Sunday 19 January 2020

Greenhalgh v Arderne Cinema Ltd [1951] CH 286

This case was concerned with the issue of shares and the concept of a "fraud on the minority" being an exception to the rule in the case of Foss v Harbottle. This rule states that in a potential claim for a loss incurred by a company, only that company should be the claimant, and not the shareholders.

Originally the Articles of the company stated that if a shareholder wanted to sell their shares, they had to be offered to existing shareholders first - that is there was a right of pre-emption.

Then this was changed at a general meeting by special resolution so that the right of pre-emption no longer existed.

One of the shareholders wanted to sell their shares and Mr Greenhalgh objected, saying the special resolution discriminated against him as a minority shareholder.

Lord Evershed MR held that there was no fraud on the minority shareholder.  None of the majority voters had voted for a private gain and so the alteration of the articles was perfectly legitimate because it was done properly.

As such, Mr Greenhalgh's action failed.

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