Hogg v Cramphorn Ltd
| Hogg v Cramphorn Ltd | |
|---|---|
| Court | High Court |
| Citation(s) | [1967] Ch 254 |
| Case opinions | |
| Buckley J | |
| Keywords | |
| Takeover, proper purpose | |
Hogg v Cramphorn Ltd [1967] Ch 254 is a famous UK company law case on director liability. The Court held that corporate directors who dilute the value of the stock in order to prevent a hostile takeover (the poison pill) are breaching their fiduciary duty to the company.
Facts
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Director duty cases
The Charitable Corporation v Sutton (1742) 26 ER 642
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq HL 461
Percival v Wright [1902] 2 Ch 421
Cook v Deeks [1916] 1 AC 554
Re City Equitable Fire Insurance Co [1925] Ch 407
Re Smith and Fawcett Ltd [1942] 1 Ch 304
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378
IDC Ltd v Cooley [1972] 1 WLR 443
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
Re Lo-Line Electric Motors Ltd [1988] Ch 477
Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164
Re D’Jan of London Ltd [1994] 1 BCLC 561
Re Barings plc (No 5) [1999] 1 BCLC 433
Peskin v Anderson [2000] EWCA Civ 326
CMS Dolphin Ltd v Simonet [2001] EWHC (Ch) 4159
Bhullar v Bhullar [2003] EWCA Civ 424
Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71
see UK company law
Mr Baxter approached the board of directors of Cramphorn Ltd. to make a takeover offer for the company. The directors (including Colonel Cramphorn who was managing director and chairman) believed that the takeover would be bad for the company, so they issued 5707 shares with ten votes each to the trustees of the employee’s welfare scheme (Cramphorn, an employee and the auditor). This meant they could outvote Baxter's bid for majority control. A shareholder, Mr Hogg, sued, alleging the issue of the shares was ultra vires. Cramphorn argued that the directors' actions were all in good faith. It was feared that Mr Baxter would sack many of the workers.
Judgment
Buckley J, writing for the Court, held that the new shares issued by the directors were invalid. The directors violated their duties as directors by issuing shares for the purpose of preventing the takeover. The power to issue shares creates a fiduciary duty and must only be exercised in order to raise capital and not for any other purposes such as to prevent a takeover. The act could not be justified on the basis that the directors honestly believed that it would be in the best interest of the company. The improper issuance of shares could only be made valid if the decision was ratified by the shareholders at a general meeting, with no votes allowed to the newly issued shares.
See also
- Cheff v. Mathes, 199 A.2d 548 (Del. 1964)
- Howard Smith Ltd v Ampol Ltd [1974] AC 832.
- Criterion Properties plc v Stratford UK Properties LLC [2004] UKHL 28
- Board of directors#"Proper purpose"
References
- Brudney, 'Fiduciary Ideology in Transactions Affecting Corporate Control' (1966) 65 Michigan Law Review 259
