Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 is a landmark UK company law case on protection of minority shareholder rights and variation of articles. Here is a short summary.
| Court: Court of Appeal (Evershed MR, Asquith and Jenkins LJJ) |
| Citation: [1951] Ch 286 (also cited as [1950] 2 All ER 1120) |
| Areas of Law: Articles of Association, Share Transfer Restrictions, Minority Protection vs. Majority Rule |
Facts – Greenhalgh v Arderne Cinemas Ltd
Arderne Cinemas was a private company with both preference and ordinary shares.
Its articles stated that no share can be transferred to a person who is not a member if a member is willing to buy the share at a fair price.
The majority owned 85,815 ordinary shares and controlled another 50,000 partly paid shares. They agreed to sell those shares (nominal value 2s each) to an outsider at 6s each.
To make this possible, an extraordinary general meeting was called to pass a special resolution amending the Articles, allowing shares to be transferred to outsiders if sanctioned by an ordinary resolution.
The special and ordinary resolutions were duly passed.
A minority shareholder (Greenhalgh) sued. He claimed that the resolutions sacrificed minority interests for the benefit of the majority.
Issue
Were the resolutions invalid because they unfairly prejudiced the minority?
Court’s Decision
The court found the special resolution was valid.
It was passed bona fide for the benefit of the company as a whole. The shareholders acted in what they genuinely believed was in the interests of the company.
The phrase “for the benefit of the company as a whole” does not mean the company as an abstract entity, but the company as a group of corporators (shareholders).
The fact that the majority acted with their interests in mind did not necessarily invalidate the resolution. As long as it was passed in good faith, it was binding.
The special resolution did not discriminate unfairly between majority and minority. The mere fact it benefitted the majority did not make it invalid.
In Short (Greenhalgh v Arderne Cinemas Ltd)
The benefit of the company as a whole = the benefit of its members (shareholders), considered generally, NOT necessarily every individual shareholder. The court found the resolution passed met this test.
References:
https://vlex.co.uk/vid/greenhalgh-v-arderne-cinemas-805159941
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Ruchi is a legal research writer with an academic background in CA, MBA (Finance), and M.Com. She specializes in digesting and summarizing complex judicial decisions into clear and structured case notes for students and legal professionals.