Summary

Directors cannot perpetuate their or their friends' control of the company. Nominee directors about to be removed,seeking to commit company to a management agreement

Facts

Plaintiff's appeal against refusal of an injunction to restrain defendants from terminating a management agreement under which plaintiffs were appointed defendants' managers. The agreement had been made by plaintiffs' nominees appointed to the defendants' board under an earlier management agreement which the plaintiff knew the defendants' shareholders intended to terminate and before the shareholders could implement their further intention of removing the plaintiffs' nominees from their board.

Held

It was well established that directors could not use their powers to perpetuate their or their friends' control of their company- Piercey S Mills & Co Ltd(1920)1 Ch.77: Howard Smith v Ampol Petroleum Ltd (1975)AC 821,834 even if they asserted that their action was bona fide in the interest of the company. The function of the directors was to manage but the appointment of the directors who were to do the managing was a function of the shareholders in general meeting. It was unconstitutional for the directors,knowing the shareholders intended to remove them as soon as possible, to commit the company to a second management agreement with plaintiffs. Appeal dismissed.