Greenhalgh v Arderne Cinemas Ltd (No 2) [1946]

Greenhalgh v Arderne Cinemas Ltd (No 2) [1946]

Greenhalgh v Arderne Cinemas Ltd (No 2) [1946] 1 All ER 512; [1951] Ch 286 revolves around the issue of shares and the concept of fraud on the minority as an exception to the rule established in Foss v Harbottle [1843].

Mr Greenhalgh, a minority shareholder in Arderne Cinemas, opposed the majority shareholder Mr Mallard's attempt to sell control of the company to Mr Sol Sheckman. The company had two classes of shares, one worth ten shillings a share and the other worth two shillings a share. The articles of association had a provision stating that shares could not be transferred to a person not a member of the company as long as a member was willing to purchase them at a fair value. The company changed its articles through a special resolution, allowing existing shareholders to offer any shares to external individuals or members outside the company.

Lord Greene MR held that the alteration did not affect Mr Greenhalgh's rights. The control had shifted, but the rights remained the same. The alteration was not a variation of rights as a matter of law. Lord Evershed MR, along with Asquith and Jenkins LLJ, held that the £5000 payment was not a fraud on the minority. The alteration of the articles was legitimate, as it was done properly and did not unfairly discriminate. Lord Evershed MR stated that when a person joins a company, they cannot assume that the articles will always remain unchanged. As long as an alteration does not unfairly discriminate and the resolution is bona fide passed, it is not objectionable. The resolution could not be impeached merely because it gives an advantage to the majority shareholders.

In summary, the judgment emphasised the legality of altering articles, as long as it is done in a bona fide manner and does not unfairly discriminate against any shareholders. The case established that, in the absence of fraud or improper motives, alterations to articles of association are generally within the power of the majority shareholders.
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