Category: Proper Purpose Rule

ISSUE:

Were the directors motivated by any purpose of personal gain or advantage?

Whether directors had a proper purpose in issuing shares to Howard Smith?

Whether the directors had the power to allot or alter prior majority shareholder position in the interest of the company?

RULE:

Proper purpose rule’, applies to directors of English companies under s171(b) of the Companies Act 2006. This long-standing equitable rule, codified by the 2006 Act, requires that a director must only exercise powers for the purposes for which they were conferred.

ISSUE:

Whether the proper purpose rule could have been made applicable to the imposition of restrictions on the voting rights of Eclairs and Glengary?
Whether the imposed restriction was improper?

RULE:

‘Proper purpose rule’, applies to directors of English companies under s171(b) of the Companies Act 2006. This long-standing equitable rule, codified by the 2006 Act, requires that a director must only exercise powers for the purposes for which they were conferred.