Modern company law: The transfer of shares

October 22, 2017 Law

Question 1

The relevant commissariats in the articles of association of Treeng Ltd ( “Treeng” ) are double. First, the managers are empowered to decline to register a transportation of portions, and it seems that they may exert this power in their absolute discretion. At common jurisprudence, nevertheless, such power must be exercised “bona fide in what they consider – non what a tribunal may see – is in the involvements of the company” [ 1 ] and the determination to decline to register a transportation must be a positive act taken by the board, non a mere failure to O.K. the enrollment [ 2 ] , but the managers do non necessitate to give grounds for their refusal [ 3 ] .

Second, the articles provide that the managers must advise the transferee of their refusal within two months. This is consistent with the demand imposed by subdivision 183 ( 5 ) of the Companies Act 1985 ( “CA 1985” ) , which besides provides for a punishment if this demand is breached ( subdivision 183 ( 6 ) and Schedule 24 CA 1985 ) . These commissariats are presently still in force, and will be efficaciously recast in subdivisions 771 ( 1 ) ( B ) , ( 3 ) and ( 4 ) of the Companies Act 2006 ( “CA 2006” ) when the latter commissariats come into force.

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The articles appear to be soundless on the issue of pre-emption rights of other members, and the issue will therefore non be considered farther.

Arnold lodged the transportation of the portions to Bill with Treeng instantly after its executing four months ago, but the transportation has non been registered by the company and Bill has non been notified of any determination by Treeng’s managers.

The transportation of portions is non complete until Bill is registered as the new proprietor of the portions in the registry of members, although Bill may hold an just involvement in the portions if he purchased them [ 4 ] . However, the directors’ right of refusal must be exercised within a sensible clip, and in any event within the statutory two months [ 5 ] .

As four months have now elapsed, if the managers have non taken a positive determination to decline to register the transportation, they will hold lost the right to make so [ 6 ] , and Bill hence has a right to be registered as a member. He should use to the tribunal to hold the registry rectified under subdivision 359 CA 1985 and should function a notice on Treeng for a portion certification to be issued as required by subdivisions 185 ( 1 ) and ( 5 ) and Schedule 24 CA 1985.

There may be an obstruction for Bill if the managers of Treeng can demo that they in fact decided to decline to register the transportation within two months of the transportation signifier being lodged with the company, and so merely failed to advise Bill of their determination. InPopley V Planarrive Ltd[ 7 ] Laddie J held that such default will do the relevant officers apt under subdivision 183 ( 6 ) Calcium 1985, but will non in itself affect the cogency of the refusal.

However, Laddie J went on to propose that there may be fortunes in which the hold in presentment is such that the company ought to be estopped from trusting on its refusal to register [ 8 ] . In my position it is likely that even if the managers did make up one’s mind to decline to register the transportation within the prescribed two months, Bill may persuasively reason that the hold in advising him is such [ 9 ] that the company ought to be estopped from trusting on the determination and that the registry ought to be rectified and the portion certification issued as discussed above.

Question 2

As Henry’s signature on the transportation signifier is forged, the instrument is null and there is hence no transportation of his portions [ 10 ] . This means that Henry has the right under subdivision 359 CA 1985 to bespeak that the company rectify its registry of members by reconstructing his name in topographic point of Malcolm’s. This will be the instance even if there is grounds that Henry’s ain behavior gave Bernard the chance to perpetrate the fraud [ 11 ] ( and so it appears that Henry’s sloppiness gave Bernard the chance to steal the portion certification and so perpetrate the fraud ) .

This rigorous place will of class adversely affect Malcolm, who is likely to hold paid Bernard for the portions. In add-on, there will be small point in Malcolm seeking to prosecute a claim against Bernard, as the latter has in all likeliness disappeared with the money.

Malcolm will desire to trust on the philosophy of estoppel by portion certification. The philosophy provides that where a company has issued a portion certification ( which contains a statement that the transferor is the registered holder of the portions ) and a transferee has later relied on the certification to his hurt as cogent evidence that the transferor did in fact own the portions, the transferee may claim an insurance from the company if it subsequently transpires that the portion certification was in fact false and that the transferor did non have the portions [ 12 ] . The company, on the other manus, may in bend claim an insurance against the party who lodged the forged instrument which led to the issue of the false certification, even if such party had no cognition that the instrument was forged [ 13 ] .

In the present scenario, a valid portion certification was issued by the company to Henry. There is no suggestion that Bernard fraudulently transferred the portions to himself and so requested a certification in his ain name to be issued before supposedly reassigning the portions to Malcolm. Therefore, Malcolm will hold relied on the valid portion certification as grounds that the portions were owned by Henry, and will so hold acted on the erroneous premise that Bernard was in fact Henry. It follows that the philosophy of estoppel by portion certification will non help Malcolm in these fortunes, as the certification relied on by Malcolm was in fact a absolutely valid one.

As Malcolm will non be able to seek an insurance from the company, there will be no range for the company to seek an insurance from the party who lodged the bad instrument, although instead interestingly in these fortunes that party would be Malcolm himself, making a instead uneven disk shape.

Consequently, it appears that Henry’s name will be reinstated and Malcolm will hold no redress against Bernard or the company. Although this attack is slightly rough in relation to Malcolm, it appears that the principle underlying it is that the transferees or their agents are in a better place to asses whether the purported transferors are knaves than companies, who by and large issue portion certifications as a mere administrative process.

The state of affairs would be different if Malcolm had meanwhile transferred his portions to Nadia, whose name now appeared in the registry of members. Henry would once more be able to take a firm stand on the reinstatement of his name in the registry in topographic point of Nadia’s, but Nadia could reason that she had relied on the portion certification issued to Malcolm as grounds of Malcolm’s ownership of the portions. As such certification is in fact false, Nadia would be able to seek compensation from the company, which in bend would be able to seek compensation from Malcolm who, though unwittingly, lodged the forged transportation signifier in the first topographic point [ 14 ] .


Barber,Company Law, 4th ed. , London, Old Bailey Press, 2003

Davies,Gower and Davies’ Principles of Modern Company Law, 7Thursdayed. , London, Sweet & A ; Maxwell, 2003

Mayson, French & A ; Ryan,Company Law, 23rded. , Oxford University Press, 2006

Sealy,Cases and Materials in Company Law, 7Thursdayed. , London, LexisNexis UK, 2001

Shepherd,Company Law:150 Leading Cases, 3rd ed. , London, Old Bailey Press, 2004

Hardoon V Belilios[ 1901 ] AC 118

Popley V Planarrive Ltd[ 1997 ] 1 BCLC 8

Re Hackney Pavilion Ltd[ 1924 ] 1 Ch 276

Re Smith and Fawcett Ltd[ 1942 ] Ch 304

Re Swaledale CleanersLtd[ 1968 ] 1 WLR 1710

Royal Bank of Scotland plc V Sandstone Properties Ltd[ 1998 ] 2 BCLC 429

Simms v Anglo-American Telegraph Co( 1879 ) 5 QBD 188

Welch v Bank of England[ 1955 ] Ch 508



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