The company which had sold its business, through its Board of Directors, had resolved to pay 1 million pounds to its former workers and the widows of such former workers. A shareholder sought to prevent this happening on the ground that such a payment went beyond the articles of association of the company, and such payment to ex-employees was not reasonably incidental to the carrying on of the business of the company.
Held: The shareholder’s application succeeded. The proposed payments were ultra vires and illegal. The making of an ex gratia payment as the company intended to do, and in the circumstances where that company no longer operated, was not reasonably incidental to the conduct of its business and was therefore ultra vires the company’s memorandum and articles. In such circumstances a shareholder has the right to bring the action.
‘A gift undirected to the interests of the shareholders (in a company) is invalid. This prevents the exercise of pure philanthropy which, by definition, is non-self-regarding. The law does not impose welfare responsibilities on trading companies and has not abandoned shareholder protection to the extent of sacrificing the interests of the minority to the liberal impulses of the majority. Gifts will accordingly be permitted only when they tend either directly or indirectly, to benefit the company in some genuine manner’
[1962] 2 All ER 929, [1962] Ch 927
England and Wales
Cited by:
Cited – Re Halt Garage (1964) Ltd ChD 1982
The company was a husband-and-wife business running a garage. They worked hard to build up the business, which included recovering broken-down vehicles from the nearby M1. They paid themselves modest remuneration as directors. In 1967 the wife . .
Cited – Progress Property Company Ltd v Moorgarth Group Ltd SC 8-Dec-2010
The appellants appealed against rejection of their claim that there had been an unlawful distribution of capital when the appellant had sold the share capital of a subsidary at an undervalue to the respondent purchaser. The valuation had . .
Lists of cited by and citing cases may be incomplete.
Updated: 14 October 2021; Ref: scu.427163 br>