Corporate Law Case Brief – Boreland’s Trustee v. Steel Bros. Co. Ltd.

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This case is a U.K company law case which concerns its issues relating to the enforceability of a company’s constitution and the nature of the company’s share.

Facts:

  • Mr Borland was a shareholder. He turned bankrupt and the company he was working for had a pre-emption rule that upon a shareholder’s bankruptcy, his shares would be transferred to the manager or the directors at the fair value price and not at the current value price.
  • The current value price is the current true value of the share which is above par to the fair value price.
  • Borland’s trustee argued that the article which was imposed by the company upon a shareholders bankruptcy was invalid and fraud as a shareholder upon turning bankrupt was forced to part his shares at a value below the current value and it went against the bankruptcy laws of the state.
  • He requested an injunction against the article of parting shares or share transfer at anything below the current value.
  • He argued against Steel Brothers limited on two major grounds. They are
  • 1) Absolute Ownership
  • 2) Rule Against Perpetuity
  • Rule Against Perpetuity – The rule basically says any interests that may be vested in a particular share or property is forbidden in the future. Thus he states that since his shares are transferred to the manager or the director of the company, his future rights are taken away in the share or the property and this is the sole reason he frames his second argument on.

Issues:

  • The issue, in this case, was whether the pre-emption rule created by the company relating to a shareholders bankruptcy went against the bankruptcy laws and was eventually void?

Judgment

  • The judge, in this case, Farwell J rejected the argument put forward by Borland’s Trustee and held that the article was valid.
  • The grounds on which the judge held its decision was that
  • 1) The transfer could be made because the contract engendered in the articles of association is always prior to the rights contained in a share or the shareholder.
  • Also, he held that this rule was fair and it was a fair agreement for the business of the company. They were binding equally on all shareholders and there was nothing put forward by any other shareholder about such a fraudulent rule of a share transfer and thus nothing against the bankruptcy laws.

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