Greenhalgh v. Arderne Cinemas Ltd
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Greenhalgh v. Arderne Cinemas Ltd [1951] Ch 286, [1950] 2 All ER 1120 is UK company law case concerning the issue of shares, and "fraud on the minority", as an exception to the rule in Foss v. Harbottle.
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[edit] Facts
Mr Mallard had a controlling interest in Arderne Cinemas Ltd. He agreed with a man named Sol Sheckman that he would sell his shares for six shillings (thirty pence) each and accept £5000 to step down from the board of directors. This was authorised at a general meeting by a special resolution of the company, which at the same time changed the articles of association. The articles had said that if shares were to be transferred, they would be offered first to existing company shareholders. But Mr Mallard had not told the meeting that his £5000 payoff was actually going to come from the company's funds, and not from Sheckman. Mr Greenhalgh (a minority shareholder) sought a declaration that the resolution was a fraud on him and the other minority shareholders, and asked for compensation.
[edit] Judgment
Lord Evershed MR (with who Asquith and Jenkins LLJ concurred) held that the £5000 payment was not a fraud on the minority. None of the majority voters was voting for a private gain. The alteration of the articles was perfectly legitimate, because it was done properly.
Lord Evershed MR stated,
"When a man comes into a company, he is not entitled to assume that the articles will always remain in a particular form, and so long as the proposed alteration does not unfairly discriminate, I do not think it is an objection, provided the resolution is bona fide passed, that the right to tender for the majority holding of shares would be lost by the lifting..." of restrictions on transferring shares in the articles.
Moreover is was wrong to say,
"that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give to the former an advantage of which the latter were deprived. When the cases are examined in which the resolution has been successfully attacked, it is on that ground. It is therefore not necessary to require that persons voting for a special resolution should, so to speak, dissociate themselves altogether from their own prospects and consider whether what is thought to be for the benefit of the company as a going concern. If, as commonly happens, an outside person makes an offer to buy all the shares, prima facie, if the corporators think it a fair offer and vote in favour of the resolution, it is no ground for impeaching the resolution that they are considering their own position as individuals."[1]
[edit] See also
[edit] Notes
- ^ [1951] Ch 286, 291; [1950] 2 All ER 1120, 1126
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