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Citation(s) [1946] 1 All ER 512; [1951] Ch 286, [1950] 2 All ER 1120. Court Court of Appeal of England and Wales Similar Allen v Gold Reefs of West Africa Ltd, Pender v Lushington, Eley v Positive Government Security Life Assurance Co Ltd | ||
Greenhalgh v Arderne Cinemas Ltd (No 2) [1946] 1 All ER 512; [1951] Ch 286 is UK company law case concerning the issue of shares, and "fraud on the minority", as an exception to the rule in Foss v Harbottle.
Contents
Facts
Mr Greenhalgh was a minority shareholder in Arderne Cinemas and was in a protracted battle to prevent majority shareholder, Mr Mallard selling control. The company had two classes of shares; one class was worth ten shilling a share and the other class worth two shilling a share. The ten shillings were divided into two shilling shares, and all carried one vote. Mr Greenhalgh had the previous two shilling shares, and lost control of the company.
The articles of association provided by cl. 10 (a): "No shares in the company shall be transferred to a person not a member of the company so long as a member of the company may be willing to purchase such shares at a fair value to be ascertained in accordance with sub-clause (b) hereof".
The company changed its articles by special resolution in general meeting allowing existing shareholders to offer any shares to person/members outside the company. Mr Mallard, the majority shareholder, wished to transfer his shares for 6 shillings each to Mr Sol Sheckman in return for £5000 and his resignation from the board.
Mr Greenhalgh wished to prevent control of the company going away, and argued that the article change was invalid, a fraud on him and the other minority shareholders, and asked for compensation.
Share issues
Lord Greene MR concluded that, contrary to Greenhalgh's expectations of maintaining control, he found himself in a situation where his control had diminished. This change impacted his rights from a business perspective. Legally, however, Lord Greene stated that the transaction did not alter Greenhalgh's rights; they remained consistent with their original terms. Specifically, he retained the right to one vote per share, on equal footing with the ordinary shares currently issued, including the new 2s ordinary shares that emerged from the subdivision.
Derivative action
Lord Evershed MR (with whom Asquith and Jenkins LLJ concurred) held that the £5000 payment was not a fraud on the minority. None of the majority voters were voting for a private gain. The alteration of the articles was perfectly legitimate, because it was done properly.
Lord Evershed MR stated,
Moreover it was wrong to say,