Re Blue Arrow Plc, [1987] BCLC 585
Citation:Re Blue Arrow Plc, [1987] BCLC 585
Rule of thumb 1: If it is written in the company articles that the founder will always be able to be a director in the company, can this be changed by ‘special resolution’? Yes, they can be removed, as this does not change the fundamental character of the company so it can be changed.
Rule of thumb 2: Can the articles of association in a company always be changed by special resolution (75% of the votes)? Generally, yes, but not if they change the fundamental nature of the company – only if the alteration is adding to the company and extending & expanding it can they be altered. This is often called the ‘legitimate expectation’ principle in company law.
Judgment:
The facts of this case were that the company founder of Blue Arrow Plc stated that she would always have a seat on the board as she was alive. When the company was a Plc – the final evolution in the development of a company when it is looking to maximise investment in and be as professional as possible - the directors in this case sought to alter the company articles by a 75% extraordinary resolution to ensure that the founder no longer had a permanent seat on the board. The founder sought to sue the directors to prevent them from making this change to the Articles. The Court held that the founder did not have a ‘legitimate expectation’ that she would have a seat forever in the company and this may never, this was a natural progression of the company, and this was precisely the type of thing that special resolutions of 75% to change the Articles could be used to do. The Court upheld this change to the Company Articles, ‘As was pointed out by Hoffmann J in Re A Company No 00477 of 1986 [1986] BCLC 376, the interests of a member are not limited to his strict legal rights under the constitution of the company. There are wider equitable considerations which the court must bear in mind in considering whether a case falls within s 459 in particular in deciding what are the legitimate expectations of a member. If I may say so, I respectfully accept that approach, but it is to my mind impossible, on the face of the allegations in the petition, to apply it here. Of course, the petitioner had a legitimate expectation that the affairs of the company would be properly conducted within the framework of its constitution. I wholly fail to understand how it can be said that the petitioner had a legitimate expectation that the articles would not be altered by special resolution in a way which enabled her office to be terminated by some different machinery. No doubt there are cases where a legitimate expectation may be inferred from arrangements outside the ambit of the formal constitution of the company, but it must be borne in mind that this is a public company, a listed company, and a large one, and that the constitution was adopted at the time when the company was first floated on the Unlisted Securities Market. Outside investors were entitled to assume that the whole of the constitution was contained in the articles, read, of course, together with the Companies Acts. There is in these circumstances no room for any legitimate expectation founded on some agreement or arrangement made between the directors and kept up their sleeves and not disclosed to those placing the shares with the public through the Unlisted Securities Market... I think that the petition, on its face, is so hopeless that the only right course is to strike it out’, Vinelot J
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