Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/4.4.5.3.1:4.4.5.3.1 Reasons for looking beyond the articles

Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/4.4.5.3.1

4.4.5.3.1 Reasons for looking beyond the articles

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

In Ebrahimi, Lord Wilberforce sensibly noted that the scope given to the "just and equitable" clause enjoyed "a considerable degree of consistency" over a period of some 60 years in case law.1 He commented that the judgment of Smith J. in re Wondoflex Textiles Pty. Ltd was of value, which read:2

"Acts which, in law, are a valid exercise of powers conferred by the articles may nevertheless be entirely outside what can fairly be regarded as having been in the contemplation of the parties when they became members of the company; and in such cases the fact that what has been done is not in excess of power will not necessarily be an answer to a claim for winding up."

Consequently, Lord Wilberforce stated his opinion as follows:

'The foundation of it all lies in the words "just and equitable" and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. These words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure... the jast and equitable provision does not ... entitle one party to disregard the obligations he assumed by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.’3

It was concluded in Ebrahimi that there were rights, expectations and obligations inter se which were held by individuals and which were not necessarily submerged in the company structure. Merely focusing on compliance with the articles of association to decide whether the majority has exercised its legal power properly therefore cannot always be fair to the minority in a close company. This case set a landmark for the court to look beyond the agreements in the light of utmost good faith as partners.4

Deze functie is alleen te gebruiken als je bent ingelogd.