Peter's American Delicacy Co Ltd v Heath (1939) 61 CLR 457

Facts

• Peter's American Delicacy Co Ltd was a confectionery company.
• The company’s articles of association permitted directors to purchase shares offered to them.
• A majority shareholder, also a director, proposed an amendment to the articles requiring shareholders to sell shares to directors at a predetermined price.
• The purpose of the proposed change was to enable the majority shareholder to acquire greater control.
• Minority shareholders challenged the amendment, alleging it was unfair and detrimental to their interests.

Issues

1. Whether a majority shareholder could lawfully amend the articles of association to compel minority shareholders to sell their shares, primarily for the majority's benefit.
2. Whether such an amendment must be honestly made for the benefit of the company as a whole.
3. Whether the proposed amendment unjustly prejudiced the rights of minority shareholders.

Decision

• The High Court of Australia held the proposed amendment to the articles invalid.
• The Court affirmed that amendments to articles must be made honestly for the benefit of the company as a whole, referencing the principle established in Allen v Gold Reefs of West Africa [1900] 1 Ch 656.
• The Court found the main effect of the amendment was to benefit the majority shareholder, not the company, and thus the change was impermissible.

Legal Principles

• Amendments to a company’s articles must be bona fide for the benefit of the company as a whole; a subjective belief in benefit is insufficient.
• Changes to articles which serve only the interests of majority shareholders or directors, to the detriment of minority shareholders, are invalid.
• Directors have a duty to consider the interests of the company as a whole and must act fairly when proposing amendments.
• This case strengthens legal protections for minority shareholders against amendments designed to oppress or disadvantage them.

Conclusion

Peter's American Delicacy Co Ltd v Heath establishes that amendments to company articles must objectively serve the interests of the company as a whole and not merely advance the interests of the majority at the expense of minority shareholders; this principle remains a guiding authority in Australian corporate law.