Dafen Tinplate Co Ltd v Llanelly Steel Co Ltd [1920]
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Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124 is indeed a UK company law case that deals with the amendment of a company's articles of association.
Dafen Tinplate Co Ltd was a shareholder in Llanelly Steel Co. Llanelly became aware that Dafen was obtaining steel from an alternative source and attempted to buy up the shares of Dafen, which was unsuccessful. In response, Llanelly altered its articles through a special resolution, introducing a power to compulsorily purchase the shares of any member upon request to transfer them. Dafen Tinplate contested the validity of the alteration.
The court held that the alteration was too extensive to be deemed valid. The amended article, which allowed for the compulsory purchase of shares upon a member's request to transfer them, conferred excessive power on the majority. The court found that the alteration went beyond what was necessary for the protection of the company's interests.
The judge in this case appeared to apply the "bona fide for the benefit of the company" test in an objective sense. In other words, the judge assessed the situation from the court's point of view, considering whether the alteration was genuinely in the best interest of the company as a whole.
This case reflects the principle that alterations to a company's articles of association should not go beyond what is reasonably necessary for the protection of the company's legitimate interests. The court, in this case, found that the altered article, by conferring broad powers on the majority to compulsorily purchase shares, exceeded the bounds of what was justifiable for the benefit of the company.
Dafen Tinplate Co Ltd was a shareholder in Llanelly Steel Co. Llanelly became aware that Dafen was obtaining steel from an alternative source and attempted to buy up the shares of Dafen, which was unsuccessful. In response, Llanelly altered its articles through a special resolution, introducing a power to compulsorily purchase the shares of any member upon request to transfer them. Dafen Tinplate contested the validity of the alteration.
The court held that the alteration was too extensive to be deemed valid. The amended article, which allowed for the compulsory purchase of shares upon a member's request to transfer them, conferred excessive power on the majority. The court found that the alteration went beyond what was necessary for the protection of the company's interests.
The judge in this case appeared to apply the "bona fide for the benefit of the company" test in an objective sense. In other words, the judge assessed the situation from the court's point of view, considering whether the alteration was genuinely in the best interest of the company as a whole.
This case reflects the principle that alterations to a company's articles of association should not go beyond what is reasonably necessary for the protection of the company's legitimate interests. The court, in this case, found that the altered article, by conferring broad powers on the majority to compulsorily purchase shares, exceeded the bounds of what was justifiable for the benefit of the company.
