Re Smith & Fawcett Ltd [1942] Ch 304

Facts

  • Smith and Fawcett established a private company engaged in investment management and securities.
  • The company’s articles conferred on directors an absolute power to refuse the registration of share transfers.
  • Following Smith’s death, his executors sought to transfer his shares to his son.
  • Fawcett, the surviving director, refused to register most of the share transfer.
  • The executors contended that Fawcett’s refusal was unfair.

Issues

  1. Whether directors may refuse to register share transfers under the company’s articles, and what limits apply.
  2. Whether the directors’ discretion must be exercised honestly for the benefit of the company.
  3. The standard by which courts assess whether directors have properly exercised their discretionary powers.

Decision

  • The Court of Appeal held that directors must act honestly and in what they consider to be the interests of the company.
  • The directors' discretion to refuse share transfers, though wide, must be exercised in good faith.
  • It was found that Fawcett’s refusal to register the share transfer was within the powers granted by the articles and made without evidence of dishonesty or improper motive.
  • The court affirmed that it would not substitute its judgment for that of honest directors acting within their powers.

Legal Principles

  • Directors must exercise their powers bona fide in what they believe to be the interests of the company, not for any collateral purpose.
  • Courts will not interfere with bona fide business decisions of directors, unless there is evidence of bad faith or an improper motive.
  • The extent of directors’ powers derives from both the company’s constitutional documents and the general law, but wide discretion conferred by articles does not override the obligation to act for proper purposes.
  • The test is subjective: whether the directors honestly believe their decision benefits the company.

Conclusion

Re Smith & Fawcett Ltd confirms that company directors have broad discretion under the articles but must act honestly and in good faith for the company's benefit. The courts will not override directors’ bona fide decisions absent evidence of bad faith, providing a key standard for evaluating directors’ duties in company law.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal