Sidebottom v Kershaw, Leese & Co Ltd [1920]
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Sidebottom v Kershaw, Leese & Co Ltd [1920] 1 Ch 154 is a UK company law case that deals with the alteration of a company's constitution and the rights of a minority shareholder.
The company's articles of association were altered to include a provision allowing for the compulsory purchase of shares held by any shareholder who was competing with the company. A shareholder who was in direct competition with the company contested the alteration, contending that the precedent set by Brown v British Abrasive Wheel Co [1919], where a change for compulsory share purchase was deemed invalid as not being bona fide for the benefit of the company as a whole, should be applied in this case.
The Court of Appeal held that the alteration of the articles was clearly valid and served the benefit of the company. The court explicitly rejected the argument that the principles established in Brown v British Abrasive Wheel Co should be applied in the same manner.
The court emphasised that the key question was not whether the alteration was made in good faith, but rather whether it was for the benefit of the company as a whole. The court disagreed with the interpretation in Brown v British Abrasive Wheel Co, stating that Ashbury J had been mistaken in separating the ideas of good faith alterations and the benefit to the company. The crucial consideration was whether the alteration was for the overall advantage of the company.
In summary, Sidebottom v Kershaw, Leese & Co Ltd reaffirmed the principle that the validity of an alteration to a company's constitution is primarily determined by whether it is for the benefit of the company as a whole, rather than focusing solely on the good faith of the alteration. This decision clarified and distinguished the approach taken in Brown v British Abrasive Wheel Co.
The company's articles of association were altered to include a provision allowing for the compulsory purchase of shares held by any shareholder who was competing with the company. A shareholder who was in direct competition with the company contested the alteration, contending that the precedent set by Brown v British Abrasive Wheel Co [1919], where a change for compulsory share purchase was deemed invalid as not being bona fide for the benefit of the company as a whole, should be applied in this case.
The Court of Appeal held that the alteration of the articles was clearly valid and served the benefit of the company. The court explicitly rejected the argument that the principles established in Brown v British Abrasive Wheel Co should be applied in the same manner.
The court emphasised that the key question was not whether the alteration was made in good faith, but rather whether it was for the benefit of the company as a whole. The court disagreed with the interpretation in Brown v British Abrasive Wheel Co, stating that Ashbury J had been mistaken in separating the ideas of good faith alterations and the benefit to the company. The crucial consideration was whether the alteration was for the overall advantage of the company.
In summary, Sidebottom v Kershaw, Leese & Co Ltd reaffirmed the principle that the validity of an alteration to a company's constitution is primarily determined by whether it is for the benefit of the company as a whole, rather than focusing solely on the good faith of the alteration. This decision clarified and distinguished the approach taken in Brown v British Abrasive Wheel Co.
