Facts
- Saltdean Estate Co. Ltd wished to reduce the number of shares in issue by purchasing a sizeable block of its own shares, thereby concentrating the remaining equity and altering the balance of voting power.
- A detailed scheme was drafted under which specified shareholders would be invited to sell back their shares to the company. The contemplated transaction involved company funds and therefore required compliance with the statutory machinery for capital alterations.
- The directors arranged for shareholder approval by convening a general meeting and proposing a special resolution, purportedly in accordance with Section 58 of the Companies Act 1948, which governed variations of share capital and authorised buy-backs at that time.
- At the meeting the resolution was passed with the requisite majority, yet the document placed before shareholders merely referred to a “purchase by the company of certain of its own shares” without identifying the purchase price, the precise number of shares to be acquired, the identity or class of participating sellers, or the timetable for completion.
- A dissentient shareholder challenged the effectiveness of the resolution, contending that the omission of these particulars deprived members of the information needed to make an informed voting decision and therefore invalidated the corporate authority ostensibly granted.
Issues
- Whether the special resolution, lacking substantive particulars of the proposed share purchase, satisfied the statutory requirement that a special resolution must “approve” the transaction.
- Whether, on the true construction of Section 58 of the Companies Act 1948, an incomplete or vague resolution could confer power on the directors to implement the share buy-back, or whether such deficiencies rendered the resolution void and of no effect.
Decision
- Justice Plowman held that the resolution was defective. The text presented to shareholders did not specify the essential commercial terms—price per share, aggregate consideration, maximum number of shares, or the shareholders eligible to participate—and therefore could not be said to have obtained informed consent.
- Because Section 58 required a “special resolution specifying the particulars of the alteration,” the court regarded the omissions as substantive, not merely procedural. Shareholders could not be asked to approve a transaction in blank and leave the central terms to be fixed later by the board.
- The court therefore declared the resolution invalid and incapable of authorising the proposed buy-back. Any purchase made in reliance on it would have been ultra vires and exposed the company and its directors to restitutionary and statutory liabilities.
- Justice Plowman emphasised that the statutory demand for a special resolution serves a protective purpose: it compels full disclosure so that the voting majority cannot surprise the minority with undisclosed terms that might prejudice their financial or voting interests.
Legal Principles
- A special resolution must convey sufficient detail to enable shareholders to comprehend the nature and effect of the transaction; formality alone is inadequate.
- Material terms include, at minimum, consideration, quantity of shares, classes or identities of holders affected, and any conditions precedent. If any of these elements remain indeterminate, shareholder approval is ineffective.
- Section 58 of the Companies Act 1948 (now reflected in later Companies Acts dealing with capital maintenance and buy-backs) is construed strictly because it operates as a safeguard against oppressive alterations of capital structure.
- The judgment confirms that directors cannot rely on broad, non-specific mandates. If they wish to retain flexibility, they must obtain a fresh resolution once the terms are settled, or alternatively draft the initial resolution in conditional form that still discloses the limits within which discretion may be exercised.
- Protection of minority shareholders is achieved by ensuring transparency at the time of voting, thereby allowing dissentients either to oppose the motion or to exercise statutory remedies such as petitioning for relief if their rights are unfairly prejudiced.
Conclusion
Re Saltdean Estate Co. Ltd makes clear that a special resolution authorising a share repurchase is legally effective only when all material terms are fully stated. The judgment reinforces strict statutory compliance and demands transparent disclosure so that every shareholder, majority or minority, can cast an informed vote on a transaction that directly affects capital and control.
