| Hogg v Cramphorn Ltd | |
|---|---|
| Court | High Court |
| Citation | Ch 254 |
| Case opinions | |
| Buckley J | |
| Keywords | |
| Takeover, proper purpose | |
Hogg v Cramphorn Ltd 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
| 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 2 Ch 421 | |
| Cook v Deeks 1 AC 554 | |
| Re City Equitable Fire Insurance Co Ch 407 | |
| Re Smith and Fawcett Ltd 1 Ch 304 | |
| Regal (Hastings) Ltd v Gulliver 1 All ER 378 | |
| IDC Ltd v Cooley 1 WLR 443 | |
| Howard Smith Ltd v Ampol Petroleum Ltd AC 821 | |
| Re Lo-Line Electric Motors Ltd Ch 477 | |
| Re Sevenoaks Stationers (Retail) Ltd Ch 164 | |
| Re D’Jan of London Ltd 1 BCLC 561 | |
| Re Barings plc (No 5) 1 BCLC 433 | |
| Peskin v Anderson EWCA Civ 326 | |
| CMS Dolphin Ltd v Simonet EWHC (Ch) 4159 | |
| Bhullar v Bhullar EWCA Civ 424 | |
| Eclairs Group Ltd v JKX Oil & Gas plc 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
| Takeover regulation sources | |
|---|---|
| Hogg v Cramphorn Ltd Ch 254 | |
| Howard Smith Ltd v Ampol Petroleum Ltd AC 821 | |
| Imperial Pension Ltd v Imperial Tobacco Ltd 1 WLR 589 | |
| Criterion Properties plc v Stratford LLC UKHL 28 | |
| Takeover Code rule 21 | |
| Takeover Directive 2004/25/EC | |
| Employment Rights Act 1996 ss 86, 94 and 135 | |
| TUPER 2006 (SI 2006/246) | |
| Companies Act 2006 s 168 | |
| Companies Act 2006 ss 942-965 | |
| R (Datafin plc) v Takeover Panel QB 815 | |
| Takeover Code | |
| Companies Act 2006 ss 974-991 | |
| Re Grierson Oldham and Adams Ltd Ch 17 | |
| Re Bugle Press Ltd Ch 270 | |
| Insolvency Act 1986 ss 110-111 | |
| Companies Act 2006 ss 895-941 | |
| Public Company Mergers Directive 2011/35/EU | |
| see UK company law and takeovers |
- Cheff v. Mathes, 199 A.2d 548 (Del. 1964)
- Howard Smith Ltd v Ampol Ltd AC 832.
- Criterion Properties plc v Stratford UK Properties LLC UKHL 28
- Board of directors#"Proper purpose"
References
- Brudney, 'Fiduciary Ideology in Transactions Affecting Corporate Control' (1966) 65 Michigan Law Review 259