Howard Smith
ICLR: Appeal Cases/1974/HOWARD SMITH LTD. APPELLANT AND AMPOL PETROLEUM LTD. AND OTHERS RESPONDENTS [ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES] - [1974] A.C. 821
[1974] A.C. 821
[PRIVY COUNCIL]
HOWARD SMITH LTD. APPELLANT AND AMPOL PETROLEUM LTD. AND OTH-ERS RESPONDENTS [ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES]
1973 Nov. 26, 27, 28, 29; Dec. 3;
Lord Wilberforce, Lord Diplock,
1974 Feb. 14
Lord Simon of Glaisdale, Lord Cross of Chelsea and Lord Kilbrandon
Company - Director - Fiduciary duty - Allotment of shares - Australian company in need of capital - Primary object of directors to alter majority share holding of issued shares - No personal advantage to directors - Whether power to allot shares validly exercised by directors
Two companies, A and B, held 55 per cent. of the issued shares of company M, which required more capital. A made an offer for all the issued shares of M, and another company, H, announced an intention to make a higher offer for those shares. M's directors considered A's offer too low and decided to recommend that the offer be rejected. A and B then stated that they intended to act jointly in the future operations of M and would reject any offer for their shares. H then applied to M for an allotment of 4½ million ordinary shares; M's directors decided by a majority to make the allotment and immediately issued the shares. The effect of that issue was that M had much needed capital; A and B's share holding was reduced to 36.6 per cent. of the issued shares and H was in a position to make an effective takeover offer. A challenged the validity of the issue of the shares to H and sought an order in the Supreme Court for the rectification of the share register by the removal of H as a member of M in respect of the allotted shares. M's directors contended that the primary reason for the issue of the shares to H was to obtain more capital.
Street J. found that M's directors had not
[1974] A.C. 821
[PRIVY COUNCIL]
HOWARD SMITH LTD. APPELLANT AND AMPOL PETROLEUM LTD. AND OTH-ERS RESPONDENTS [ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES]
1973 Nov. 26, 27, 28, 29; Dec. 3;
Lord Wilberforce, Lord Diplock,
1974 Feb. 14
Lord Simon of Glaisdale, Lord Cross of Chelsea and Lord Kilbrandon
Company - Director - Fiduciary duty - Allotment of shares - Australian company in need of capital - Primary object of directors to alter majority share holding of issued shares - No personal advantage to directors - Whether power to allot shares validly exercised by directors
Two companies, A and B, held 55 per cent. of the issued shares of company M, which required more capital. A made an offer for all the issued shares of M, and another company, H, announced an intention to make a higher offer for those shares. M's directors considered A's offer too low and decided to recommend that the offer be rejected. A and B then stated that they intended to act jointly in the future operations of M and would reject any offer for their shares. H then applied to M for an allotment of 4½ million ordinary shares; M's directors decided by a majority to make the allotment and immediately issued the shares. The effect of that issue was that M had much needed capital; A and B's share holding was reduced to 36.6 per cent. of the issued shares and H was in a position to make an effective takeover offer. A challenged the validity of the issue of the shares to H and sought an order in the Supreme Court for the rectification of the share register by the removal of H as a member of M in respect of the allotted shares. M's directors contended that the primary reason for the issue of the shares to H was to obtain more capital.
Street J. found that M's directors had not