The defendants were alleged to have enriched

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The defendants were alleged to have enriched themselves at the expense of the company. It was held that the company itself could take action against the defendants if it wished; that the plaintiffs were not entitled to be bring the action; and that since the company could confirm the actions of the defendants by a majority vote, the court could not interfere. Download free eBooks at bookboon.com
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BUSINESS ORGANISATIONS AND AGENCY 416 MEMBERS’ POWERS AND THE PROTECTION OF MINORITIES However, where majority shareholders abuse their position, or where there are allegations of mal-administration against directors who are majority shareholders, difficulty arises as to how to protect the interest of the company or those of the minority. This is because those in control may not be willing to sue on behalf of the company since they are the wrongdoers. In these types of circumstances, the rule in Foss v. Harbottle may be displaced to allow individual shareholders to take action on behalf of other aggrieved shareholders in order to protect the minority and the company. This kind of lawsuit, which could be to prevent, stop or nullify the action of the majority, is called a ‘ derivative action’ because the suing shareholder derives his authority to sue from the company. Before a derivative action could be brought under the exceptions to Foss v Harbottle, it must be shown that: The wrongdoers are in control of the company and would not take action on behalf of the company; and • The complainant did not take part in the wrongful act; and • The action would be brought on behalf of the company which would be the beneficiary of any judgment. To accomplish this, the company would normally be joined as a defendant in the case, although the court may order the company to pay the complainant’s cost – Wallersteiner v Moir [1974] 3 All ER 217. Derivative action may be taken on any of the following grounds: • That the act contemplated by the company is illegal, ultra vires , or contrary to the Companies Act That an act, which could only be done by a special majority, was purportedly done by a simple majority In Edward v. Halliwell [1950] 2 All ER 1064 , the constitution of a company provided that the amount of contribution by members could only be altered in a ballot in which two-third of the members voted in favour. The amount of contribution was increased without ballot and the members were compelled to pay it. Some members sued to challenge the increase. It was held that the rule in Foss v. Harbottle was not applicable because (a) the act could only be done by a special majority, (b) the rights of individual shareholders were involved, and (c) there was oppression. • That the personal right of a shareholder was infringed. In Pender v. Lushington [1877] 6 Ch D 70 , a shareholder who was denied his voting rights was able to bring an action for redress. Similarly, in Edward v. Halliwell [1950] 2 All ER 1064 , the increase of contribution affected the members personally, entitling them to sue.
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  • Fall '19
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