EIC Services v Phipps [2004] EWCA Civ 1069
Judgement for the case EIC Services v Phipps
Table Of Contents
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.
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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
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Even if a shareholder was ‘dealing with’ the company (i.e. transaction was bilateral), ‘third parties’ can never include:
Members of a company
The company itself
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Protection of section 40 should not exceed that provided for in Directive.
And it is clear Directive did not intend to protect shareholders
For Further Study on EIC Services v Phipps
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