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Required: After Analyzing, The Said Case

The directors of a company approved the transfer of shares to a third party without following the proper procedures. One director later discovered old documents showing the company's articles of association required shareholders be offered shares first before any transfer to a third party. This director argued the transfers should be invalidated for not following these pre-emption rights. The other side argued the doctrine of estoppel by convention applied since all parties had forgotten about the pre-emption rights and treated the transfers as approved. It is unclear how the court will rule on whether the transfers will be allowed.

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Muhammad Mudassar
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41 views1 page

Required: After Analyzing, The Said Case

The directors of a company approved the transfer of shares to a third party without following the proper procedures. One director later discovered old documents showing the company's articles of association required shareholders be offered shares first before any transfer to a third party. This director argued the transfers should be invalidated for not following these pre-emption rights. The other side argued the doctrine of estoppel by convention applied since all parties had forgotten about the pre-emption rights and treated the transfers as approved. It is unclear how the court will rule on whether the transfers will be allowed.

Uploaded by

Muhammad Mudassar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BC’s articles of

A
association other shareholders first, as required by the
contained a clause giving the previously forgotten agreements.
directors power to refuse to approve
any proposed transfer of shares in the In the resulting legal action, the
company. At a board meeting the directors director/shareholder argued that the transfers
were told of a transfer of shares to a third should be unwound as they were in breach of
party. No transfer forms were presented for the pre-emption rights. If his argument was
board approval, and there was no formal successful, this would give him control of the
resolution approving the transfers, but no company.
objection was raised by any of the directors.
All the directors appeared to have treated the The other side argued that the legal doctrine
transfers as a 'done deal', and it was accepted of estoppel by convention applied. This
that they had unanimously approved and doctrine says that if parties share a common
agreed the transfers, subject to transfer forms but mistaken assumption that a particular set
being lodged with the company. of facts applies, one of them cannot then turn
round and try to undo actions carried out
Soon after the meeting, one of the directors based on that assumption, if it would be
(also a shareholder) claimed to have come unconscionable for them to do so-they are
across some old documents. These reminded ‘estopped’ from doing so. The
him that the shareholders had, many years director/shareholder said the doctrine of
previously, agreed that shares in the company estoppel did not apply, because the directors
should not be transferred to a new owner had not 'wittingly' behaved as if there were no
unless offered to the other shareholders first pre-emption rights on transfer, but
–i.e. its shares were subject to 'pre-emption 'unwittingly' - because they had all forgotten
rights' on the transfer. those rights existed.

However, none of the directors or Required: After analyzing, the said case,
shareholders had remembered the pre- what you believe will happen in the court?
emption rights at the time of the board Will the Hon. Judge allows this share transfer
meeting. Indeed, over the years various other “why? Or why not?”
transfers of shares had been approved by the
board without regard to, and in breach of, the
forgotten pre-emption rights.

The director/shareholder who had found the


old documents raised the possibility that the
transfers were invalid because the pre-
emption rights had not been complied with
and, at the next board meeting, when transfer
forms for the transaction were put before the
board for rubber-stamping, the directors
purported to refuse to approve the transfers.

Their reasons included the fact the shares


being transferred had not been offered to the

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