Transfer of Shares under the 2012 Companies Act By R K Solomon

1

Section 83: Nature of shares.

The shares or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

The member‟s rights are prima facie freely transferable unless the articles provide to the

contrary.

Henry Kawalya vs Dan Semakadde [1992] I KALR 104

Held: A shareholder ceases to be such upon payment to him of a consideration for his interests in

the Company.

Re Discoverers Finance Corporation Ltd, Lindlar’s Case [1910] 1 Ch. 312

Held: Per Buckely J, By the Companies Acts “…it is provided that the shares in a company

under these Acts shall be capable of being transferred in manner provided by the regulations of

the company. The regulations of the company may impose fetters upon the right of transfer. In

the absence of restrictions in the articles the shareholder has by virtue of the statute the right to

transfer his shares without the consent of any body to any transferee, even though he be a man of

straw, provided it is a bona fide transaction in the sense that it is an out-and-out disposal of the

property without retaining any interest in the shares-that the transferor bona fide divests himself

of all benefit. In the absence of restrictions it is competent to a transferor, notwithstanding that

the company is in extremis, to compel registration of a transfer to a transferee notwithstanding

that the latter is a person not competent to meet the unpaid liability upon the shares. Even if the

transfer be executed for the express purpose of relieving the transferor from liability, the

directors cannot upon that ground refuse to register it unless there is in the articles some

provision so enabling them.”

Re: Smith & Fawcett Ltd [1942] Ch. 304

Held: It is to be borne in mind that one of the normal rights of a shareholder is the right to deal

freely with his property and to transfer it to whomsoever he pleases. The shareholder‟s prima

facie right, if it is to be cut down, must be cut down with satisfactory clarity. The articles if

appropriately framed can be allowed to cut down the right to any extent to which their true

construction will permit.

Borland’s Trustee vs Steel Brothers and Company Ltd [1901] 1 Ch. 279

1 LLB University of Dar es Salaam, Dip LP Law Development Centre

Held: An article providing that on the bankruptcy of a member he shall sell his shares to

particular persons at a particular price, which is fixed for all persons alike and is not shown to be

an unfair price is valid.

Jarvis Motors (Harrow) Ltd vs Carabolt [1964] 1 WLR 1101

One of 2 members of a Company, who each held half of the shares died. An article provided that

on the death of a member his shares must be offered to „the other members‟ at par even though

there is only one surviving member. Held: The executors of the deceased had to offer his shares

at par to the surviving member.

Re: Piccadilly Radio plc. [1988] BCLC 683

Held: If there has been a registered transfer in breach of the articles the only remedy available to

an aggrieved shareholder is rectification of the register. This is a discretionary remedy, and will

not be granted to 3rd

parties for extraneous purposes.

Procedure of Transfer of Shares

The procedure to be followed depends on the provisions of the Company‟s articles.

1. The transferor completes the transfer form, or if a transfer form is not used, he prepares

a document which corresponds to a transfer form.

Section 85: Transfer not to be registered except on production of instrument of transfer.

Notwithstanding anything in the articles of a company, it is not lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company.

Madhava Ramachandra Kamath vs Canara Banking Corporation [1941] 11 Com Cases 78

(Mad)

A resolution was passed expelling a member and authorising the director to register a transfer of

shares without an instrument of transfer. Held: The resolution was invalid for being contrary to

the provisions of the Act.

Mannalal Khetan vs Kedar Nath Khetan (1977) 47 Com Cases 185

Held: The mandatory nature of the provision is such that without production of the share

certificate and application to transfer to valid transfer can be effected.

Re: Greene (deceased): Greene v Greene and Others [1949] 1 All E R 167; [1949] Ch. 333

The AoA provided that shares would pass on the deaths of the shareholders to their wives

automatically. Greene, a director, died intestate on 20 January 1945. Pursuant to the article, his

widow was registered as the holder of his shares. Held: The article offended the equivalent of

section 85 of the Companies Act. The primary object of this section was to scotch out the

prevalent practice of oral transfer of shares to the great detriment of the Revenue.

2. The transferor signs the transfer form or document. It is usually signed in the presence of

witnesses though this is not a requirement of Article 22.

Table A. Article 22: Execution of the Instrument of Transfer

The instrument of transfer of any share shall be executed by or on behalf of the transferor.

Re Letheby & Christopher Ltd (1904) 1 Ch. 815

Held: A transfer deed executed by the transferor alone is not sufficient to transfer the shares.

3. The transferor gives the transfer form or document and relevant share certificate to the

transferee.

Skinner vs City of London Marine Insurance Corpn (1885) 14 QBD 882

Held: The seller‟s duty is complete when he hands over to the transferee a duly executed transfer

form with the certificate.

Hurst vs Crampton Bros (Coopers) Ltd (2002) EWHC 1375

A shareholder, just before his death executed a share transfer of 400 shares to his nephew in

breach of a pre-emption clause in the AoA. The issue was who should own the 400 shares. The

executor argued that the clause shouldn‟t apply as there was no transfer and only transmission

(equitable transmission of equitable interest). Held: The deceased was in breach and the transfer

was voidable because of the violation of the clause. There is no business meaning to read

„transferred‟ as „registered‟. In business, signing a contract means a transfer and entitled other

members to take action to stop it. Procedurally, the process of becoming a member is not

completed until an entry is made to the Register.

Pennington vs Waine [2002] 4 All ER 215

The owner of shares in a company informed P, a partner in the company‟s auditors that she

wished to transfer immediately 400 of her shares to her nephew, H. P duly prepared a share

transfer form for those shares, and the donor signed it and returned it to him. The form was

placed on the company‟s file and was not delivered to either H or the company. Nevertheless, the

donor indicated to H that she wanted to give him some of her shares. The donor executed a will

whereby she made specific gifts of the balance of her shareholding, but made no specific

mention of the 400 shares. She died later that month. Held: For the purposes of an equitable

assignment of shares by way of gift, delivery of the share transfer form, though required, could

be dispensed with in some circumstances. In the instant case there had been a clear finding that

the donor had intended to make an immediate gift and H had been informed of it. It would have

been unconscionable for her executors to refuse to hand over the share transfer to H after her

death. In those circumstances, delivery of the share transfer before the donor‟s death was

unnecessary so far as perfection of the gift was concerned.

4. The transferee signs the transfer form usually in the presence of a witness. If the shares

are partly paid, the transferee‟s signature confirms acceptance of the liability for the

amount unpaid on the shares.

Table A. Article 22: Execution of the Instrument of Transfer

The instrument of transfer of any share shall be executed by or on behalf of the transferee.

In re Level One Holding (Jersey) Limited (2007) JLR Note 39

Held: The transferee must agree to become a member for the transfer to be effective.

CIT vs Ramaswamy (1985) 57 Com Cases 7, 10 (Mad)

Held: A transfer is complete as between a transferor and transferee when all formalities such as

execution of the transfer deed and handing over of the certificate have been done.

Life Insurance Corporation of India vs Escorts Ltd (1986) 59 AIR SC 1370

Held: Though the transfer is effective between the transferor and the transferee at this stage, it is

not effective as against the company or any person without notice of the transfer.

5. The transferee affixes the appropriate stamp duty to the transfer form or document and

lodges it and the Share Certificate with the Company for registration.

Vardham Publishers Ltd vs Mathrubhumi Printing & Publishing Co Ltd (1990) Kerara High

Court

Held: Affixing stamps on a separate sheet of paper and attaching it to the transfer application or

cancellation of stamps by drawing a line across the stamp was not improper and did not affect

the validity of the stamp.

Re East Wheal Martha Mining Co (1863) 33 Beav 119

Held: Where the articles provide that transfers must be registered on presentation of the transfer

accompanied by such evidence as the company may require of the transferor's title, the directors

may refuse to register if the certificate is not so produced.

Registration can also be on application by the transferor.

Section 88: Registration of a transfer at request of the transferor.

On the application of the transferor the company shall enter in its register of members the name of the transferee as if the application for the entry were made by the transferee.

Killick Nixon Ltd vs Dharanj Mills P Ltd (1983) 54 Comp Cas 162 (Karn)

Held: When a transfer deed is duly executed and presented to the Company for registration of

transfer, it is not incumbent on the Company to investigate as to whether the transferee is capable

of accepting the transfer or whether he is alive.

Pennington vs Waine [2002] 4 All ER 215

Held: In the circumstances, the transferor and his agents could be deemed as agents of the

transferee for the purposes of delivering the share transfer to the company.

6. The transfer is considered and approved by the Board of Directors.

Table A. Article 24: Directors may decline Registration

The directors may decline to register the transfer of a share not fully paid share or of a share on which the company has a lien to a person of whom they shall not approve.

Table A. Article 25: Directors may decline to accept Instrument of transfer

The directors may also decline to recognise any instrument of transfer unless:

(a) a fee is paid to the company in respect of the instrument; (b) the instrument of transfer is accompanied by the certificate of the shares to which it

relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer; and

(c) the instrument of transfer is in respect of only one class of share. 7. The Company Secretary makes out a new Share Certificate in the name of the transferee

and affixes the Company‟s seal thereon after it is signed by one of the directors and

countersigned by the secretary or another director.

8. The transferee‟s name is entered on the Company Register of members in place of the

transferor‟s name.

Table A. Article 22. Transferor Deemed holder

The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect of the share.

Ireland vs Hart [1902] 1 Ch. 522

A was the registered holder of shares which he held on trust for B. A charged the shares to C,

giving C a blank transfer form and the share certificate. C had no notice of the trust. C completed

the blank transfer form and delivered it to the Company for registration. Before the directors

approved registration, B obtained an interim injunction to prevent C‟s registration. Held: B had

priority over C. C was neither the registered holder, nor did he have a present absolute

unconditional right to be registered since the directors had a discretion to refuse registration.

Delay in obtaining registration is dangerous to a transferee as a later transferee may gain priority

by obtaining registration earlier.

Re National Bank of Wales, Taylor, Phillips and Rickards' Cases [1897] 1 Ch. 298 at 306

Held: Where shares have been transferred, the transferor remains liable for calls already made.

Re Fry, Chase National Executors and Trustees Corpn vs Fry [1946] 2 All ER 106

F, who was resident in the United States of America, desired to make a gift to his son of certain

shares which he held in an English company. A transfer was executed and sent to the company

for registration. The company replied to F, that certain forms would have to be completed by the

transferor and transferee and that a licence from the Treasury would have to be obtained for the

transfer as it involved a resident outside jurisdiction. The necessary forms were filled up by F,

and the son, but F died before the licence from the Treasury could be obtained. The question to

be determined was whether the son was entitled to require F‟s personal representatives to obtain

for him legal and beneficial possession of the shares. Held: Since the requisite consent of the

Treasury had not been obtained, and the company was, therefore, prohibited from registering the

transfer, the son had not acquired the right to be clothed with a legal title to the shares in

question. There had not been a complete gift to the son of the equitable interest in the shares,

because F had not obtained the consent of the Treasury and, therefore, he had not done all that

was necessary to divest himself of his equitable interest in favour of his son.

Re Rose, Rose vs IRC [1952] 1 All ER 1217

By a transfer dated 30 March 1943, the deceased transferred to his wife shares in an unlimited

company to hold subject to the several conditions on which he held the same at the time of the

execution thereof. The transfers were not registered until 30 June 1943. Held: The deceased had

done all in his power to divest himself of the shares and to vest them in the transferees, and the

transfers were effective as between the deceased and the transferees to divest the deceased of

beneficial ownership and to constitute the transferees the beneficial owners of the shares; the

circumstance that the transferees must, to perfect their legal title, apply for and obtain

registration, did not prevent the transfers from so operating, and pending registration the

deceased was the trustee for the transferees of the legal estate in the shares which still remained

in him.

9. The new Certificate is delivered, or sent, to the transferees.

Section 91: Duties of a company with respect to issue of certificates.

A company shall, within 2 months after the date on which a transfer is lodged, complete and have ready for delivery the certificates of all shares transferred.

Table A Article 8: Share Certificate

Every person whose name is entered as a member in the register of members shall be entitled without payment to receive within two months after lodgement of one certificate for all his or her shares or several certificates each for one or more of his or her shares.

Section 87: Transfer of shares in a single member company

A single member company may transfer or allot shares on the death of the member or by operation of law or by converting to a private company not being a single member company.

For a transfer of shares or further allotment of shares the single member company shall:

(a) pass a special resolution changing to private company and alter its AoA accordingly within 30 days of transfer of shares or further allotment of shares;

(b) appoint and elect one or more additional directors within fifteen days of date of passing of the special resolution and notify the appointment to the registrar.

Upon conversion to a private company not a single member company, the Company shall file a notice in writing, with the registrar within sixty days from the date of passing of special resolution.

For death of single member, the company may either be wound up or be converted into a private company not being a single member company for which:

(a) the nominee director shall transfer shares in the name of legal heirs within 30 days; (b) the company shall pass a special resolution for change of status from single member

company to private company not being a single member company; (c) the members shall appoint or elect one or more additional director.

In case of operation of the law the company shall:

(a) transfer the shares, within 7 days to give effect to the court order; (b) pass a special resolution for change of status to private company; and (c) appoint additional director or directors in accordance.

The persons becoming members due to transfer or transmission or further allotment of shares, as the case may be, shall pass a special resolution to make alterations in articles and appoint one or more additional directors.

Rights as Between Vendor and Purchaser of shares

On a sale of shares the ordinary contract between the parties is that the vendor shall give to the

purchaser a valid transfer and do all that is required to enable the purchaser to be registered as

a member in respect of the shares, the purchaser‟s duty being to get himself registered. The

vendors duty is not only to give a genuine transfer but also, where the vendor is not the

transferor, one which is signed by a transferor willing that the transfer be registered.

Hichens, Harrison, Woolston & Co. vs Jackson & Sons [1943] AC 266

Solicitors instructed stockbrokers to sell stock and enclosed the certificate and a blank transfer

(i.e. a transfer in which the transferee‟s name had still to be inserted) signed by the stockholder.

The stockbrokers sold the stock but the stockholder repudiated the contract and the Company, on

her instructions, refused to register the transfer. The stockbrokers replaced the stock by a

purchase on the stock exchange and sued the solicitors for an indemnity. Held: The solicitors

were principals of the stockbrokers as regards the sale. It was the solicitor‟s duty to deliver a

transfer executed by a transferor willing that it should be registered. The solicitors were liable.

JRRT (Investments) Ltd and others vs Haycraft and others [1993] BCLC 401

H agreed to purchase shares from E but H had not to completed payment by the completion date.

Clause 8.5 of the agreement provided that all shareholder rights shall accrue to H on the

completion date which had elapsed. The question before the court was whether cl 8.5 obliged E

to vote the shares in accordance with H's directions. Held: Under the general law an unpaid

vendor of shares had the right to vote the shares which remained registered in his name and was

free from any obligation to comply with the directions of the purchaser. Accordingly cl 8.5

should not take effect so as to deprive E of his rights as an unpaid vendor after the option

completion date if actual completion had not taken place because of the default of H.

Woodlands vs Hind [1955] 2 All ER 604

By an agreement dated 14 January 1952, the defendant agreed that in consideration of the

plaintiff‟s taking preference and other shares in H Ltd a private company of which the defendant

was a director, he, the defendant, would purchase at par (or find a purchaser at par for) such of

the preference shares as the plaintiff might hold on 25 December 1954. The plaintiff took up the

shares, but apart from a small payment which he made to the plaintiff and which was treated as

an interim payment under the agreement, the defendant failed to carry out his part of the

agreement. Held: Though the plaintiff elected to treat the agreement as repudiated, a contract for

the sale of shares may be enforced by a claim for specific performance.

Black vs Homersham (1878) 4 Ex D 24

Held: In the absence of any stipulation in the contract to the contrary, a purchaser of shares is

entitled to all dividends on them declared after the date of the contract.

Grant vs Cigman [1996] 2 BCLC 24

Held: On an application for specific performance of an agreement to sell shares it was at least

arguable that time was of the essence where the nature of the shares to be sold was such that their

value was, as a matter of fact, volatile.

Chinnilal Kushaldas Patel vs H.K. Adhyaru (1956) 26 Co Cases 168

Held: Where the transferor, by reason of the shares standing in his name after the transfer,

receives any dividends or other benefit, the transferee is entitled to recover them.

Spencer vs Ashworth, Partington & Co [1925] 1 KB 589

Held: On a sale of shares the purchaser is liable on an implied promise to indemnify the vendor,

so long as he remains registered, against calls, whether made while the purchaser was

beneficially entitled or after the purchaser sold them to a sub-purchaser.

The ordinary principles of contract apply:

There should be consensus ad idem between the parties.

John Tinson & Co. Pvt. Ltd. vs Mrs. Surjeet Malhan 1997 AIR SCW 1537

The husband made a contract with X under which he agreed to transfer the wife‟s shares to X

without her consent. The transfer of the shares was not acted on by the company either as regards

approval to it by the Board or registration thereof though the certificates remained in the custody

of X. The wife challenged the validity of this transfer. Held: The wife had not given her consent

to the transfer of her shares as she had not authorised her husband to transfer her shares. Her

acquiescence did not amount to consent unless she had expressly authorised him in writing to

transfer her shares. There should be consensus ad idem for a concluded contract. In the instant

case, there was no concluded contract between shareholder and broker.

The contract should be certain.

Nitin Coffee Estates Ltd vs United Engineering Works Ltd 1988 TLR 203 (Tanzania)

In 1983 shareholders and directors of the appellant companies sold the total shareholding in and

all the assets of the company to the 2nd respondent. The price of shares was not agreed upon and

there was no means of ascertaining it. In 1986 the appellants sought to repudiate the agreement.

Held: As the price was not agreed, and there were no means of ascertaining such price in a sale

of individual shares, there was no agreement due to uncertainty.

Chandrakant Vinubhai Patel vs Frank Lionel Marealle 1984 TLR 231 (Tanzania)

The appellant entered into an agreement to purchase a company. After the appellant had paid a

substantial part of the price and the vendor had handed over the share certificates endorsed in

blank and share transfer forms also signed in blank the respondents sought to rescind the

agreement. Held: The delay in paying the instalments could not entitle the respondents to rescind

the transaction once it was completed and the property in the shares had passed. The act of

handing over the share certificates duly endorsed in blank and the signing of the share transfer

forms in blank constituted prima facie evidence of an unequivocal act of transfer and constituted

the deliveree as owner as against the deliverer.

There should be no misrepresentation

Friedman vs Njoro Industries Ltd (1954) 21 EACA 172

The respondent claimed that it was induced to purchase shares in a company called Lake Nakuru

Syndicate Ltd by false representation that its main competitors were about to purchase shares in

the same company. Prior to this it had been very reluctant to purchase the shares. The respondent

sued for deceit in tort. Held: The respondent might have exercised its right to sue for rescission

in contract but chose to sue in tort. A buyer deceived in such circumstances where the

representation clearly goes beyond a mere puff is entitled to remedy. Damages ordered equal to

the difference between the price it was induced to pay and the true value of the shares.

Smith vs Land & House Property Corporation (1885) 28 Ch. D 7

A vendor induced a purchaser of property to purchase by false information regarding the tenant.

Held: The vendor was liable to the purchaser.

Transfer to avoid liability will be void.

Section 61 of the Insolvency Act No 14 of 2012: Transfers during voluntary liquidation void

Any transfer of shares without sanction of the liquidator after the commencement of a voluntary liquidation is void.

Section 97(1) (d) of the Insolvency Act No 14 of 2012: No Transfers during Court Liquidation

Shares of the company shall not be transferred at the commencement of liquidation.

Re Discoverers Finance Corporation [1908] 1 Ch. 141

Held: Where shortly before a company goes into liquidation a shareholder transfers his partly-

paid shares to another person so as to avoid liability and under such circumstances that the

transferee has a right to be relieved in equity against the transfer, the transfer is not bona fide, but

colourable, and the Court will place the transferor on the list of contributories.

Competing Claims to Shares

Fraudulent dealing

Shropshire Union Railways & Canal Company vs R (1875) LR 7 HL 496

Held: Where the registered holder of shares gives a blank transfer and certificate as security for a

loan and then subsequently, for the purpose of defrauding the creditor, obtains a duplicate

certificate from the Company and executes another transfer which is duly registered. The

transferee‟s legal title to the shares will prevail over the creditor‟s earlier equitable title.

First in time

Where equities as between successive transferees of shares are equal, the first in time prevails.

Section 126: Trusts not to be entered on the register

A notice of any trust, expressed, implied or constructive shall not be entered on the register or be receivable by the registrar.

Peat vs Clayton [1906] 1 Ch. 659

Clayton assigned all his shares to Peat as trustee for Clayton‟s creditors. He was unable to obtain

share certificates them from Clayton. He gave notice of the assignment to the Company. Clayton,

after the date of assignment to Peat sold the shares to X who applied for registration. Held: Peat

having an equitable title which was prior in time was entitled to registration. Where there are

several claimants to shares registered in the name of a 3rd

person, the equitable title which is

prior in time prevails, unless the claimant under a subsequent equitable title proves that, as

between him and the Company he had acquired an absolute and unconditional right to be

registered as the owner of the shares before the Company received notice of the other claim.

Coleman vs London County and Westminster Bank [1916] 2 Ch. 353

In 1893 X. transferred debentures to Y. on trust for X.‟s sons. The transfer was not registered. In

1894 one son sold his share of the debentures to Z. In 1911 X. deposited the debentures with the

bank as security for an overdraft. In 1914 the bank, on learning of the sale to Z., took a transfer

of the debentures, and were registered as owners. Held: Z. was entitled to priority over the bank

despite registration.

Moore vs North Western Bank [1891] 2 Ch. 599

Held: Even if a complete legal title has not been obtained, a person with an unconditional right to

registration as against the company has the same priority as if he were actually registered.

Societe Generale de Paris vs Walker [1885] 11 App. Cas 20

A charged his shares to B by depositing the shares and a signed blank Transfer Form. A then

granted a charge to C by executing a new blank Transfer Form and told C he had lost his Share

Certificate. C notified the Company and delivered the stock transfer form to the Company. Held:

B had priority. He was first in time. C had not registered got legal title since delivery of the

transfer form was insufficient. He had to be registered in the Share Register.

Dodds vs Hill [1865] 2 H&M 424

A was the registered holder of shares in a Company and held them on trust for B. A charged the

shares in a Company and held them on trust for B. A charged the shares to B and delivered a

signed blank transfer form and the share certificates. C had no notice of the trust. A became

bankrupt and B informed C of the trust. C then completed the blank transfer form and sent it plus

the share certificate to the Company for registration. The Shares were registered in C‟s name.

Held: C had priority over B. He did not have notice of B‟s rights when he took his charge. At the

time of notice he had a present absolute unconditional right to be registered.

Ireland vs Hart [1902] 1 Ch. 522

A was the registered holder of shares which he held on trust for B. A charged the shares to C,

giving C a blank transfer form and the share certificate. C had no notice of the trust. C completed

the blank transfer form and delivered it to the Company for registration. Before the directors

approved registration, B obtained an interim injunction to prevent C‟s registration. Held: B had

priority over C. C was neither the registered holder, nor did he have a present absolute

unconditional right to be registered since the directors had a discretion to refuse registration.

Delay in obtaining registration is dangerous to a transferee as a later transferee may gain priority

by obtaining registration earlier.

Hawks vs McArthur [1951] 1 All ER 22

The registered owner, M, sold shares to purchasers who paid for the full purchase price, but they

did not register themselves as members. Sometime later, the plaintiff recovered judgment against

M and was granted leave to enforce the judgment against him to obtain payment. He therefore

obtained a charging order on the shares of M. The effect of the charging order was to give him an

equitable right in the shares. Held: Even though the requirements of the articles with respect to

transfer of shares, the pre-emption provisions, had not been complied with, the purchasers having

paid to M the full consideration for the shares, had obtained equitable rights therein. Equity

regards as done that which ought to be done, and so although the purchasers were not legal

owners of the shares, they were equitable owners. As the equitable ownership of the purchasers

accrued earlier than the equitable right of the plaintiff under the charging order, their rights must

prevail over the plaintiff‟s claim.

EG Tan & Co (Pte) vs Lim & Tan (Pte) [1985-1986] SLR(R) 1081

The plaintiff was equitable owner of some shares. A rogue, Khoo, obtained the share certificate

and blank transfer form from the plaintiff fraudulently and passed the share certificate and the

blank transfer form to the second defendant. The second defendant then sought to have the shares

registered in his name but failed. He claimed that he had bought the shares from Khoo in good

faith and for value, and therefore his interest prevails over the plaintiff‟s equitable title. Held:

The second defendant had obtained the shares from Khoo in payment of a gambling debt that

Khoo owed to him. As a gaming contract is void under the defendant had not provided good

consideration to Khoo for the acquisition of the shares. As such, he was not a bona fide

purchaser of the shares. The second defendant‟s title, at best, was only an equitable title. He

failed to acquire the legal title, and thus could not have pleaded the bona fide purchaser of legal

title defence to the plaintiff‟s claim.

Suntoso Jacob vs Kong Miao Ming [1986] 2 MLJ 170; [1985-1986] SLR(R) 524

SJ, an Indonesian, had transferred his shares to Kong, an employee, on trust to give the

appearance that the co was owned by Singaporeans, so that the co can purchase and register a tug

under the name of the co. Later, when SJ tried to have the shares registered in the name of

another nominee, Kong refused to deliver the share certificate to the company secretary,

claiming that he was the legal and beneficial owner of the shares. SJ then applied to court, asking

for a declaration that Kong held the shares on trust for him. Held: The application was dismissed

by the Court of Appeal. The court held that SJ had practised a deception on the public

administration. The part played by him in this deception had soiled his hands and the court

would not give effect to and enforce the trust in his favour.

Company’s Lien on Shares

Section 21(2): Money owed to the company is a debt

All money payable by any member to the company under the memorandum or articles shall be a debt due from him or her to the company.

Re Dunlop, Dunlop vs Dunlop (1882) 21 Ch. D 583

Held: Where no express lien is conferred, but shares may be forfeited if money due in respect of

them is not paid, the company has no lien.

Canara Bank Ltd vs Tribhuvandas Jethe Bhai AIR 1957 Trav C 183

Held: Unless the articles contain the power of lien, the company has no such power.

Priority of Lien

When a 3rd

party advances money on the security of shares, a question arises as to whether the

3rd

party has priority over the Company‟s lien. In such a case, if the 3rd

party gives notice of his

security to the Company before the Company‟s lien arises, the 3rd

party will have priority, but

otherwise not.

Table A. Article 11: Company’s Lien First and Paramount

The company shall have a first and paramount lien on every share (not being a fully paid share)

for all monies (whether presently payable or not) called or payable at a fixed time in respect of

that share. The company’s lien, if any, on a share shall extend to all dividends payable thereon.

Deering and McQuestron vs Hibernian Joint-Stock Banking Co (1868) 16 WR 578

Held: A lien on the proceeds of sale of shares is a lien on the shares.

Bradford Banking Company vs Briggs & Company (1886) 12 App. Cas 29

The AoA gave „first and paramount lien and charge‟ on shares for debts due from the

shareholder. A shareholder created an equitable mortgage of his shares by depositing the share

certificate with a Bank as security for an overdraft and the Bank gave notice of the deposit to the

Company. The shareholder subsequently became indebted to the Company whereupon a lien

arose in favour of the Company. Held: The Bank had priority as the Company‟s lien arose after

notice of their equitable mortgage.

New London & Brazilian Bank vs Brocklebank (1882) 21 Ch. D 302

Trustees held shares in a Company, the AoA of which gave the Company a lien on shares

standing either in a single name or in joint names for any debt due from any of the holders, either

separately or jointly with any other person. There was also an article like Article 7 refusing

recognition to trusts. Long after the registration of the shares in the trustee‟s names, one of the

trustees incurred a liability to the Company. It was not alleged that the Company had notice of

the trust before the lien arose. Held: The Company‟s lien prevailed over the title of a cestius que

trust. Where the shareholder is a trustee, the Company‟s lien will prevail over the beneficial

owner‟s unless notice is given.

Mackereth vs Wigan Coal Company Ltd [1916] 2 Ch. 293

Shares in the defendant Company were registered into the names of the trustees of the late James

Hodgson‟s Estate one of whom was his son James Hodgson Jr. The Company had notice that the

registered holders held as trustees. James Hodgson Jr. became indebted to the Company and the

Company purported to exercise a lien on the shares and impounded dividends due and sold some

shares. Held: This was an infringement of the rights of the beneficiaries. The title of the

beneficial owners under a trust will have priority if the Company has notice, before the lien

arises, that the shareholder is a trustee of the shares.

Re London, Birmingham and South Staffordshire Banking Co Ltd (1865) 34 Beav 332

Held: The lien continues to exist, however, although the shareholder has given the company

unmatured bills for his debt; and it prevails over a charge given after the giving of the bills but

before maturity.

The right of lien implies a power on the creditor to retain the property of his debtor which is in

his possession as security for payment of the debt. The lien does not however confer a power to

sell the property retained. Consequently, if the Company wishes to be able to enforce its lien by

selling the relevant shares, without a court order, it must insert a suitable clause in the articles.

Table A. Article 12: Company may sell shares

The company may sell any shares on which it has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of fourteen days after a notice has been given to the registered holder for the time being of the share.

A Company, unlike an unpaid seller of goods, is not in possession of the shares sold and cannot

retain them legally; the ownership and notional possession of the shares are vested in the

registered holder. The word „lien‟ as used in this context is therefore a misnomer. However, it is

useful by way of analogy. Since a seller of goods who has not been paid in full by the buyer has a

right of lien over the goods sold until full payment is made by the buyer, the Company, as an

unpaid seller, should have a similar right. Although the Company cannot „retain‟ the „goods‟ it

can at least refuse to allow the registered holder to transfer them to a third party. Since the

shares are not physically in possession of the Company it appears proper to regard the

Company‟s lien as an „equitable lien‟ which does not arise until the registered shareholder

incurs a debt to the Company.

Bank of India vs Rustom Fakirji AIR 1955 Bom 419

Held: An article merely giving a right of lien is not enough to confer a right to bring the property

to sale in exercise of such a right.

New London & Brazillian Bank vs Brockle Bank (1882) 21 Ch D 302

Held: In the absence of any provision in the articles giving power to the company to enforce a

lien by sale, the lien cannot be enforced except through court.

Champagne Perrier-Jouet S.A vs H.H. Finch Ltd [1982] 1 WLR 1359

A director had incurred a debt by virtue of the Company paying bills on his behalf. Held: The

Company had a lien on his shares even though it was also prohibited from making a loan to that

director on security of its shares. The Company had not made a loan, he had simply become

indebted. Articles of association usually give an extensive lien actively enforceable by sale of the

shares; such a power of sale does not of itself authorise the company to sell the shares otherwise

than in accordance with articles conferring a right of pre-emption on the other shareholders.

Under Article 12 a lien is enforced by sale not by forfeiture.

Hopkinson vs Mortimer, Harley & Co. Ltd [1917] 1 Ch. 646

The AoA provided that the Company should have a lien on shares for the debts of the

shareholder, and also provided that the lien could be enforced by forfeiture. Held: Forfeiture for

debts generally as distinct from debts due from the shareholder as a contributory, amounted to an

illegal reduction of capital. Power to forfeit on failure to redeem after notice amounted to a clog

on the shareholder‟s equity of redemption and was invalid.

Oral Transfer

Section 85: Transfer not to be registered except on production of instrument of transfer.

Notwithstanding anything in the articles of a company, it is not lawful for the company to register a transfer of shares the company unless a proper instrument of transfer has been delivered to the company.

Therefore an oral transfer of shares is illegal and void.

Re: Greene (deceased): Greene v Greene and Others [1949] 1 All E R 167; [1949] Ch. 333

The AoA provided that shares would pass on the deaths of the shareholders to their wives

automatically. Greene, a director, died intestate on 20 January 1945. Pursuant to the article, his

widow was registered as the holder of his shares. Held: The article offended the equivalent of

section 85 of the Companies Act. The primary object of this section was to scotch out the

prevalent practice of oral transfer of shares to the great detriment of the Revenue.

Forged Transfer

Sheffield Corporation vs Barclay [1905] AC 392

Two persons, Timbrell and Honnywill, were joint owners of corporation stock. Timbrell, in fraud

on Honnywill, forged a transfer of the stock and borrowed money from the respondents on the

security of the stock. The respondents sent the transfer to the corporation asking for registration,

and they were duly registered. Later the respondents sold the shares and the corporation issued

certificates to the purchasers who were also registered. The corporation replaced the stock

suffering loss. The corporation now sued the respondents for an indemnity on the grounds that

they had presented the forged transfer. Held: The Corporation succeeded. The person presenting

a transfer warrants that it is good, and the fact that he is innocent of any fraud does not affect this

warranty. The corporation, therefore, was entitled to recover from the respondents the value of

the stock replaced, leaving them to such remedies as they might have against Timbrell‟s estate.

Bank of England vs Cutler [1908] 2 K. B. 208

A stockbroker, acting bona fide filled in a form containing particulars of a shareholder allegedly

transferring certain India stock standing in her name in the books of the Bank of England. He

went to the bank with the supposed transferor and identified her to the Bank officials and she

signed a transfer of the stock. The stock was subsequently transferred to purchasers for. In fact,

the signature of the owner of the stock was forged and the Bank, on discovering the fraud,

purchased an equivalent amount of stock in the market so as to replace the stock fraudulently

transferred and sued the stockbroker. Held: The defendant, by taking the form giving particulars

of the stock and the name of the transferor to the Bank and identifying the transferor as the

owner thereof, thereby requested the Bank to permit the transferor to make the transfer, and he

thereby contracted to indemnify the Bank against the loss caused thereby. As the Bank was

estopped from denying the validity of the transfers to the purchasers for value without notice it

was entitled to recover from the defendant the amount paid for the purchase of the stock.

Royal Bank of Scotland plc vs Sandstone Properties Ltd (1998) The Times 12 March

The transfer which was forged was presented by a broker on behalf of the fraudster. Held: In the

circumstances the broker had to pay the indemnity and could then proceed against the fraudster.

Yeung and another vs Hong Kong and Shanghai Banking Corporation [1980] 2 All ER 599

A was the registered holder of shares in a Hong Kong bank. The certificates for the shares were

stolen from A and some time later a firm of stockbrokers acting bona fide presented the

certificates to the bank together with „duly completed transfer deeds‟, under cover of letters

signed in the firm‟s name requesting the bank to give effect to the transfers in favour of one W

and to issue new certificates in W‟s name. W, who had forged A‟s signature, later sold the

shares. A later proved the forgeries and obtained judgment against the bank, which in turn sought

judgment against the stockbrokers for an indemnity in respect of its liability to A. Held: The

stockbrokers were personally responsible for whatever consequences the law attached to the

making of the request contained in their letters and the bank‟s compliance with that request

because notwithstanding that they were written on behalf of W there was nothing in the letters or

their unqualified signature to suggest that the request being made was exclusively W‟s.

Peoples Insurance Company vs Wood & Co 1961 (31) Com Cases 61

Held: A forged transfer is a nullity and, therefore, the original owner of the shares continues to

be the shareholder and the company is bound to restore his name on the register.

Kaushalya Devi vs National Insulated Cable Company of India 1977 Tax LR 1928 (Del)

Held: The fact that the transferee was a bona fide purchaser for value without notice of the fraud

did not make any difference. He was bound to return the shares to their true owner.

Simm vs Anglo-American Telegraph Company (1879) 5 QBD 188

B. & Co. purchased upon the stock exchange 5000l stock in the defendant company on a forged

certificate. B. & Co., then, to secure advances, obtained a transfer of the stock to the plaintiffs,

who were in like manner registered as owners, the certificate being issued to them by the

company. It was afterwards discovered that the transfer to B. & Co. was a forgery, and the

company thereupon returned the original shareholder upon the register, and refused to pay

dividends to the plaintiffs or to acknowledge their title to the stock. Held: The defendants were

not estopped from denying the validity of the transfer to B. & Co. A transferee of stock in a

company does not acquire a right thereto by estoppel, as between him and the company, by the

mere fact of registration of the transfer and the issue of the certificate. Nor is the company under

any duty towards him to make any inquiry of the transferor before issuing the certificate.

This rule does not apply in situations where the registered holder of shares signs a transfer and

then delivers it to another person for a specific purpose but the person uses the transfer for an

unauthorised purpose.

Fry vs Smellie [1912] 3 KB 282

The registered holder of shares gave to an agent a blank transfer with a view to the agent

borrowing a specified sum of money using the shares as security. The agent exceeded his

authority by mortgaging the shares for a larger sum. The shareholder denied that the transfer was

valid since it had been used in a transaction which exceeded the actual authority given to his

agent but he was estopped from asserting that the agent had exceeded his actual authority. The

private limitation of authority could not be pleaded against a 3rd

party who was not aware of it.

Certification of Transfers

Where the transferor is selling all the shares represented by the certificate the he will follow the

transfer procedure but if he is selling only part of his holding, or the whole of his holding but to

more than one person, he will instead send the share certificate and the executed transfer of the

shares which the purchaser is buying to the company so that the transfer may be certificated. lf a

holder of shares sells part only of his holding, e.g., 250 shares out of 1,000, he will be unable to

deliver his share certificate to the purchaser. The usual procedure in such a case is, therefore,

for the transferor to execute the transfer and send it, with the share certificate, to the company.

The secretary then endorses on the transfer the words “certificate lodged” or similar words, and

returns the transfer so certificated to the transferor. The transferor hands over this certificated

transfer to the transferee against payment of the price, and the transferee executes it and

forwards it to the company for registration.

The certification of a transfer is a representation by the company to any person acting on the

faith of it that there have been produced to the company such documents as show a prima facie

title in the transferor, but not a representation that the transferor has any title.

Table A. Article 23: Right to transfer shares as a whole or in part

Any member may transfer all or any of his or her shares by instrument in writing in any usual or common form or any other form which the directors may approve.

Section 90(1): Certification Prima Facie evidence of Transferor’s Title

The certification of any instrument of transfer of shares shall be taken as a representation by the company to any person acting on the faith of the certification that there have been produced to the company, such documents as on the face of them show a prima facie title to the shares in the transferor named in the instrument of transfer but not as a representation that the transferor has any title to the shares.

Bishop vs Balkis Consolidated Co., Ltd. (1890) 25 QBD 512

P. transferred his shares to X., and his certificate was lodged by X. with the company. Before

registration was completed, P. executed a transfer of some of the same shares to Y., who sold

them to B. Y.'s transfer to B. was certificated by the company and, on the strength of this, B. paid

Y. The company registered X. and refused to register B. Held, B. had no cause of action against

the company, as the certification did not amount to a warranty that the transferor had a title to the

shares and did not estop the company from denying the validity of Y.'s title. Certification could

only be taken to amount to representation by the defendant that a document or documents had

been lodged with the Company in order to show that prima facie the transferor was entitled to the

shares.

Section 90(2): False Certification

Where a person acts on the faith of a false certification made negligently, the company shall be under the same liability to him or her as if the certification had been made fraudulently.

Section 90(3): Instrument Deemed Certified

An instrument of transfer shall be taken to be certified if it bears the words “certificate lodged”. The certification of an instrument of transfer shall be taken to be made if:

(a) The person issuing the instrument is a person authorised to issue certificated instruments of transfer on the company’s behalf;

(b) The certification is signed by a person authorised to certificate transfers on the company’s behalf or by any officer or servant either of the company or of a body corporate so authorised.

A certification shall be taken to be signed by a person if it purports to be authenticated by his or her signature or initials whether handwritten or not.

Procedure of Certification

1. The transferor executes the transfer and sends it with the share certificate to the

Company.

Table A. Article 22. Transferor executes document

The instrument of transfer of any share shall be executed by or on behalf of the transferor.

2. The secretary indorses the words „certified and lodged‟ or similar words and returns the

transfer form to the transferor.

Section 90(3): Instrument Deemed Certified

An instrument of transfer shall be taken to be certified if it bears the words “certificate

lodged” or words to the like effect.

3. The transferor hands over this certified transfer form to the transferee against payment of

the price.

4. The transferee executes the transfer form and forwards it to the Company for

registration.

Table A. Article 22. Transferor executes document

The instrument of transfer of any share shall be executed by or on behalf of the transferee.

5. New Certificates are issued.

Section 91(1): Duties of a company with respect to issue of certificates.

A company shall, within 60 days after the allotment and within 2 months after a transfer is lodged, complete and have ready for delivery the certificates of all shares, allotted or transferred, unless the conditions of issue of the shares otherwise provide.