Clark v Workman

• Jurisdiction: Ireland
• Judgment Date: 01 January 1920
• Date: 01 January 1920
• Court: Chancery Division (Ireland)

Clark v. Workman.

CLARK

and

WORKMAN

Company - Transfer of controlling interest - Directors trustees for shareholders - Casting vote of chairman illegally appointed - Internal management.

The directors of a company must act strictly as trustees in carrying through transfers of shares, unfettered by any undertaking or promise to any intending purchaser.

An appointment of a chairman of directors made in contravention of the articles of association is void, and is not regularized by mere acquiescence, and consequently resolutions carried by the casting vote of such a chairman are inoperative.

The transfer of a controlling interest in a company is not a matter of mere internal, management. It may involve a complete transformation of the company, and consequently such a transfer may in a proper case be restrained.

Motion for an Injunction.

The firm of Workman, Clark, & Co. was incorporated in 1880 under the Companies Acts, the capital of the company being £30,000, divided into 1200 shares of £25 each. The company was in the hands of two families, the Workman, and the Clarks, and the liquid assets in the company's hands amounted to £1,800,000. Early in the year 1919 there appears to have been some discussion among the directors about the reconstruction of the company. It then seems to have been suggested that the entire business of the company might be sold. Negotiations took place between the defendant, Mr. Frank Workman, and his nephew, Mr. Alfred Workman, who was the leading man in the syndicate that had purchased the Northumberland Shipbuilding Company, William Doxford & Sons, a controlling interest in the Fairfield Shipbuilding Company, and other undertakings. The syndicate offered to purchase 80 per cent. of the shares at ten times their par value. This offer was discussed by Sir George Clark and the other directors, and it was agreed that a meeting should be held, and the offer put before them. The meeting was held on the 3rd of July, and Sir George Clark then said he would not sell any of his shares, which made the acceptance of the offer impossible. He then offered to buy out all the shareholders who would sell to him at nine and a half times the par value of their shares. The others agreed to accept these terms, but at a subsequent meeting of the directors Sir George Clark explained that he would not proceed with his offer, inasmuch as he had been in error because the figures before him that had been supplied to Mr. Alfred Workman were gross and not net; that is to say, that the commission on profits payable to the managing directors and staff had not been deducted. Thereupon Mr. Frank Workman re-opened negotiations with Mr. Alfred Workman, and these resulted in a draft agreement with the Northumberland Shipbuilding Company and William Doxford, Ltd. This was at the end of August or beginning of September put before the plaintiff, Mr. Robert W. Smith, by the defendants Frank Workman and Charles E. Allen. Mr. Smith strongly objected to certain important clauses in the draft agreement, the effect of which would have been to give control of the Belfast company to the syndicate, and refused to sell his shares under such conditions. Sir George Clark also refused, and instead submitted a scheme of reorganization; but this was not approved of by Mr. Frank Workman and Mr. Allen, and consequently it fell through.

Mr. Frank Workman then decided to renew negotiations with the syndicate. Before he went to London for this purpose a meeting was held at the office of Messrs. M'Lean & Sons, solicitors, Belfast. It was then suggested that Sir George Clark should purchase the shares of the majority at nine and a quarter times their par value, or should sell at nine and a half times their par value the shares of himself and the shareholders associated with him. These suggestions were rejected by Sir George Clark. Mr. Frank Workman then proceeded to London and obtained from the syndicate an offer of £77 16s. 8d. in the new denomination of shares, or £233 10s. in the old denomination, being a little more than nine and one-third times the par value. A meeting of the directors was summoned for the 26th November. On the 22nd November, Sir George Clark asked the secretary of the company what was the business of the meeting, and he said he did not know. He then went with the secretary to the defendant, Frank Workman, and asked him, but he refused to give any information. The plaintiffs say that they suspected that an offer from the syndicate was intended to be rushed through at the meeting.

To understand what took place at the meeting it is necessary to go back to a general meeting of the company held on the 21st March, 1881, when the following resolution was passed:—"That Mr. John Workman and Mr. Charles Workman be re-elected directors for the ensuing year, and Mr. Frank Workman be elected chairman." From that time Mr. Frank Workman acted as chairman without objection on the part of the other directors.

The meeting of 26th November, 1919, was attended by all the eight directors. From the minutes of that meeting it appeared that a series of resolutions dealing with the proposed change in the company, and in particular a resolution dealing with the transfer of a controlling interest to the English syndicate, were carried by the casting vote of the chairman, Mr. Frank Workman, in spite of the opposition of the plaintiff in every case, whereupon the present proceedings were instituted.

Cur. adv. vult.

Ross J. :— 16. Dec.

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