Hunter v Senate Support Services Ltd & Ors

A director’s decision to forfeit shares may be set aside where the directors fail to consider a material matter which they ought to have considered, and the decision would or might have been different had they done so. The consequence is ordinarily voidability, not automatic invalidity. Forfeiture is treated strictly, but the substantive decision-making process must also be lawful. A shareholder may personally challenge the forfeiture of his own shares. Where articles deem postal service conclusive upon proof of proper addressing, prepayment and posting, “properly addressed” bears its natural meaning.

The claimant sought declarations and rectification concerning the forfeiture and transfer to Servicespan of his minority shareholdings in three companies. The shares had been allotted unpaid. After two calls for payment, the claimant did not pay, and the directors resolved to forfeit and transfer the shares.

The claimant argued that the shares were paid up, or that the companies were estopped from denying that position. He also challenged the calls and forfeiture on grounds including conflict of interest, improper purpose, defective service and failure to consider alternatives. The central issues were whether the calls and forfeiture were valid and whether the claimant had standing to challenge the directors’ decisions.

1. Calls and estoppel. The claimant’s shares were not paid up. The accounts contained representations that the issued share capital was fully paid, but the draft accounts were not clear and unequivocal representations. The claimant neither relied reasonably on the audited accounts nor changed his position. No estoppel by convention arose because there was no relevant common assumption or mutually manifest conduct.
2. Calls. The directors validly decided to make the original call and the further call. Directors may act unanimously and informally. The decisions were not invalidated by the directors’ interests in Servicespan. The interests were sufficiently disclosed under Regulation 85 of Table A, and the decisions were made for proper purposes, including corporate housekeeping and, in the case of Senate Support Services, facilitating a distribution.
3. Service. The claimant did not receive the second call notice, but was conclusively deemed to have received it under Regulation 115 of Table A. “Properly addressed” did not require the address to reproduce an inaccurate entry in the register of members. The natural construction avoided unnecessary absurdity and gave the articles reasonable business efficacy, consistently with Rayfield v Hands [1960] Ch 1.
4. Forfeiture decision. The directors treated forfeiture as effectively inevitable if the claimant did not pay. They failed to consider realistic alternatives, including notifying him that non-payment would exclude him from a future dividend. That failure concerned a material consideration. Applying both the “would” and “might” approaches, the decision would or might have been different had the directors properly considered their discretion and the alternatives. The decision was therefore voidable and should be set aside. The same conclusion applied to all three subsidiaries because the decisions were made together.
5. Standing and relief. The claimant had standing to challenge the forfeiture of his own shares. Servicespan took the transfers with notice of the material circumstances and could not resist re-transfer. The register was to be rectified under section 359 of the Companies Act 1985. The precise form of order and costs were reserved for further argument.

First-instance judgment. No prior appellate decision is stated in the judgment.