Percival v Wright [1902] 2 Ch 401
Citation:Percival v Wright [1902] 2 Ch 401
Rule of thumb:How much information do shareholders have to be provided with legally? Only the bare minimum – turnover, profits, & balance sheet. Shareholders are not entitled to detailed & private information from a company.
Background facts:
The facts of this case were that Wright was a director of the company, Nixon’s Navigation Co Ltd, and Percival was shareholder in the organisation. Percival approached Wright and asked him if the company would consider buying the shares back off of him, and if so, he asked them what price that they would be willing to purchase them for. Other shareholders also wanted to sell their shares as well. Wright indicated that there would be interest in the shares being purchased. An independent valuation was done by an accountant looking at the assets and profits in order to consider what a fair valuation of the company would be. The shares were offered around to all of the shareholders in the normal way, and the directors ended up buying them. However, in the coming months afterwards, an investor then bought the company, and the shares were valued at a lot more because these investors thought that they could add value to the business and were willing to pay substantially above market value. The shares were then sold to the investors. The company had been discussing the sale of the shares with the investment company for some time, but Wright did not tell Percival or any of the other shareholders this before they sold their shares.
Parties argued:
Percival raised a case arguing that the directors had breached their fiduciary duties in not disclosing the interest in the shares.
Judgment:
The Court held that the directors in a private company are not obliged to tell the directors of interest in purchasing shares until there is a formal offer – the Court held that their fiduciary duties did not oblige them to inform them of this – all they had to do was inform of offers, and disclose the annual accounts in the proper manner with true and fair value accounting. Percival was not entitled to get the value of the shares for when they were sold at an increased price to investors months later than when he sold them. However, the directors should have sued the company rather than the directors themselves. This meant that they were not able to recover their money,
Ratio-decidendi:
‘It was strenuously urged that, though incorporation affected the relations of the shareholders to the external world, the company thereby becoming a distinct entity, the position of the shareholders inter se was not affected, and was the same as that of partners or shareholders in an unincorporated company. I am unable to adopt that view... There is no question of unfair dealing in this case. The directors did not approach the shareholders with the view of obtaining their shares. The shareholders approached the directors, and named the price at which they were desirous of selling. The plaintiffs’ case wholly fails...’ Swinfen Eady J
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.