Greenhalgh V Arderne Cinemas Ltd

''Greenhalgh v Arderne Cinemas Ltd (No 2)'' 9461 All ER 512; 951Ch 286 is UK company law case concerning the issue of shares, and "fraud on the minority", as an exception to the rule in ''Foss v Harbottle''.

Facts

Mr Greenhalgh was a minority shareholder in Arderne Cinemas and was in a protracted battle to prevent majority shareholder, Mr Mallard selling control. The company had two classes of shares; one class was worth ten shilling a share and the other class worth two shilling a share. The ten shillings were divided into two shilling shares, and all carried one vote. Mr Greenhalgh had the previous two shilling shares, and lost control of the company.

The articles of association provided by cl. 10 (a): "No shares in the company shall be transferred to a person not a member of the company so long as a member of the company may be willing to purchase such shares at a fair value to be ascertained in accordance with sub-clause (b) hereof".

The company changed its articles by special resolution in general meeting allowing existing shareholders to offer any shares to person/members outside the company. Mr Mallard, the majority shareholder, wished to transfer his shares for 6 shillings each to Mr Sol Sheckman in return for £5000 and his resignation from the board.

Mr Greenhalgh wished to prevent control of the company going away, and argued that the article change was invalid, a fraud on him and the other minority shareholders, and asked for compensation.

Judgments

Share issues

Lord Greene MR held,9461 All ER 512 ‘instead of Greenhalgh finding himself in a position of control, he finds himself in a position where the control has gone, and to that extent the rights… are affected, as a matter of business. As a matter of law, I am quite unable to hold that, as a result of the transaction, the rights are varied; they remain what they always were – a right to have one vote per share ''pari passu'' with the ordinary shares for the time being issued which include the new 2s ordinary shares resulting from the subdivision.’ !

Derivative action

Lord Evershed MR (with whom Asquith and Jenkins LLJ concurred) held that the £5000 payment was not a fraud on the minority. None of the majority voters were voting for a private gain. The alteration of the articles was perfectly legitimate, because it was done properly.

Lord Evershed MR stated,

Moreover, it was wrong to say,

See also

*UK company law
*'' Allen v Gold Reefs of West Africa Ltd'' 9001 Ch 656
*'' Brown v British Abrasive Wheel Co'' 9191 Ch 290
*'' Sidebottom v Kershaw, Leese & Co Ltd'' 9201 Ch 154
*'' Dafen Tinplate Co Ltd v Llanelly Steel Co'' (1907) Ltd 9202 Ch 124
*'' Shuttleworth v Cox Bros and Co (Maidenhead)'' 9271 Ch 154
*''Southern Foundries (1926) Ltd v Shirlaw'' 940AC 701

Notes

{{DEFAULTSORT:Greenhalgh V Arderne Cinemas Ltd
United Kingdom company case law
1946 in British law
1946 in case law
Court of Appeal (England and Wales) cases