ON APPEAL FROM THE SUPREME COURT OF Company-Management-Powers of directors-Directors' resolution-Effect of resolu. 1937-1938.
lion-Directors' interest increased--Bona fides of directors-Articles of association -Powers conferred on directors-Powers conferred on shareholders--Parallel MELBOURNE,
Private International Law-Foreign corporation-Court's power to control internal 1938,
The directors of a company passed a resolution which increased the voting power of one of the directors but which was believed by the directors to be in the best interests of the company.
Held that the mere fact that one of the directors derived some benefit from the passing of the resolution did not invalidate it when it was passed in good
The criterion of the validity of a resolution of directors of a company con- Per Dixon J.: The power of a State court to interfere in the internal management of a company incorporated in another State considered.
Pursuant to sec. 11 of the Companies Act 1899 (N.S.W.) the articles of association of a company contained a provision which expressly authorized the directors to increase the capital of the company. Another article provided that all shares should be under the control of the company and should be issued,
allotted, placed under option, or otherwise disposed of. on such terms and conditions and at such times as the company should by extraordinary resolution direct.
Held that the latter article did not override the "powers of the directors to increase the capital of the company.
APPEAL from the Supreme Court of Victoria.
In an action in the Supreme Court of Victoria Ainslie Mills, Jean Purves Price and Mary Denistoun Ainslie Maslin, who sued on behalf of themselves and all shareholders in Charles Mills (Uardry) Ltd. (other than the defendants Mills and Birtchnell), claimed against Andrew Agnew Neilson Mills, Samuel Charles Birtchnell and Charles Mills (Uardry) Ltd. a declaration that a resolution passed by certain directors of the company was invalid. The terms of resolution are set out in the judgment of Starke J. hereunder. The resolution was challenged upon two grounds (1) that it was not passed bona fide in the interests of the company but was passed in the interests of the defendant Andrew Agnew Neilson Mills, who was the managing director of the company, with the intention of securing to him continued control of the operations of the company; (2) that the resolution was not authorized by the articles of association and was ultra vires of the directors. The company was incorporated in New South Wales. Its articles of association contained the following provisions :-
6. All shares shall
be under the control of the company and shall be issued allotted placed under option or otherwise disposed of on such terms and conditions and at such times as the company by extraordinary resolution as defined by sub-section (2) of section 130 of the Companies Act 1899 shall direct."
25. The company may from time to time increase its capital by the creation of new shares.
26.…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Mills v Mills [1938] HCA 4
Case
[1938] HCA 4
Decision Date
CaseChat Overview and Summary
This case involved an appeal from the Supreme Court of Victoria concerning the validity of a resolution passed by the directors of Charles Mills (Uardry) Ltd. The plaintiffs, shareholders of the company, sought a declaration that the resolution was invalid. The resolution was challenged on two primary grounds: first, that it was not passed bona fide in the interests of the company but rather to secure continued control for the managing director, Mr. Neilson Mills; and second, that the resolution was beyond the powers conferred by the company's articles of association, making it ultra vires the directors. The company was incorporated in New South Wales.
The legal issues before the court were whether the directors' resolution was invalid due to a lack of bona fides in its passage, and whether the directors possessed the authority under the company's articles of association to pass such a resolution. Specifically, the court had to determine if the articles permitted the directors to increase the company's capital and issue new shares as a dividend, particularly when this action might affect the voting power of shareholders and was perceived by some as benefiting a particular director.
The court considered the articles of association, which contained provisions granting directors the power to increase the company's capital and to issue new shares on terms they determined, as well as the power to declare dividends and distribute them in specie, including by way of shares. While one article stipulated that all shares were under the control of the company and to be disposed of as the company directed by extraordinary resolution, the court found that this did not override the specific powers conferred on the directors to increase capital and issue shares. Regarding the issue of bona fides, the court placed significant weight on the findings of the trial judge, who had heard the evidence and concluded that while the directors were aware of the resolution's effect on voting power, their primary motivation was to distribute accumulated profits to ordinary shareholders, which they believed to be in the company's best interests. The court held that a director's personal interest does not invalidate a resolution if the primary purpose is the company's benefit, and that the directors had not acted improperly.
The appeal was dismissed, upholding the validity of the directors' resolution. The court found that the directors had the power to pass the resolution under the articles of association and that it was passed bona fide in the interests of the company, despite the incidental effect it had on the voting power of certain shareholders.