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State the issue
Are the alterations to the Articles lawful, can Kit apply to court to have overruled?
State the law
A company’s lawful activities are defined within its articles of association. A company’s articles may be altered by:
·Passing a special resolution requiring a 75% vote in favour AND
·Proving the alteration is bona fide i.e.’ benefits the company as a whole’ per Greenhalgh v
Arderne Cinemas
However such alterations will not be permitted if they being used by a majority to exploit a minority. The courts’ view with considerable suspicion any alterations that seek to either expel members or compel members to either acquire more shares or dispose of their shares – Dafen Tinplate v Llanelly Steel.
Such alterations will only be permitted where it is proved:
·Members are defrauding the company
·Members are competing against a company
Where members enjoy weighted voting rights per Bushell v Faith it may make it impossible to alter the articles without unanimous agreement of the members.
Apply the law
David and Miles control 80% of the shares and as such are likely to have enough voting tights attached to these to pass a special resolution.
The alteration of the objects clause appears to be a logical extension of the trading activities of the company.
There does not appear to be any wrongdoing by Kit in respect of either defrauding or competing with Knightriders.
Conclude
It is likely that Kit will be able to apply to the courts to have the second alteration overturned. The courts will do as they see fit and may either order the company to buy out his minority shareholding or block the alteration.
Kit is unlikely to be able to overturn the alteration of the objects clause.