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EIC Services v Phipps

[2004] EWCA Civ 1069

Case summary last updated at 22/01/2020 14:25 by the Oxbridge Notes in-house law team.

Judgement for the case EIC Services v Phipps

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.
·     However if shareholders were to purchase shares from the company, they would be dealing with the company.
Ø As here, there is some form of consideration from shareholders.
 
Second Argument
·     Even if a shareholder was ‘dealing with’ the company (i.e. transaction was bilateral), ‘third parties’ can never include:
i)         membersof a company
ii)       thecompany itself
·     Protection of section 40 should not exceed that provided for in Directive.
Ø And it is clear Directive did not intend to protect shareholders

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