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EIC Services v Phipps [2004] EWCA Civ 1069

Country:
United Kingdom
By Oxbridge Law Team
Held - First Point
Second Argument

  • Company made a defective issue of bonus shares to its members.

  • Issue was whether this issue of shares could be saved by section 35A (now section 40).

  • Two issues were whether a gratuitous transaction fell under scope of section 40, and whether a shareholder could constitute a ‘third party’.

Held - First Point

  • Section 40 requires there to be a bilateral transaction between company and the third party.

  • Thus a gratuitous issue of shares does not fall under section 40.

  • However if shareholders were to purchase shares from the company, they would be dealing with the company.

    • As here, there is some form of consideration from shareholders.

Second Argument

  • Even if a shareholder was ‘dealing with’ the company (i.e. transaction was bilateral), ‘third parties’ can never include:

    1. Members of a company

    2. The company itself

  • Protection of section 40 should not exceed that provided for in Directive.

    • And it is clear Directive did not intend to protect shareholders

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