Citco Banking Corp v Pusser's Ltd [2007] UKPC 13

Facts

  • Pusser's Ltd established two share classes: ordinary and preference shares.
  • The company’s articles allowed ordinary shareholders to alter the rights of preference shareholders under certain conditions.
  • A conflict arose when ordinary shareholders voted to reduce the value of preference shares.
  • Citco Banking Corp, a preference shareholder, challenged the adjustment as unjust.

Issues

  1. Whether majority shareholders could alter preference shareholder rights in a way that primarily benefits themselves, under the company's articles.
  2. Whether the adjustment of share rights needed to benefit the company as a whole rather than just one class of shareholders.
  3. Whether the process and reasoning for altering share rights provided adequate protection for minority shareholders.

Decision

  • The Privy Council upheld the BVI Court of Appeal’s ruling that the adjustment was invalid.
  • The Court found that the change was designed mainly to benefit ordinary shareholders at the expense of preference shareholders.
  • The adjustment did not provide a benefit to the company as a whole.
  • The judgment confirmed that majority power over share rights must be exercised fairly and in the interest of the general welfare of the company.

Legal Principles

  • Any alteration to share rights must satisfy the "benefit of the company as a whole" test.
  • Company articles cannot justify unfair treatment of minority shareholders.
  • The motive and effect of a share right alteration are important; courts will consider actual goals and outcomes, not just the reasons stated by the majority.
  • Processes for altering share rights should be fair, transparent, and allow for input from all shareholders.
  • Subsequent case law, including Re Charterhouse Capital Ltd [2015] EWCA Civ 536, has applied these principles to ensure fair treatment in shareholder reorganizations.

Conclusion

The Privy Council’s decision in Citco Banking Corp v Pusser's Ltd established that changes to share class rights must genuinely serve the company’s overall interests, thereby protecting minority shareholders from unjust actions by the majority and influencing modern corporate governance standards.

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