Sunday, January 13, 2019

Howard Smith v Ampol Petroleum case brief

Howard Smith v Ampol Petroleum case brief summary
  1. R.W. Miller was embroiled in a hostile takeover by Ampol which already controlled 55% of their shares.
  2. Directors did not want Ampol to buy the shares of RW Millers as Howard Smith had better terms for takeover by offering employment to the directors even in the future.
  3. So, the directors of RW Millers issued $10m of new shares. They said it was to finance the completion of two tankers. The shares were given to Howard Smith Ltd who were going to take over RW Millers, and that blocked Ampol’s rival bid.
  4. Without the issue, Howard Smith Ltd had no hope of succeeding in taking over the company. But with the new issue, Ampol could not complete its acquisition.
Holding

  1. When multiple purposes, a factual enquiry needed to determine the substantial/primary purpose.  
    1. When there is more than one purpose, court can look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been.  If it finds that a particular requirement, though real, was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme.
  2. Directors cannot destroy majority shareholding stake
    1. It must be unconstitutional for directors to use their fiduciary power over the shares in the company purely for the purpose of destroying an existing majority or creating a new majority which did not previously exist.
  3. If there is added, moreover, to this immediate purpose, an ulterior purpose to enable an offer for shares to proceed which the existing majority was in a position to block, the departure from the legitimate use of the fiduciary power becomes not less, but all the greater.
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