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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Orion Ltd's articles were altered by special resolution so that any member holding shares in a competing business must transfer them to the majority at fair value. Tomas, a minority member who holds shares in a competitor, objects. The alteration was passed to benefit the company as a whole and in good faith. Under the principle in Allen v Gold Reefs, how will the alteration be treated?

The alteration is valid. Under Allen v Gold Reefs, a special resolution altering the articles binds dissenting members if it was passed in good faith for the benefit of the company as a whole, so Tomas's consent is not needed.

  1. AVoid, because articles cannot be altered to affect existing members
  2. BVoid, because every alteration needs the consent of each affected member
  3. CValid only if Tomas consents in writing
  4. DValid, as the power to alter must be exercised bona fide for the benefit of the company as a wholeCorrect

Explanation

Allen v Gold Reefs holds that the power to alter articles must be exercised bona fide in the interests of the company as a whole. Where that is met, the alteration binds dissenting members. Unanimity is not required, so options A, B and C are wrong.

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