Brown v British Abrasive Wheel Co Ltd
An alteration of the articles to allow the majority to compulsorily buy out the minority was invalid, because it was not for the benefit of the company as a whole.
Facts
British Abrasive Wheel needed more capital. The majority shareholders, who held 98 per cent of the shares, were willing to provide it only if they could buy the shares of the minority. When the minority refused to sell, the majority proposed to alter the articles to allow any shareholder holding 90 per cent of the shares to require the others to transfer their shares at a fair value. The minority challenged the alteration.
Legal principle
Astbury J held that the alteration was invalid. It was not made bona fide for the benefit of the company as a whole, but for the benefit of the majority, so that they could acquire the minority's shares. The alteration was not connected with raising capital, and it allowed the majority to expropriate any minority shareholder without any reason related to the company's interests.
Related cases on the company's constitution and decision making
- Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656
- Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653
- Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988
- Bushell v Faith [1970] AC 1099
- Cane v Jones [1980] 1 WLR 1451
- Re Duomatic Ltd [1969] 2 Ch 365
- Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88
- Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286
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