Allen v Gold Reefs of West Africa Ltd

''Allen v Gold Reefs of West Africa Ltd'' 9001 Ch 656 is a UK company law case concerning alteration of a company's articles of association. It held that alterations could not be interfered with by the court unless the change that had been made was not bona fide for the benefit of the company as a whole. This rule served as a marginal form of minority shareholder protection at common law, before the existence of any unfair prejudice remedy.

Facts

Gold Reefs’ articles gave it a "first and paramount lien" (the right to retain possession) on all partly paid shares held by any member for any debt owed to the company. Mr Zuccani held some partly paid up shares. He also owned the only fully paid up shares issued by the company. He died insolvent. The company altered its articles by special resolution to create a lien on all fully paid shares (deleting the words in brackets of ‘upon all shares (not fully paid) held by such members’). Mr Allen, one of the executors of Mr Zuccani (trying to get money back) sued to get the fully paid shares’ value.

Kekewich J held the company could not enforce the lien. The company appealed.

Judgment

Lord Lindley MR held the alteration of the company's articles was valid to introduce a lien on fully paid up shares. So long as the resolution was done bona fide for the benefit of the company as a whole, restrictions on freedom of a company to alter its articles are invalid. According to Lord Lindley MR the power to change the articles is,

Romer LJ agreed. Vaughan Williams LJ dissented.

Significance

*''Allen v Gold Reefs of West Africa Ltd'' 9001 Ch 656, inserting a lien on shares fully paid when it only affected one shareholder was valid
*''Brown v British Abrasive Wheel Co'' 9191 Ch 290, introducing a 'squeeze out' provision to compulsorily acquire the 2% of shares held by a minority bidder to encourage the 98% majority shareholder to contribute more capital was invalid
*''Sidebottom v Kershaw, Leese & Co Ltd'' 9201 Ch 154, introducing the right to compulsorily acquire the shares of anybody running a competing business was valid
*''Dafen Tinplate Co Ltd v Llanelly Steel Co'' (1907) Ltd 9202 Ch 124, introducing a right to compulsorily acquire any shareholders' shares to deal with one shareholder that was contracting with a competitor was invalid
*''Shuttleworth v Cox Bros and Co (Maidenhead)'' 9271 Ch 154, allowing a majority of directors to remove another director, to target one of the existing directors, was valid, as it was bona fide.
*'' Peter's American Delicacy Co Ltd v Heath'' (1939) 61 CLR 457, an amendment to rectify a drafting mistake on the distribution ratios to be equal, and dependent on amounts paid up not nominal value, for both capitalised profits as for cash dividends was valid
*''Southern Foundries (1926) Ltd v Shirlaw'' 940AC 701, changing the articles to allow a director to be removed before the end of his term was valid
*''Greenhalgh v Arderne Cinemas Ltd'' 951Ch 286, removing a pre-emption right to prevent a minority shareholder buying up shares in a battle for control was valid
*'' Rights and Issues Investment Trust Ltd v Stylo Shoes Ltd'' 965Ch 250, doubling voting rights of management shares to preserve their strength after a large new share issue when managers did not take part in the vote was valid
*'' Gambotto v WPC Ltd'' (1995) 182 CLR 432, an alteration to empower the majority to compulsorily buy out any minority was invalid. The Australian High Court preferred a test of whether an alteration is 'beyond any purpose contemplated by the articles or oppressive'
*'' Citco Banking Corporation NV v Pusser's Ltd'' 007UKPC 13, an amendment passed by 84% of shareholders except Citco to create a new class of shares with 50 votes each and to convert the chairman's 200,000 shares into this class was valid

See also

*UK company law

Notes

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United Kingdom company case law
Court of Appeal (England and Wales) cases
1900 in case law
1900 in British law