Hogg v Cramphorn Ltd
An issue of shares by directors to defeat a takeover bid is an improper exercise of their powers, even if they honestly believe it is in the company's interests, but it can be ratified by the general meeting.
Facts
The directors of Cramphorn Ltd believed that a takeover bid by Mr Baxter would not be in the interests of the company or its staff. To prevent it, they set up a trust for the benefit of the company's employees, and allotted shares with special voting rights to the trustees, financed by an interest free loan from the company. This gave the directors and their supporters control of a majority of the votes. Mr Hogg, a shareholder, challenged the allotment.
Legal principle
Buckley J held that the allotment was an improper exercise of the directors' powers. The power to issue shares was a fiduciary power, which could not be used for the purpose of preventing a takeover bid and keeping the directors in control, even though the directors honestly believed that this was in the company's interests. The shareholders were entitled to decide whether to accept the bid. However, the allotment could be ratified by an ordinary resolution of the shareholders in general meeting, without counting the votes of the new shares.
Related cases on directors' duties: powers, judgment and care
- Bamford v Bamford [1970] Ch 212
- Re Barings plc (No 5) [1999] 1 BCLC 433
- BTI 2014 LLC v Sequana SA [2022] UKSC 25, [2024] AC 211
- Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
- Re D'Jan of London Ltd [1994] 1 BCLC 561
- Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
- Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71
- Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
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