The Board has held that a shareholder, including a minority shareholder, has a personal claim against a company when the directors of the company allot shares for an improper purpose. The Board considered the leading cases in England, Australia and the Cayman Islands on the exercise by directors of their powers for an improper purpose (such as Howard Smith and Eclairs), which had not considered the question of standing. It also considered how such a cause of action could be reconciled with the well-known cases of Hogg v Cramphorn Ltd and Bamford v Bamford (which establish that shareholders can ratify an improper allotment of shares).
The Board held that the articles of association of a company are subject to an implied term that in exercising the power to allot and issue shares, the directors as the company’s agents will do so in accordance with their fiduciary duties. The Judgment gives rise to considerable questions for future discussion, not least the scope of the implied term and the circumstances in which ratification may defeat the shareholder’s personal claim.
Tom and Paul were instructed by Freshfields and Maples Group.
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