In a shareholders' dispute, some of the shareholders, on behalf of the company, undertook to purchase the other’s shares, but later tried to withdraw from the offer, contending that the company is no longer solvent.
The Court found that the shareholders, who are also directors, who undertook on behalf of the company are personally responsible for purchasing the shares in its place. A transaction of a company where an officer in the company has a personal interest and is not an ordinary transaction requires the approval of the audit committee and then the approval of the board of directors and in the case of a private company without an audit committee, the transaction requires approval of the board of directors only. If the officer is a director the transaction also requires approval of the general meeting of the shareholders. Here, it is not a transaction of a private company which is out of the ordinary and the directors of the company had a personal interest therein, as they were part of the shareholders' dispute. Thus, the transaction required the approval of the general meeting, which was not received and therefore the agreement is not binding legal on the company and the shareholders are personally liable under it.