company, in proportion to the amount of the capital held or advanced by them, or make any other provisions as to the issue and allotment of new shares, but in default of any such determination, and as far as the same shall not extend, the new shares may be allotted or otherwise disposed of by the directors to such persons, on such terms and conditions, and at such times as the directors think fit. 15: Any capital raised by the creation of the new shares shall, subject as aforesaid, be considered part of the original capital, and shall accordingly be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien, surrender and otherwise …. 75: On a show of hands, every member shall have one vote only. In case of a poll, every member shall have one vote for every share (whether preference, ordinary or deferred) held by him.”
On November 11, 1947, the following resolution was passed:
“that the capital of the company be increased from £86,030 (divided into 50,500 preference shares and 35,500 ordinary shares of £1 each) to £136,030 by the creation of 45,500 preference shares of £1 each to rank equally with the existing preference shares and 4,500 ordinary shares of £1 each to rank equally with the existing ordinary shares.”
In March, 1963, the authorised issued capital of the company was £136,000, divided into 96,000 5 per cent. cumulative preference shares of £1 each, of which 90,293 were issued and 5,707 were unissued, and 40,000 ordinary shares of £1, of which 35,888 were issued and the remainder were unissued. The financial position of the company was strong and its trade was profitable, but the earning yield on the amount of capital employed in the business was not very high. The company's assets included freehold properties, which were shown in the company's balance sheet at cost at about £207,000 but were in fact worth considerably more. The directors, their relations and friends held about 37,000 of the 126,181 issued shares. Every share, whether preference or ordinary, carried one vote at the meetings of the company.
On March 28, 1963, a Mr. Baxter made an oral proposition to Colonel Cramphorn, which was confirmed in writing the following day, to buy the whole of the issued share capital of the company at 25s. for each preference share and 50s. for each ordinary share. Mr. Baxter had no experience of the particular kind of business carried on by the...
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Bibliografie
...v Rushout (V-C 1852) 5 De G &Sm 290; 54 ER 1121Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286; [1950] 2 AllER 1120Hogg v Cramphorn Ltd [1967] Ch 254Howie and others v Crawford (1990) BCC 330H R Harmer, Re [1958] 3 All ER 689Jermyn Street Turkish Baths Ltd, Re [1971] 1 WLR 1042; [1971] 3All ......