4.4.5.4.3 Amendment of articles of association

In the US, this category can give rise to appraisal rights, but it may also lead to use of the oppression remedy. The former permits the shareholder to exit without judicial intervention on the merits of the facts, and the latter requires proof of wrongdoing. In the UK, as discussed above, the appraisal remedy does not cover this category of cases. This category was previously judged under the common law and can now also be litigated under s. 994 with the principles developed from the common law.1 The starting point for court review, as stated in section 4.3.4.2, is that the amendment must be effected, not only in the manner required by law, but also bona fide for the benefit of the company as a whole.2 And in a close company where the scale of conflicts between the interests of majority and minority is quite high, the line could be pushed further. In this situation, it is quite safe to assen that if the effect of the amendment is to discriminate between the majority shareholders and the minority shareholders so as to give to the former an advantage of which the latter are deprived, the mere argument that the resolution was passed bona fide for the benefit of the company as a whole cannot at all times preclude the possibility of an allegation of unfair prejudice.3 Consider the proposal of a compulsory transfer of shares, for example when by resolution a provision to compel a share transfer from the minority to the majority is inserted in the articles which in the majority's view is for the benefit of the company as a whole, in order to avoid potential harm to the company, such as the minority engaging in a competing business. They may also believe that such a compulsory transfer would benefit the company in the future, either through financial expansion or management restructuring. Such a decision must also be judged by the court, and the broad line for the court is to examine the benefits for the company as a whole.4 In the first case, the majority can probably gain support from the court.5 In the second case, as the minority might well be excluded from the company for no conduct for which they are to blame, the argument of benefit for the company as whole should not override their legitimate expectations of maintaining their investments in the business, whether or not the real motive is a genuine belief that the amendment is for the good of the company or a cover to benefit the majority themselves.

Issues in this category are very complicated and not easy to resolve. The court decisions in this area are, to some extent, untidy as well.6 Nonetheless, one principle has been established, that the standard of review for general situations, namely benefits for the company as a whole, may not also be appropriate in the context of close companies; stricter security is needed for close companies.