RATIFICATION OF THE DIRECTORS’ ACTS: AN ANGLO‐AUSTRALIAN COMPARISON
| Published date | 01 March 1978 |
| Date | 01 March 1978 |
| DOI | http://doi.org/10.1111/j.1468-2230.1978.tb00794.x |
RATIFICATION
OF
THE
DIRECTORS’ ACTS:
AN ANGLO-AUSTRALIAN COMPARISON
THERE appears to be a clear conflict of judicial authority between
the English
Court
of
Appeal and the Australian High
Court
on the
question
of
the ratification
of
directors’ actions, particularly
in
the
case
of
share issues, whether the issue is made in response to
a
takeover
or
not. The power to issue shares is normally conferred
on the directors by the company’s articles. The N.S.W. Court of
Appeal seems to represent the middle ground between those opposing
views, judging by
a
recent decision in
Winthrop Investments Ltd.
v.
Winns Ltd.l
At the outset it may be convenient to outline the English develop-
ments of the law in this area, and then compare the Australian
approach.
The two more recent English authorities on this type
of
situation
are
Hogg
v.
Cramphorn Ltd.a
and
Bamford
v.
Bamford.3
In
Hogg
v.
Cramphorn Ltd.,
Buckley
J.
held that an alleged
improper allotment of preference shares by directors to trustees for
employees, the issue being made in order to defeat a take-over bid,
conferred
a
right of action on
a
shareholder suing in
a
representative
capacity. Buckley
J.
further held that the allotment
of
shares was
ratifiable by
a
simple majority
of
shareholders in general meeting,
and hence once approved by
a
general meeting, the allotment could
not be made the subject
of
an
individual action. The evidence in
the case left little doubt that the directors’ actions were made
honestly and in the bona fide belief that they were in the best
interests of the company, and also that the intention was to frustrate
the take-over bid. Nevertheless Buckley
J.
accepted the plaintiff‘s
contention that the directors had misused their powers. He found
that the company’s articles
gave
no power
to
the directors to
disrupt the existing voting rights attaching to shares, by attaching
10 votes to each new preference share issued. However this did
not mean that the plaintiff was entitled to have the allotment set
aside. The allottees were permitted to retain their preference shares
without the special voting rights attached to them. Buckley
J.
stated
4:
“
The matter rests, in my judgment, between the trustees and
the company. The plaintiff in my opinion, whether suing on his
own behalf or in
a
representative capacity, is not competent
to
procure this allotment to be set aside.”
With due respect for Buckley
J.’s
judgment it is difficult to see
how a vital subject concerning the trustees and the company is not
1
[1975] 2
N.S.W.L.R.
66;
see
the
note
by
D.
Prentice
(1977)
40
M.L.R.
587.
2
[1967]
Ch.
254.
3
[
19701
Ch.
212.
4
[1967]
Ch.
264-265.
161
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