Extent of Protection of Section 205 Companies Act, 1963.

Viarum

hey folks,

tom this is one for you in particular!

i'm aware that s 205 adds an immense protection to the existing exceptions to the rule in foss v harbottle, with the inclusion of oppression and disregard of members' interests etc.

however, to say that it “provides a completely satisfactory basis for the
vindication of a shareholder aggrieved by the actions of
his fellow members and the directors of a company” seems to fall short of accurate.

i'm doing some research to make the point that, although it provides a very substantial basis for the vindication of a shareholder aggrieved by the actions of his fellow members and the directors of a company, it does not provide a complete one.

if you (or anyone else) can think of anything off the top your head(s) to support that argument it would be greatly appreciated!

many thanks in advance!

eagle_&_bear

There are 7 grounds where s205 fails to provide any, or any adequate protection.

Had to do some particular work on this. If you need any assistance just PM and I can send discussion document assignment

Decorus

Topic of my assignment which is due on the 15th of April. ;-)

Tom Young

Read Fanning v Murtagh for the most recent ruling on this area (subject to correction): http://www.courts.ie/80256F2B00356A6B/0/86C4F2140752C589802574B70053A79B?Open&Highlight=0,fanning,~language_en~

Separation of Company & Shareholders:

Fundamental principle behind rule – Shareholders agree to delegate Management of Company to Directors.

General assumption – Members agree by majority rules inter se – Powers of majority – tempered by bona fide requirements – Foss recently endorsed by Supreme Court in O’Neill v Ryan [Missing citation, sorry - top of head].

Foss and S.25 Rights:

Confusion – distinguish Company’s corporate rights/interests and Members’ personal rights.

Shareholder vindicating Company's Corportate rights – Foss and Harbottle; Shareholder vindicating their S.25 rights – not Foss and Harbottle.

Derivative Actions and Exceptions to Foss:

In reality, these are only relied on when S. 205 is unavailable – Two types of action:

1. Member’s personal action vindicating personal right (generally based in S.25)
2. Member may be entitled to bring Derivative Action on Co’s behalf
[First type not really exception; 2nd type is true exception]

The Rationale for the Derivative Action:

Solution to conundrum – only Company can take an action for a wrongs against it
Unless action is brought, a wrong against the Company otherwise go unredressed.


The exceptions to Rule in Foss (Courtney x 5):

Ultra Vires – Shareholders cannot give consent to or ratify such course of conduct

Illegal Acts – Cockburn v Newbridge (1965) – Foss doesn’t protect acts “if a fraudulent character.”

The Majority Principle – General rule doesn’t prevent dissenting Mem from attacking action which was ratified by Ordinary Resolution when should’ve been passed by an SR.

Fraud on the Minority – Exception to both elements of Foss – Action brought by Members and will of majority ignored – the action must be to provide relief to Company and relief to the minority Members – differs from S.25 of the Principal Act where change of Arts is not bona fide & in Best interests of the Company as Whole – generally relate to expropriation/appropriation of corporate property by the majority who are in control – or majority support for breach of Directors Dutiess and negligence.

Menier v Hooper’s Telegraph Works (1974) – “where majority have put something in their pockets at the expense of the min”, they have Right of/to a Derivative Action

(a) majority perpetrated fraud against minority;
(b) Director/s in control of the Company; and
(c) a wrong committed to Company unredressed without Derivative Action.

Meaning of Control – fundamental = 50%+1 of shareholder votes

Meaning of Fraud – Keane: Here need not involve dishonesty, let alone criminality – endorsed by Supreme Court in Balkanbank v Taher (1995)

Some element of moral turpitude is necessary.


Cooks v Deeks (1916) – Directors of Company (also majority Shareholders) diverted lucrative contract from Company to themselves, in breach of Fiduciary Duties – then caused Resolution to be passed approving this action – PC : Resolution to be disregarded as it “would amount to forfeiting the interests and property of min of Shareholders in favour of majority” by votes of potential benefits e.g., of unratifable appropriation of Company property

Crindle Investments v Wymes (1999) – not enough that fraud is committed on minority but that but that persons committing fraud have derived some benefit

Justice Little tested – Heything v Dupont – exceptions where Justice of Case demands it.

Moylan v Lush Whiting – Hamilton J obiter approved Harmond LJ above

In Prudential, Court of Apeeal dismissed it as impractical

Given rationale for Derivative Actions (i.e. redress to Company where otherwise not) – Irish Judges likely to invoke this where necessary.

Section 205: The Remedies

S.205(3) empowers Court to “end the matters complained of” ... In the broadest possible terms of remedies – but Court will not make order where it thinks it cannot end the matter in question. If so, Company usually be Wound Up see in re. Murph’s Rest

S.205(3) does not permit general award of compensatory damages (Irish Press)

Only type of Compensation – where Court orders shares of oppressive Shareholders to be bought at a fair price determined by the Court having regard to the circumstances.

Examples of remedies:

1. Restraining the removal of a Director/Shareholder – Petitioners can seek relief from Court to prevent this happening. Can Petitioner seek interlocutory relief preventing removal? Re SIAC Construction (1998) No; Gilligan & Bowen v O’Grady (1999) Yes

2. Purchase of Shares – Court can order that:

Oppressor purchase Petitioner’s shares (re Greenore / Re Clubman);
Oppressor sell its shares to Petitioner (Irish Press); and
Company itself purchase Petitioner’s shares.

3. Cancellation & Variation of Transaction – e.g. resolutions passed by majority.

4. Alteration of Memo/Arts of association – to safeguard Petitioner’s rights

What do I think?

I think you'll find the answer in the case at the very top. That's just my view and pretty much off the top of my head. I apologise I don't have citations for the cases above. You should also read or know Prudential No. 2. in general.

If you plan to refer to or use the above, fine, get the concepts though they are nuanced.

Tom

EdgarAllenPoo

Now now Decorus, what would Cian say if he saw this (probably mumble something about cars and then go on a tirade about his nama book).

Viarum

thanks for the replies folks!

cheers tom, the knowledge as encyclopedic as always!

Tom Young

I'll put in the citations at some stage.

rexy 053

im doing an assignment on s205 C.A 1963 at the min. finding it very difficult to find information, can anybody help me?

ResearchWill

rexy 053 wrote: »

im doing an assignment on s205 C.A 1963 at the min. finding it very difficult to find information, can anybody help me?

Considering Tom has almost written an essay on s.205 above what more info do you require short of him actually writing up your assignment.

Procrastastudy

Book marked for year 3!