THE CONTROVERSY ON THE SECTION 20 CONTRACT REVISITED
| Date | 01 March 1985 |
| Author | G. D. Goldberg |
| DOI | http://doi.org/10.1111/j.1468-2230.1985.tb00831.x |
| Published date | 01 March 1985 |
THE CONTROVERSY ON THE SECTION
20
CONTRACT REVISITED
SECTION
20(1) of the Companies Act 1948 reads
“Subject to the provisions of this Act, the memorandum and
articles shall, when registered, bind the company and the
members thereof to the same extent as
if
they respectively had
been signed and sealed by each member, and contained
covenants on the part of each member to observe all the
provisions of the memorandum and of the articles.”
It is clear that section 20 declares that the memorandum and
articles form a binding contract between the company and each
member.’ The fundamental importance of section
20
lies in the
facts that the memorandum and articles are the basis of the
relationship between the member and the company, the company
and its officers and the officers and the members; and that section
20 is the
only
source from which the memorandum and articles
derive the force whereby they bind the company and its members.
The practical importance, as distinct from the mere academic
interest, of the controversy on the interpretation of section
20
is
known to every solicitor who has received instructions
so
to
draw
the memorandum or articles of a company as to ensure that a
particular person will enjoy certain rights and hold certain powers
in the company,
e.g.
as
its governing director, solicitor, promoter,
accountant or other official.
Thus the practical impact
of
section
20
lies in the answer to the
following question:
Can a provision in the memorandum or articles of a company
entitling a particular person, for example, to remain as the
company’s governing director, for life or until a specific age or
till resignation unless the memorandum or articles are earlier
amended, be relied on directly as a contract
so
as to enable
the enforcement of that particular person’s right to be the
company’s governing director
. . .
even though the article
concerns him in his capacity
as
an outsider and not in his
capacity as a member?
Does section 20 give the memorandum and articles contractual
effect only in
so
far as they confer rights or obligations on the
member in his capacity of member or does section 20 also give
the memorandum and articles contractual effect in
so
far as
Put another way:
Hickman
v.
Kent or Romney Marsh Sheep-Breeders’ Association
[1915]
1
Ch.
881.
Note also that under section
20
the contract
is
also enforceable between the members
inter se: Rayfield
v.
Hands
[1969]
Ch.
1.
158
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