Brown v British Abrasive Wheel Co [1919]

Brown v British Abrasive Wheel Co [1919] 1 Ch 290 is a significant UK company law case that deals with the validity of an alteration to a company's constitution, specifically one that adversely affects the interests of a minority shareholder.

The British Abrasive Wheel Co needed additional capital, and the majority shareholders, constituting 98% of the company, were willing to provide this capital on the condition that they could acquire the shares held by the 2% minority shareholders. When attempts to reach an agreement to buy out the minority shareholders failed, the majority proposed to amend the company's articles of association to grant them the power to compulsorily purchase the shares of the minority. The proposed article outlined the terms for the compulsory purchase, and the majority was willing to include a provision specifying that the minority would receive a price deemed fair by the court.

Astbury J held that the proposed alteration was not for the benefit of the company as a whole and, therefore, could not be made. One key reason for this decision was the lack of a direct link between the provision of extra capital and the proposed alteration of the articles. Although the overall scheme was to provide capital after removing the dissenting shareholders, the court noted that it would have been possible to remove the shareholders first and then refuse to provide the capital.

The judge considered the connection between the alteration and the benefit to the company, emphasising that alterations should be bona fide for the advantage of the company as a whole. In this case, Astbury J found that the primary purpose of the alteration was to eliminate the minority shareholders rather than to genuinely benefit the company. The insertion of a provision regarding a fair price did not remedy the fundamental flaw in the proposal.

This case underscores the principle that alterations to a company's constitution should be made in good faith and for the benefit of the entire company. It also highlights the court's scrutiny of the true purpose behind such alterations, especially when they may adversely affect the interests of minority shareholders.
Back to blog

UOL Case Bank

Upon joining, you become a valuable UOL student and gain instant access to over 2,100 case summaries. UOL Case Bank is constantly expanding. Speed up your revision with us now.

Subscribe Now

Where are our students from?

Yale University
Council of Europe
Baker Mckenzie 
University of Chicago
Columbia University
New York University
University of Michigan 
INSEAD
University College London (UCL)
London School of Economics (LSE)
King’s College London (KCL)
University of London
University of Manchester
University of Zurich
University of York
Brandeis University
University of Exeter
University of Sheffield
Boston University
University of Washington
University of Leeds
University of Law
Royal Holloway, University of London 
Birkbeck, University of London
SOAS, University of London
University of Kent
University of Hull
Queen’s University Belfast
Toronto Metropolitan University
Hong Kong University of Science and Technology
University of Buckingham

  • Criminal Practice

    Diagrams and Charts

    Our carefully designed diagrams and charts will guide you through complex legal issues.

  • Criminal Law

    Clear and Succinct Definitions

    Key concepts are concisely defined to help you understand legal topics quickly.

  • Property Law

    Statutory Provisions

    Statutory provisions are provided side by side with legal concepts to help you swiftly locate the relevant legislation.

  • Public Law

    Case Summaries

    We have summarised important cases for you so that you don't need to read long and boring cases.

  • Evidence

    Rules and Exceptions

    Rules and exceptions are clearly listed so that you know when a rule applies and when it doesn't.

  • Company Law

    Terminology

    Legal terms and key concepts are explained at the beginning of each chapter to help you learn efficiently.

  • Case Law

    Case law is provided side by side with legal concepts so that you know how legal principles and precedents were established.

  • Law Exam Guide

    Law Essay Guide

    You will learn essential law exam skills and essay writing techniques that are not taught in class.

  • Law Exam Guide

    Problem Question Guide

    We will show you how to answer problem questions step by step to achieve first-class results.

  • Conflict of Laws

    Structured Explanations

    Complex legal concepts are broken down into concise and digestible bullet point explanations.

  • Legal System and Method

    Legal Research

    You will learn legal research techniques with our study guide and become a proficient legal researcher.

  • Jurisprudence and Legal Theory

    Exam-focused

    All essential concepts, principles, and case law are included so that you can answer exam questions quickly.