In the recent Court of Appeal case of Arbuthnott v Bonnyman and others, the Court analysed, among others, the limits to the power of the majority shareholders to amend the company's articles of association.
The appeal was brought by Mr Abuthnott, a retired investment manager and co-founder of Charterhouse Capital Limited (the Company), one of the respondents which carries on the well-known private equity business under the name "Charterhouse". Mr Abuthnott's claim alleging that the affairs of the Company had been conducted in an unfairly prejudicial manner to him pursuant to sec 994 of the Companies Act 2006 had been dismissed by the High Court. The principal issue on the appeal concerned the propriety of the application of a drag along right contained in the Company's articles of association and the compulsory acquisition of Mr Abuthnott's shares by Watling Street Limited (WSL), an entity formed by the continuing executives in the Company's investment team.
The Company's articles of association were amended in accordance with the terms of the WSL offer to contain a new majority drag along provision. The amended articles were approved by all members of the Company other than Mr Abuthnott. One of Mr Abuthnott's claims was that the amendments of the articles were 'carried out improperly in order to expropriate his shares at a gross undervalue rather than for any genuine corporate purpose'.
What are the limits to the power to amend a company's articles?
The decision contains a helpful analysis of the limits to the power to amend a company's articles. which is validly exercised if:
- it is exercised in good faith in the interests of the company
- if a reasonable person would consider the amendment to be for the benefit of the company
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.