Trevor v Whitworth (1887)

Trevor v Whitworth (1887)

1. Doctrine of capital maintenance established here

   • Facts: Shareholder sold back shares he had in the company, back to the company
     • When the company went into liquidation, Mr Whitworth's executors tried to recover from the company the balance of the purchase price which was outstanding on the shares
       • Held: It was not allowed for the company to buy its own shares in the company constitution's objects clause
         • HoL stated that the company is not allowed to acquire their own shares as it results in reduction in the company's capital
           • A company is not allowed to provide any kind of assistance in terms of finance for the purchasing of its own shares.
           • A company is bound to pay dividends to the shareholders out of the profits earned.
         • Buying of own shares is ultra vires (beyond the powers)
       • This was resisted by the liquidators

2. Common law: Company may not purchase its own shares

3. Guinness v Land Corporation of Ireland was cited in this case 'whatever has been paid by a member cannot be returned to him'

4. Re Irish Provident Assurance Company Ltd: This case restated the common law prohibition on a company buying its own shares

   • However, there are some statutory exceptions
   • Lightman J.: 'the court will look carefully at such transactions to see that the directors of the acquiring company have acted with an eye solely to the interests of the acquiring company (and not for example to the interests of the directors)'