Einde inhoudsopgave
Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/4.3.3.3
4.3.3.3 Amendment of articles
dr. Q. Wang, datum 02-05-2011
- Datum
02-05-2011
- Auteur
dr. Q. Wang
- JCDI
JCDI:ADS405262:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
Allen Gold Reefs of West Africa Ltd [1900] 1 Ch. 656 at 672-673 per Lindley M.R.; Greenhalgh v. Ardeme Cinemas Ltd [1950] 2 All E.R. 1120 at 1127 per Evershed M.R.; Malleson v. National Insurance & Guarantee Corp [1894] 1 Ch. 200 at 205, 206; see also Peters' American Delicacy Co Ltd v. Heath (1939) 61 C.L.R. 457 at 507 per Dixon J.
Dafen Tinplate Co v. Llanelly Steel Co., [1920] 2 Ch. 124.
Davies, Chapter 19.
Allen v. Gold Reefs of West Africa Ltd [1900] 1 Ch. 656 at 672-673.
Section 21 Amendment of articles: (1) A company may amend its articles by special resolution.
CA 2006, S. 996 (d).
When a member joins a company, it is a common understanding that the company can amend its articles according to law and power granted in the memorandum.1 In the US, if a minority shareholder can prove that his rights have been substantially altered due to the amendment, he can invoke the appraisal remedy and leave the company. Once again, however, in the UK, amending the articles does not trigger an appraisal. Mere proof of substantially altered rights is not enough for relief. One must prove the amendment is either against the law, the constitution of the company, or contrary to the principles established in case law. Therefore, one basis for challenge is the limitation set by statute, for example under CA 2006 section 25: a member is not bound by an amendment of the articles after the date upon which he or she became a member if its effect is to require the member to take more shares in the company than the number held on the date of the amendment or in any other way increases the member's liability to contribute to the company's share capital or otherwise pay money to the company. Furthermore, an amendment cannot go against any conditions which are set out in the constitution.2 A constitution may contain various mechanisms to prevent an amendment, such as weighted voting rights and class voting rights.3 Another constraint on the amendment of articles is principles developed in case law. The key basis for review in case law was set by Lindley M.R. in Allen v. Gold Reefs of West Africa Ltd:4
"Wide, however, as the language of s.50 [CA 2006, s.21]5 is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded."
Accordingly, if an amendment is effected "bona fide for the benefit of the company as a whole", it will be binding on all the shareholders. Statutorily, minority shareholders can invoke the unfair prejudice remedy for protestion when articles are amended. If the amendment is proved to be unfairly prejudicial to the interests of the minority, under s.996 (d), the court may order the company not to make any amendments, or any amendments specified in its articles without the leave of the court.6 The specific standard of court review under the unfair prejudice remedy will be discussed in section 4.4.5.2.4. In sum, in the UK, there are no automatie exit rights in case of amendment of articles as is the practice in the United States. Power is accorded to judges to ensure whether relief can be granted to minority shareholders.