Russell v Northern Bank Development Corp Ltd
A company cannot contract not to exercise its statutory power to increase its capital, but a shareholders' agreement binding the shareholders personally in how they vote is valid.
Facts
The four shareholders of a company, and the company itself, entered into a shareholders' agreement, which provided that no further share capital would be created without the written consent of all the parties. Later, the board proposed a resolution to increase the company's capital. Mr Russell, one of the shareholders, sought a declaration that the agreement prevented the increase.
Legal principle
The House of Lords held that the agreement was unenforceable against the company, because a company cannot contract out of its statutory power to alter its capital. However, Lord Jauncey said that the agreement was valid and enforceable between the shareholders, as a personal agreement as to how they would exercise their votes, and that the provision binding the company could be severed. Mr Russell was entitled to a declaration that the other shareholders were bound by the agreement.
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
- Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 290
- 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
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