This requires the court to look at the companys

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This requires the court to look at the Company’s constitution and ascertain the general intention and common understanding of the shareholders {Re Tivoli Freeholds Ltd per Menhennit J} o The constitution is the prime source to find the intention and common understanding of the shareholders as it contains the company’s objects { Re Tivoli per Menhennit J} However it should be noted that now that objects clauses are no longer required, failure of substratum will seldom be established on the basis of departure from the memorandum However it may still be relevant where a company is formed for a single purpose and achieves that purpose (4) Quasi Partnership Companies The winding up remedy was extended to situations where the conduct of the majority of shareholders represented a departure from common assumptions and understandings on which the company was based that were not embodied in company’s constitutional documents {Ebrahimi per Lord Wilberforce} There is a breakdown of mutual trust and confidence between shareholders { Ebrahimi per Lord Wilberforce} This category will usually apply where one or more of the following elements are present {Ebrahimi} : o (1) Small company based on personal relationships between shareholders involving mutual confidence and trust This element will be found where a pre-existing partnership has been converted into a limited company o (2) Agreement that all or some shareholders participate in managing the company Purportedly there may be ‘sleeping members’ (who act like limited partners) o (3) Restrictions on transfer of shares – therefore must keep shares in the family So that if the confidence is lost, or one member is removed from management, that member cannot take out their stake and go elsewhere This was extended in the landmark decision of {Ebrahimi v Westbourne Galleries Ltd} NOTE: Equitable considerations would not be superimposed on the terms of the articles where the association purely a commercial one { Ebrahimi per Lord Wilberforce} Here E and N had joined in the formation of a company on the basis that the character of the association would remain the same as it had been when they were partners – that is a personal relationship involving trust and confidence and that E was entitled to participate in management N repudiated this relationship and E thereby lost his right to share in the profits and was in that respect at the mercy of N and G Since there were restrictions on the transfer of shares that prevented E disposing of his interest without N and G’s consent, the House of Lords held that the proper thing to do was to wind up the company F.4 Restrictions on Using Winding Up Remedy Winding up is a drastic remedy, especially if the company is otherwise successful and solvent Under {s 467(4) Corporations Act } recognises this and provides that the court must decline to make a winding up order under s 461(1)(e) or (k) if some other remedy is available and the applicant is acting unreasonably
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  • Fall '09
  • Law, Shareholders

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