Parke v Daily News Ltd
| Jurisdiction | England & Wales |
| Date | 1961 |
| Year | 1961 |
| Court | Chancery Division |
Company - Powers - Application of assets - Proposed payments to former employees - Whether payments gratuities - Test - Validity - Action by shareholder - Application for interim injunction - No evidence by directors that payments in interest of company's business - Whether prima facie case that proposed payments ultra vires.
The defendant company, D.N., was the owner of two newspapers which, in October, 1960, owing to heavy financial losses, the directors arranged to sell to another newspaper group, A.N., for some £2,000,000. It was at all material times the intention of the directors of D.N. to devote the whole of the purchase money less the costs of cessation of printing and publication, to the staff and pensioners of D.N. by way of compensation for loss of pension rights, pension benefits and payments in lieu of notice. On October 17, 1960, D.N. ceased publication of the two newspapers and on the same day sent out to its shareholders a circular letter informing them of the steps that had been taken. The circular letter enclosed an interchange of letters between the respective chairmen of D.N. and A.N. explaining the reasons for the sale and stating D.N.'s intentions as to the application of the purchase-price.
On January 20, 1961, a notice was sent out by the directors of D.N. to all shareholders stating that a general meeting was to be held on February 8 for the purpose of considering and passing a resolution authorising the directors to apply the balance of the purchase-moneys receivable by D.N. under the contract of sale in the manner set forth in paragraph 5 of the circular accompanying the notice. Paragraph 5 of the circular, inter alia, stated that the sum of £2,000,000 would be applied:
“(a) In repayment of a loan made to D.N. by the pension trustees for existing pensioners — £500,000. (b) In discharging the liabilities to former employees in respect of payments in lieu of notice. These payments have been made — £390,000. (c) In paying compensation for loss of pension rights representing basically one week's pay for each year of service — £1,110,000.”
On February 2, 1961, the plaintiff, the holder of 50,000 2s. ordinary shares in D.N., issued a writ claiming a declaration that the proposed resolution was ultra vires, and injunctions restraining the company and the directors from passing the said resolution.
On a motion for an interim injunction:—
Held, (1) that in the absence of any evidence to the contrary, the court would proceed on the basis that the payments proposed in paragraph 5 (c) of the circular were gratuitous payments.
(2) That in the absence of any evidence from the directors of the company satisfying the court that the payments proposed in paragraph 5 (c) were reasonably incidental to the carrying on of the company's business, and were to be made for the benefit and to promote the prosperity of the company, the plaintiff had made out a prima facie case that the application of the money, which was of an unprecedentedly large sum, would be an ultra vires application of the company's money. Accordingly, an injunction would be granted restraining the company and the directors from disposing of the money in the manner proposed.
Hutton v. West Cork Railway Co. (
MOTION FOR INJUNCTIONS.
The defendant company, Daily News Ltd., was the proprietor of two newspapers, the “News Chronicle” and the “Star.” The six personal defendants, Laurence John Cadbury, Lord Layton, Sir Egbert Cadbury, George Adrian Hayhurst Cadbury, Martin George Henry Cadbury, and George Bertram Crosfield, were the directors of the defendant company. In or about October, 1960, it became apparent that the newspapers could no longer be carried on for financial reasons, and arrangements were made by the directors for the transfer on sale of the two newspapers to Associated Newspapers Ltd., whose chairman was Lord Rothermere.
On October 17, 1960, the defendant company ceased publication of the two newspapers. On the same day, the company sent out to its shareholders a circular letter dated October 17, 1960, informing them of the steps that had been taken. The circular enclosed an interchange of letters between Lord Rothermere and the chairman of the defendant company, explaining the reasons for the sale. The purchase-price paid by Associated Newspapers Ltd. was £1,925,000 and in the sale agreement there was provision for an increase in that sum depending on the profitability of the newspapers after the sale. In his letter of October 5, 1960, enclosed with the circular letter, the chairman of the defendant company wrote to Lord Rothermere:
“it would be our intention to devote the whole of the purchase-price to our staff and pensioners by giving compensation or pension benefits as well as the notice money that every employee will receive.”
On January 20, 1961, a notice was sent out by order of the directors to shareholders stating that a general meeting was to be held on February 8, 1961, for the purpose of considering and, if thought fit, passing a resolution authorising the directors to apply the balance of the purchase consideration receivable by the defendant company under the contract of sale remaining after meeting such costs of cessation of such printing and publication as the directors thought fit, in the manner set forth in paragraph 5 of the circular accompanying the notice. That circular, after giving in detail the history of the action taken by the directors, and the steps they had taken to liquidate certain claims by creditor paper companies, set out the proposals for the disposal of the sum of £2,000,000 as follows:
“The amount of the basic consideration is £1,925,000 to which will be added an additional sum based on the increased sales of the Daily Mail over a datum period; this latter sum is not yet ascertainable nor are all the costs of cessation. The best estimate that can be made at the present time of the amount of the purchase consideration which will be available for the foregoing purposes, after meeting the costs of cessation, is a sum of the order...
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