Company Law Essay

This question involves the rights and duties of the members in their dealings with each other and with the company. The articles of association are the primary source of the provisions determining these internal relationships, and they will form the basis of this question and also be combined with aspects of directors’ duties, variation of class rights and s459 of the Companies Act 1985. I will split the issues that arise in this question into two parts. The first part would be to deal with Sheila, and to establish whether she can prevent the alteration of the objects of the company. The second part would be to advise Damien and Donald on whether they have been unfairly prejudiced in their removal from the Board.

First of all, let us first look at whether Sheila can prevent the alteration of the objects of the company. We are told that after Liam’s death, his widow inherits his shares. Sheila is therefore a member of the company and can attend company meetings and vote on resolutions. We are also told that ‘the objects of the company are to carry on the business of restaurateurs’. The concept of Cool Cooks Ltd. changing into the estate agency business might seem slightly strange, but the law will not intervene to restrain the directors from pursuing a different policy or business, even where it is a new venture in which the company has no expertise as seen in this case here. For example, in Re A Company (No 002567 of 1982) (1983), a minority shareholder in a company which objects are to engage in advertising failed in his attempt to prevent the company from using some of its surplus funds in opening a wine bar. The simplest remedy for Sheila is to sell her shares and seek a better investment, but it is unlikely that a shareholder will find a ready market for a minority shareholding in a private company unless the directors or other shareholders wish to buy the shares. There are however ways in which shareholders can make their objections known to the court and sometimes to have the change struck down.

If the shareholder wishes to stay with the company but improve its operation, Sheila can seek to change the management (s 303 , ordinary resolution required) or to instruct the board how to operate (Table A, Art 70 or s 9, both special resolution) but both require the support of others. If the company wishes to amend its object clause, permitting the company to go into the estate agency business, the alteration must be by special resolution (that is, passed by shareholders present or voting by proxy who command at least 75% of the votes cast). With only 10 shares, it is clear that Sheila cannot block a special resolution. She is not eligible to rely on Section 5 either, which gives a right to appear in court to a shareholder, who hold not less than 15% of the shares of a company. Section 368 permits members holding not less than 10% of the issued share capital to require the directors to call an Emergency General Meeting. Yet again, this is not possible as Sheila does not hold enough shares.

Assuming that Sheila cannot persuade others to join her, she can consider two approaches. First she could seek to initiate litigation on her own account; or, secondly, she could attempt to sue on behalf of the company. In respect of both approaches, the courts have been greatly influenced by the view that a company is a democracy, that a shareholder who is outvoted should abide by the result of a vote and that a court should intervene only when the interests of justice clearly demand it. As Lord Wilberforce put it, ‘Those who take interests in companies limited by shares have to accept majority rule’.

Regarding the dismissal of Damien and Donald from the Board, it seems that it will indeed amount to unfairly prejudicial conduct. We can refer to Brownlow v G H Marshall Ltd where the company was a family business with the shares held equally by a brother and two sisters, all of whom were directors. An attempt to exclude