The company had altered its articles so as to give itself a lien on paid up shares in respect of the failure of the shareholder to pay calls on other shares which had not been fully paid up. The effect of the amendment was to alter the contractual rights of the shareholder.
Held: The amendment to the articles was within the power of the company under s.50 of the 1862 Act.
Lord Lindley MR said: ‘The power thus conferred on companies to alter the regulations contained in their articles is limited only by the provisions contained in the statute and the conditions contained in the company’s memorandum of association. Wide, however, as the language of section 50 is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied and are seldom if ever expressed but if they are complied with I can see no ground for judicially putting any other restrictions on the power conferred by the section and those contained in it . . Speaking therefore generally and without reference to any particular case, the section clearly authorises a limited company, formed with articles which confer no lien on fully paid up shares, and which allow them to be transferred without any fetter, to alter those articles by special resolution, and to impose a lien and restrictions on the registry of transfers of those shares by members indebted to the company . . But then comes the question whether this can be done so as to impose a lien or restriction in respect of a debt contracted before and existing at the time when the articles are altered. Again speaking generally, I am of opinion that the articles can be so altered and that, if they are altered bona fide for the benefit of the company, they will be valid and binding as altered on the existing holders of paid up shares whether such holders are indebted or not indebted to the company when the alteration is made.’
Romer LJ said: ‘certainly a shareholder could not say as against the company that he was entitled to special rights because he did not pay his debts’
Court:
CA
Date:
01-Jan-1900
Judges:
Lord Lindley MR, Romer LJ
Statutes:
Companies Act 1862 50
References: [1900] 1 Ch 656,
Cited By:
- Faulkner and Another -v- Bennett and Others, ChD, Cited, (Bailii, [2011] EWHC 3702 (Ch))
