Howard Smith Ltd v Ampol Petroleum Ltd

Facts

Directors issued new shares to Howard Smith to dilute the majority holding of two shareholders who were resisting a takeover bid the directors favoured.

Issue

Was the share issue valid?

Held

No. The primary purpose was to destroy the existing majority, which was an improper purpose, even though the directors did not act for personal gain.

Principle

Directors must exercise powers for the purpose for which they were given.

Why it matters

It is the leading case on proper purposes, now in sections 231(5) and 234.

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