Directors’ duties to the members as a whole

by Sharon Fryer & Emma Halton

Moore Frères & Co LLC (“MF”) and Otello Corporation ASA (“O”) held 70% and 30%, respectively, of the shares in Last Lion Holdings Ltd (“LLH”). LLH’s board consisted of four directors, three of whom were, in accordance with LLH’s articles of association, appointed by MF and one by O.

MF proposed to purchase O’s shares in LLH, with a view to on-selling a proportion of those shares to a third party (“M”) at a substantial profit. Negotiations between MF and M ended. M then made an offer directly to O, at the price it had been willing to pay to MF, and a sale was agreed in principle.

Under LLH’s articles of association, the directors had power to refuse to register the transfer of shares. The three directors appointed by MF voted to exercise that power, and refused to register the transfer from O to M.

It was held¹ that by using their powers² to prevent the sale, the directors breached their duties (a) to act within their powers and (b) to promote the Company’s success for the benefit of its members³. The court ordered that the transfer be registered.

While the facts of the case were quite unusual, and it seems unlikely that the court could have accepted any other outcome, it is a useful reminder that every director, even one appointed under powers granted to one particular shareholder, has a duty to act in the best interests of the company as a whole.

If you have any queries about this article, please get in touch with Sharon Fryer or Emma Halton, whose details appear below.

¹ Otello Corporation ASA v Moore Freres & Company LLC and another [2018] EWHC 2347 (Ch)

² Companies Act 2006 section 171

³ Companies Act 2006 section 172

This article is filed under:  Industry news, Press releases, Publications

About the contributors

  • Sharon Fryer Partner

    Sharon has broad experience of advising on all matters of company law and practice, including acquisitions and disposals of businesses and companies, investments by majority and minority stakeholders and management teams.

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  • Emma Halton Solicitor

    Emma is a Solicitor in the Finance, Company and Commercial Team.

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