Howard Smith Ltd v Ampol Petroleum [1974] AC 821

Court: Privy Council

Facts: Directors of Millers issued shares to a favored bidder to prevent a rival bidder from gaining control. The articles permitted such issuances but the purpose was to alter the balance of control.

Issue: Was the issuance of shares for the purpose of thwarting a takeover improper?

Held: The Privy Council ruled that while the issuance was within the power, it was exercised for an improper purpose.

Key Judicial Statement: Lord Wilberforce stated, “Just as it is established that directors... may take decisions against the wishes of the majority shareholders... it must be unconstitutional for directors to use their fiduciary powers over the shares... purely for the purpose of destroying an existing majority.”

💡 Leveluplaw: Directors must not use their power to issue shares to alter control in the company for improper purposes, even if the articles allow discretionary power.