TOPIC 6 MEMBERSHIP OF COMPANY PROTECTION OF MINORITY SHAREHOLDERS

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TOPIC 6 MEMBERSHIP OF COMPANY PROTECTION OF MINORITY SHAREHOLDERS by Mind Map: TOPIC 6 MEMBERSHIP OF COMPANY PROTECTION OF MINORITY SHAREHOLDERS

1. Brown v British Abrasive Wheel Co.

1.1. Shareholders holding 98% of the company's shares passed a resolution to alter the company's AOA to the effect that a member was required to sell his shares if so requested by members holding 90% shares of the company.

1.1.1. The court held that the alteration was to enable the majority to expropriate the minority's property and thus, was a fraud on the minority. The alteration was ineffective.

1.2. The purpose of this alteration was enable the company to compel the sale of shares of a member who had a formed a competing company.

1.2.1. As the altered AOA empowered the company to compel any member other than one named, to transfer his shares even when he had done nothing against the company, this power was to wide and it was bona fide for the benefit of the company as a whole.

2. Section 346

2.1. The law recognised that some members may be oppressed by the directors of controlling members. The oppressed members may take action against the directors or the company.

2.2. 2 Remedies Available

2.2.1. Direct or prohibit any act or cancel or vary any transaction or resolution

2.2.2. Regulates the conduct of the affairs of the company in the future.

3. PROCEDURE AT COMMON LAW

3.1. 3 Types of legal actions available to a member at common law

3.1.1. 1) Persnoal Action

3.1.2. 2) Representative Action

3.1.3. 3) Derivative Action

4. Genereal Rules : "proper plaintiff rules"

4.1. If a wrong has been committed against a company, only the company can take an action against the wrongdoers

4.2. Known as "rule in Foss v Harbottle"

5. Foss v Harbottle

5.1. It was 2 minority shareholders initiated legal proceeding against, among others, the director of the company. They claimed that the directors had misapplied the company assets.

5.1.1. The court held, where a wronged by its directors it is only the company that has standing to sue the directors with a proper plaintiff in action.

5.2. A member may not sue, it is for the company to sue. But he may :

5.2.1. 1) Request the board to take whatever necessary action.

5.2.2. 2) If the board refuses, he may requisition a general meeting for the purposes of passing a resolution to commence litigation.

5.2.3. 3) If the general meeting refuses, he may commence an action himself against the defendants such action is known as DERAVATIVE ACTIONS.

5.2.3.1. Derivative Action : a lawsuit brought by a corporation shareholder against the directors, management or other shareholders of the corporation, for a failure by management.

5.3. Common Law Exceptions To The Rule in Foss v Harbottle

5.3.1. To avoid being defeated by the rules, the member (plaintiff) must shows that the case falls within one of the exceptions to the rule in Foss v Harbottle. Which are :

5.3.1.1. 1) Fraud on minority

5.3.1.2. 2) Where the act of the company requires a special resolution (3/4 majority)

5.3.1.3. 3) Where a member's personal rights are infringed

5.3.1.4. 4) Where justice of the case requires it

6. Cook v Deeks

6.1. 4 Shareholders negotiate a contract. One of them are minority shareholder. The 3 shareholders(defendant) decided to break the relation with the plaintiff (minority shareholder). They diverted the contract that were meant for the company to another company which they had set up. They obtain the resolution of the first company ratifying their action

6.1.1. The plaintiff sued to make the defendants accounts for their profits to the company on the ground that they had breached their duty as directors.

6.1.1.1. Held : The defendant had clearly breached the contract and could not ratify the transaction and so defeat the plaintiff actions. The plaintiff was allowed to sue on behalf of the company.