Borland’s Trustee v Steel Brothers and Co Ltd: 1901

Mr Borland was a shareholder. The company’s articles contained pre-emption rights, such that on a shareholder’s bankruptcy, he had, on receiving a transfer notice from the directors, to transfer his shares to a manager or assistant at a fair value calculated in accordance with the articles. His trustee said that the transfer articles were void because, among other reasons, they amounted to a fraud upon the bankruptcy laws, and could not prevail when bankruptcy had supervened, since the trustee was forced to part with the shares at less than their true value, and the asset was not fully available for creditors.
Held: Farwell J said: ‘a simple stipulation that upon a man’s becoming bankrupt that which was his property up to the date of the bankruptcy should go over to some one else and be taken away from his creditors, is void as being a violation of the policy of the bankrupt law’. It was a commercial arrangement, and the provisions were were a fair agreement for the business of the company. They were binding equally on all shareholders. There was no suggestion of fraudulent preference, and nothing obnoxious to the bankruptcy law in a clause which provided that if a man became bankrupt he should sell his shares. The price was a fixed sum for all persons alike, and no difference in price arose in the case of bankruptcy. The purpose was that there should be in the company, if it were so desired, none but managers and workers in Burma. There was nothing repugnant in the way in which the value of the shares was to be ascertained. It would have been different if there were any provision in the articles compelling persons to sell their shares in the event of bankruptcy at something less than the price that they would have otherwise obtained, since such a provision would be repugnant to the bankruptcy law
He described the nature of a company share: ‘It is the interest of a person in the company, that interest being composed of rights and obligations which are defined by the Companies Act and by the memorandum and articles of association of the company.’ and one with limited liability in a company: ‘A share is the interest of the shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with section 16 of the Companies Act 1862. The contract contained in the articles of association is one of the original incidents of the share. A share is . . an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.’


Farwell J


[1901] 1 Ch 279

Cited by:

ApprovedInland Revenue Commissioners v Crossman HL 1937
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CitedHer Majesty’s Commissioners of Inland Revenue v Laird Group plc HL 16-Oct-2003
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CitedBelmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Lists of cited by and citing cases may be incomplete.

Company, Insolvency

Updated: 12 May 2022; Ref: scu.186959