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.

Trego v Hunt (1896) HL

In this case, the Court looked at the meaning of the goodwill of a business. What goodwill meant would depend on the character and nature of the business.  Goodwill is often the "very sap and life of the business, without which the business would yield little or no fruit.  It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money."

Dickenson v Gross (H.M. Inspector of Taxes).(1) (1926-27) 11 TC 614

In this case, it was said that a partnership deed had been entered into, but it was ruled that in fact no such partnership had existed.

The partnership deed, it was found, was entered into for tax purposes and whilst it was "perfectly good according to its tenor", it had really governed the relationship of the parties, none of its terms or requirements had been put into practice. 

It was found that the partnership deed was set on one side and disregarded.  As a result, there was no partnership as a matter of fact and so the business could not be dealt with as a partnership for income tax purposes.

Khan and Another v Miah and Another [2000]

This case relates to partnership law and the starting point from which a partnership can be said to have commenced.

It was held that a partnership could be said to have arisen before a business started trading. In this case, the purported partners had committed capital and spent time and money acquiring business premises and obtaining planning consent for carrying on business as restaurateurs.  These and other activities were part of the joint venture of the business, which was carried on with a view to a (admittedly eventual) profit.

Here the House of Lords reversed a decision by the Court of Appeal. The Court of Appeal believed there was a rule that a partnership could only exist once trading had commenced and had focused on the distinction between contemplating or agreeing to become partners and actually becoming partners.  The House of Lords held there was no such rule in law. Instead the question is when do they embark on the activity required by the joint venture of the business with a view to making a profit.

An interesting additional point in the judgement of Lord Millet concerns the implied terms of a partnership under the Partnership Act 1890 if no other terms, written or implied, apply.  The Judge noted that these were default provisions only and were not statutory presumptions. It would only need slight evidence to rule out the default provisions found in the Act.  The House of Lords allowed the appeal and restored the orders of the trial Judge.

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil & Gas plc [2015] UKSC 71

This interesting and detailed case involved a company in the petroleum industry, JKX Oil & Gas plc.  Eclairs and Glengary were two of the shareholders.

The directors of JKK took the view that Eclairs and Glengary were engaged in activities that were detrimental to the success of JKX.  As a result, they issued notices on them under section 793 of the Companies Act 2006.  The shareholders responded, but JKX then relied on a clause in its Articles (which a number of companies have) that if the company believes the shareholders have responded to the notice in a way that is incorrect or false, the company could then restrict their voting rights.  This meant Eclairs and Glengary could not vote at the AGM.

When JKX did this, Eclairs and Glengary brought an action alleging a breach of section 171(1) of the 2006 Act, alleging that the directors had breached their duty to only use their power for the purposes for which they were conferred.

In particular, the shareholders alleged that JKX had taken this action so as to prevent them from voting at the AGM.  The power under section 793 should have been limited to obtaining information about the shareholding, they alleged.

The High Court decided it in favour of the shareholders; the Court of Appeal reversed that decision.  In the House of Lords, this decision was again reversed and the Court found in favour of the shareholders.  Lord Sumption used a "but for" test in looking at the situation; if it had not been for the desire to restrain the shareholders, the company would not have issued the notices.  As a result, the Court decided that the company had breached the "proper purpose" duty under section 171.

W T Ramsey v IRC [1982] AC 300, (1981) 54 TC 101

This case sets out a general principle that over a series of transactions, the Courts can look at the overall effect and determine the tax liability on the scheme as a whole.  It is an important restraint on creative tax planning.

An interesting way to analyse these sorts of scheme was that the steps involved had no commercial significance of any kind apart from to lower the tax liability that would have been due if those steps had not been taken.  This principle therefore represents a significant change in the way these sorts of schemes are approached.

Recent cases have made it clear that statutory application is still of the utmost importance in such cases. So, the statute applicable to the situation must be capable of being interpreted in this way and should not be distorted just to achieve this affect.

Henry George Dickinson v NAL Realisations (Staffordshire) Limited & Others [2017] EWHC 28 (CH)

This case shows that there is no requirement that a company has to be insolvent for a finding that there was a transaction defrauding creditors.  The Court will focus on the intentions of the parties at the time of the transaction. 

As a company was going out of the business, the managing director and controlling shareholder brought a claim to recover a loan he had secured against NAL. The liquidators of NAL alleged he had breached his duty to the company's creidtors and preferred his own interests to those of NAL.

The liquidators also counterclaimed to set aside or recover compensation for various transactions.  The Court took the view that the director's primary intention was to reduce the asset value of NAL and to ensure his debt as a shareholder had priority.

The case shows the thoroughness with which Courts will set aside or undo any attempts to move assets out of the reach of creditors, regardless of whether the company was insolvent at that time or became insolvent as a result.

Cook v Deeks [1916] UKPC 10

This case from Canada illustrates the extent that the Courts can go to in setting aside or avoiding a fraud on a minority shareholder.

Here, there were four shareholders, each having an equal share, and each also were directors. Three of them wanted to enter into a contract for a competing business, without including Mr Cook.  When he realised what was happening, Mr Cook, in the Canadian Courts, made an application about this.

In the Privy Council, Lord Buckmaster LC held that persons who control a company's business must remember they are not at liberty "to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour businesses which should properly belong to the company they represent."

Although this was an appeal from a Canadian Court, it has still been of great use in English Courts.  The three shareholders therefore held the profits of the new contract on trust for the original company and an account had to be given.  A director must account to the company for any profit derived from his position as a director. It is also an instance of the Court not necessarily applying the principle of majority rule to permit a general meeting to ratify an unauthorised act of the directors where they control the company.

O'Neill v Philips [1999] 1 WLR 1092

This case centres on the concept of unfair prejudice and shows how the Courts can struggle with this notion and applying it to a particular case.

This case was appealed to the High Court, the Court of Appeal reversed the High Court's decision and then it was appealed to the House of Lords.  In the House of Lords, the Court of Appeal's decison was reversed.

Mr Philips owned a company and Mr O'Neill worked for him.  Mr O'Neill impressed Mr Philips and so was awarded shares in the company with a promise that further rewards might come his way.  However, due to a decline in the company's fortunes, this did not happen.

Ultimately Mr O'Neill bought an action claiming unfair prejudice under what is now section 994 of the Companies Act 2006.  The House of Lords analysed the situation and paid particular attention to that although various suggestions had been made about what might happen, as no formal arrangements had been made, this could not amount to legitimate expectations.

Lord Hoffman gave an interesting discussion of the equitable jurisdiction of the Court, stating that Parliament has chosen fairness as the criterion to decide whether to grant relief. Normally, there cannot be unfair prejudice unless there has been a breach of the terms which have been agreed for the conduct of the affairs of the company.

The concept of legitimate expectations, according to Lord Hoffman, was based on an expectation that the company's affairs will be conducted in the manner agreed by all the members, not a personal hope of the petitioner that the others will do something they had not in fact agreed to do.

Salomon v A Salomon Co Ltd [1896] UKHL 1

This is one of the most important cases in Company Law. It sets out the basic principle that a company is different from its members (or shareholders), having a different legal personality.  Debts owed by it are not necessarily also owed by the members.  This is the concept of limited liability.  For a limited company, the members' liability is limited to the unpaid amount of their shareholding.

What is perhaps surprising, given the clearness of this principle and how well it is established, is that it comes from an appeal to the House of Lords which reversed decisions taken at the Court of Appeal and the High Court.  In the lower Courts, an argument based on agency had been put forward. It was fair to say that Mr Salomon Senior was the dominant shareholder of the company and had been arguably overpaid by the company when his business as a boot seller had been incorporated.  

The House of Lords said there was nothing in the legislation that indicated they had to hold one or other of the interests of the shareholders superior to the other in anyway.  The company was entirley independent and it was not up to them to interpret into the legislation any limitations on this concept that they might think were expedient.

In particular, Lord Macnaghten was keen to stress that it did not matter that the bulk of the shares had gone to only one person.  He went onto state that a company is not the agents of the people managing or running the business. "The company is at law a different person altogether from the subscribers to the memorandum".  He goes on to summarise the reasons why people enter into business using a private company with limited liability. 

Re Duomatic [1969] 1 All ER 161

In this case, the Court decided that a company could take a decision in a way without necessarily using all the requisite formalities of a general meeting.  Here, if there was a meeting with the requisite consent of the members entitled to attend and vote at a general meeting and are all present at the meeting, the decison they take will bind the company in the same way as a formal resolution at a general meeting, provided it was intra vires of the company.

This means that if all the directors are also all the membes, they can unanimously pass a resolution in a board meeting which ought to strictly require being passed by members at a general meeting.  The consent given can be express or implied, verbal or by conduct, but it has to be given and be unqualified.

This principle is subject to a range of limitations, including that it cannot apply if the company is insolvent or in danger of being so, or if it is sought in aid of removing a director or auditor.  It does not override the need for a special resolution for a company to purchase its own shares. Indeed, in the case law, these limitations are applied strictly so as to avoid the general extension of such a principle.  The members of a company cannot, by unanimous agreement, overcome prohbitions imposed on the company by the general law or the Companies Act.  For example, they cannot consent to theft of the company’s property by themselves.  

If possible though, it is better practice for a the directors to table an approriate written resolution or to immediately convene a general meeting, although consent to short notice in writing will need to be provided.

In these cases, if the resolution has to be filed with the Registrar, the Registrar's practice is to accept a printed copy of the resolution signed by the chairman of the board.

A good quote from this case is Buckley J, who states, “where it can be shown that all shareholders who have a right to attend and vote a general meeting of the company assent to seom matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.”

Pender v Lushington (1877) 6 CH 70

This case set out a general principle that part of a member's property when owning shares was the right to vote.  Any interference with that right, in the words of Lord Jessel MR, amounts to an interference with a property right that can lead to a cause of action.

This case indicated that interference with such a right could be both a derivative claim and a personal action.  Lord Jessel MR was keen to stress that members could vote in anyway they saw fit, even in circumstances of a conflict of interest. There was no moral or business test that was applicable. 

This case was also a reminder of the principle that company law does not look behind the ownership of the shares, for examples if the shares are held in trust.

Ebrahimi v Wesbourne Galleries Ltd [1973] AC 360

This case centres on the rights of minority shareholders.  Mr Ebrahimi had been in business with a man named Mr Nazar as buyers and sellers of expensive rugs. They were partners in the business but decided to incorporate the business as a limited company and moved to London.  Later, Mr Nazar's son was appointed as a director and became a shareholder as well, after both Mr Ebrahimi and Mr Nazar transferred some of their shares to him.  The directors were paid by director's fees and not as dividends.

There was a falling out between the directors and Mr Nazar and his son had their own meeting, at which time they passed an ordinary resolution which removed Mr Ebrahimi as a director in accordance with section 168 of the Companies Act 2006. Mr Ebrahimi then applied to the Courts to have the company wound up. Today, this application would be dealt with under section 122(1)(g) of the Insolvency Act 1986.

This case includes a discussion of the nature of a quasi-partnership company. Here, the Court was satisfied that when the partnership had been incorporated as a limited company, the directors expected the business still to be run effectively as a partnership.  Mr Ebrahimi had a legitimate expectation that the business be continued in this way. In addition, as the company had only paid its profits by way of director's fees, he was denied any income as well. 

Lord Wilberforce examined the phrase "just and equitable", which was the grounds for the application to wind up the company.  Due to the way the company had been set up and the way the directors were paid in fees rather than dividends, the House of Lords decided that Mr Ebrahimi's legitimate expectations had been breached.  This case was very fact specific and the House was keen to stress that it would not normally go beyond the legal rights set out in the Articles and other written documents of the company.

As a result, Mr Ebrahimi's application for the winding up of the company was successful as it was just and equitable.  This might today be dealt with under an application concerning the unfair prejudice of a shareholder, under section 994 to 996 of the Companies Act 2006. A particular point mentioned was that Mr Ebrahimi was supposed to work as a full time director.

Bushell v Faith [1970] AC 1099

This was a case involving the potential removal of a Director from a limited company under what is now section 168 of the Companies Act 2006.

The basic facts are that the Articles of Association of the company provided that, "in the event of a resolution begin proposed at any general meeting of the company for the removal from office of any director, any shares held by that director shall on a poll in respect of such resolution carry the right to three votes per share".

All but one of the Directors wanted to remove the other one.  The one who the others wanted to remove had a third of the shares.  As a result he could not be removed. 

Section 168 of the Companies Act 2006 (as it is now) only requires an ordinary resolution and as the legislative clause said nothing about this, it was ultimately deemed that this clause in the Articles was lawful.  A clause like this does not, of itself, prevent a resolution being an ordinary resolution. Whilst this decision has been criticised, such a clause could be useful in the situation of a quasi-partnership company. 

Good Substitution – a great goal

By Adam D.A. Manning

One of the key principles in BNI, the world’s largest business networking organisation, is attendance is critical to the group. I’m writing it in bold type if you haven’t noticed just like it is in BNI’s general policies, so I’ll say it again. Attendance is critical to the group.  This is because showing up regularly and consistently at our meetings, week in, week out, is the best way to develop and mature relationships with each other so that we feel more confident about passing referrals. More referrals mean more money.

In reality, from time to time you might have appointments or even, dare I say it, holidays that mean you have a good reason not to be at the meeting. If you know in advance, BNI’s policy is, “If a member cannot attend, they may send a substitute (not a member of their own Chapter) to the meeting. This will not count as an absence.”

A substitute goes along on your behalf to give your Weekly Presentation at the meeting when you are absent.

The most important point here – who do you choose to be your substitute? It really can be anyone. Picking a substitute can be a good opportunity to choose someone that might be beneficial for your fellow members.  As with Visitors, Substitutes might have referrals or contacts for other members, especially if they haven’t been to our meetings before.

Good substitutes can be colleagues from your own business or your clients or customers, suppliers or other business contacts. One way to sell this is to remind them they are getting a delicious full English breakfast on you, as their breakfast fee is of course covered by your regular subscription.

You can also consider family and friends as substitutes.  One advantage is that hopefully they will talk about your business in glowing terms!

Ideally, good substitutes will be people, like Visitors, who are potentially in a position to consider joining the group.  They should be treated just like Visitors, especially if it is their first visit to the group.  They may well have referrals for members of the group or be interested in joining themselves.  Picking a good substitute can potentially be a great benefit to the group as a result.

A challenge a networking group can have is people who regularly substitute for members of the group.  They are unlikely to have referrals for other members or to want to join; if they had wanted to join, they would have already.  They are less likely to have referrals or new contacts for members of the group, having been a number of times before. So, selecting a good substitute can really make a difference.

12 Points about Visitors in Business Networking

by Adam Manning

Visitors, it is often said, are the lifeblood of a business networking group such as BNI, the world’s largest business networking organisation. The following are 12 points to consider about why this is so true and how you can get more visitors to your group.

1. Statistics have shown time and time again that visitors are often the highest source of referrals for members of a business networking group.  This is true both in the number of referrals they give and also the amount of money people earn that those referrals lead to.  People generally join a business networking group to make more contacts in the hope that these lead to us earning more money for their businesses and these statistics show visitors to the group, whether they join or not, are the best source for this.

2. Almost as importantly, visitors are hugely important in growing a networking group. Quite simply, you can’t grow your group without more visitors.  The more visitors there are, the more will apply to join and the larger the group will grow.  The larger the group, the greater the number of referrals and the greater number of referrals, the more money the members make.

3. When a networking group has visitors in the room, it’s clear that they will have better meetings. Everyone is just that bit better behaved – more professional and more business like.  The members feel more motivated and the atmosphere is more positive. If there are no visitors, meetings seem to have less interest and less point to them. Fresh faces mean fresh interest and sometimes, fresh jokes!

4. In BNI, as a baseline, Charlie Lawson, a national BNI director, recommends that each week a BNI group should have at least two eligible visitors at a meeting.

5. It’s important to remember what a visitor is, in terms of BNI. They have to be someone where there is no conflict with an existing member.  Also, they cannot be a member of a business networking group that competes with BNI.   We are perfectly happy to have visitors from groups that don’t compete; in fact that is great as they are likely to have more contacts.  If you have any concerns about these points, please check with your group’s leaders or your regional Director.

6. In short, they have to be eligible to apply to become members of BNI.  But this doesn’t mean that you should only be thinking of inviting people to visit who are interested in becoming members of our group – far from it in fact. We want visitors to see us, regardless of whether they may or may not be interested in joining.  As stated before, visitors are a great source of referrals for the Chapter and that is what we really want – lots of referrals.  In terms of inviting people to apply to join, visiting us and enjoying our meetings is really the best way to do that. So, don’t even think about who may or may not want to join when seeking to invite people to visit us.

7. So, visitors are of the utmost importance to a chapter that wants to be successful – but how do we go about inviting them? Firstly you will need to find details of visitors. You can do so from google searching the type of business you are interested in inviting. The Checkatrade website is a good source of information about this as well. Also, have a look for vans or cars with details of businesses on and think about inviting them.  Local magazines may have details of businesses that are advertising – they might be interested as well.

8. Now, how do you invite visitors? As a basic step, send out invitations. These can be letters in the post or by email.  In BNI branded postcards are available which you can send as well – new members should have some in their new membership pack. I like to send a postcard with my invitation letter.

9. You can also invite people using social media. Over the years I’ve been with my BNI group, we’ve had people come along to visit through spreading the word on Facebook, twitter and LinkedIn.  They do work, so keep going. As well as messages and posts, also think in terms of Liking other members posts – these do get spotted.

10. Attending other networking meetings is a great way to meet potential visitors. Please think of your group as your core network but for your business’ sake as well, as the group, we should all be out there doing more networking. There are lots of the other networks and groups to visit, some more formal than others.  There are the curry nights that meet regularly and other groups that do not compete with our group.

11. Also, why not create your own event? Some businesses have open days or evenings to invite new clients, customers or contacts in. This could be a great way to meet potential visitors.

12. Finally, get out there and network generally. We are social creatures and all the people in a networking group should be interested in meeting new people – otherwise why would you be here? Get out there and meet new people, whether it be charity or cultural events, community groups, barbecues, dinner parties, sporting events – you name it, there’s always an opportunity to meet new people. So, go get lots of visitors in and take your business networking group to the next level of growth and success!