People suing subsidiary company
in US wanted to persuade English court to lift veil so they could
get to deeper pockets of parent company.
Court held if corporate
structure set up in such a way as to avoid future liability [to parent
comp] then this is permissible.
But to use corporate structure to avoid
pre-existing liability is fraud.
Court of Appeal also rejected
DHN Food Distributors Limited v Tower Hamlets LBC 
and stated that each company in a group of companies is a
separate legal entity.
A and company B were majority shareholders in company M.
A and company H made competing takeover bids for company M.
of company M favoured company H’s bid, but Companies A and B would not accept
of company M then issued new shares to company H.
that their primary purpose in doing so was to raise new capital, and other
purpose was to reduce control of Companies A and B so that company H’s bid
Council held [Australian case] primary purpose of issue was in fact to reduce shareholding
of Companies A and B.
unconstitutional for directors to use their power to allot shares for primary
purpose of destroying an existing majority or creating a new majority.
approach to take in these cases:
1. Court must look at source of power in order
to ascertain its limits.
2. Court must determine actual purpose for which
3. Actual purpose must then be measured against
permissible purposes for which power given.
If this actual purpose is a proper one, it will not be
tainted by presence of some other improper, but insubstantial, purpose.
of defendant company, acting in good faith, issued # of shares with special
voting rights to trustees of an employee benefit scheme, in (successful)
attempt to forestall takeover bid by B.
Division held that power to issue shares was a fiduciary power and must be
exercised for a proper purpose, or the issue was liable to be set aside.
is so notwithstanding that issue was made in bona fide belief that it was in
interests of company.
purpose of issue was to ensure control of company by directors and their
was improper purpose.
However, transactions capable of ratification by shareholders
in general meeting [which subsequently occurred]
articles provided directors might in their absolute discretion refuse to
register any transfer of shares.
only two directors and shareholders, F and S, who held 4001 shares each.
F died, S and a co-opted director refused to register transfer of his shares
into names of his executors.
offered instead to register 2001 shares and buy remainder himself.
of Appeal refused to intervene in exercise of this discretion without evidence of
Greene MR –
articles confer on directors discretion to refuse to register transfer of
shares, they must exercise their power bona fide in interests of company, but
subject to this qualification, they may be given an absolute discretion.
be remembered this is private company, and it is to be expected that in
articles of such a company control of directors over membership may be v strict
May be good business reasons for this.
company set up as joint venture between two other Companies owned by H and K
was MD of plaintiff company.
company involved in negotiations for mining licenses.
before licences issued, K and his company ran into financial difficulties and
pulled out of venture.
then took licences in his own name.
later resigned as MD of plaintiff company and formed his own new company which,
at considerable risk, exploited licenses and made profits.
Council held [Australian case]:
Although opportunity to make profits had come to H
through his position as MD of plaintiff company, since board of plaintiff
company had known of H’s interest at all times and had resolved a year after
licenses were issued not to pursue matter further, H was not accountable for
was MD of plaintiff company.
aware of information that would have been valuable to company.
of passing it on to company he kept it to himself.
release from company by dishonest representation –
to obtain lucrative contract for himself.
party objected to plaintiff company’s set up, so would not have been possible for
plaintiff company to obtain contract.
J held that despite this, and despite fact defendant made it clear to other
party he was dealing with him on personal basis, defendant must account to plaintiff
company for profits made from contract.
of directors of Peso given opportunity to purchase prospecting claims.
bona fide consideration of opportunity by board, it was rejected.
a syndicate was formed and company set up to purchase the claims.
claimant, director of Peso.
of Peso later passed to another company who brought action claiming claimant accountable
Court of Canada held claimant not
liable to account.
A director is free to make an investment in personal
capacity after his company has considered the same proposition and bona fide decided
of appellant company wanted to acquire two cinemas.
company formed for this purpose.
of two cinemas offered, provided subsidiary company’s share capital was paid
intention was that applicant company would own all shares in subsidiary.
applicant company could only afford to purchase 2/5 of the shares.
directors and other investors bought the rest.
shares in subsidiary sold and profit made.
shareholders of applicant company sought to make directors liable to account
of Lords held them liable to account.
that was required to make this finding was that:
1. Profit was made
2. Profitable shares were acquired while they
were directors of applicant company.
3. In acting as directors they stood in fiduciary
relationship to applicant company.
of limited company are creature of statute and not fiduciaries in every
there was a fiduciary relationship here)
dependent on finding of fraud, absence of bona fide, or similar.
of company involved in negotiating series of construction contracts with
Canadian Pacific Railway.
of series of contracts negotiated in same way as others, but when negotiations
were complete, directors took contracts in their own names.
that because directors were acting for company at time of negotiations, benefit
of contracts belonged to company.
could not therefore take benefit of contracts for themselves.
Hoffman LJ –
that common law duty of care owed by directors was accurately stated in s214 of
Insolvency Act 1986.
requires director to conduct himself as a
diligent person having both –
the general knowledge, skill and experience that may reasonably be expected of
a person carrying out the same functions as are carried out by that director in
relation to the company, and
the general knowledge, skill and experience that that director has’
Test has both an objective and a subjective limb]