Company lien sales by expired directors are invalid; indoor management and bona fide purchase protections failed here.

A company's enforcement of a lien over shares was held ineffective where the directors who authorised the demand and sale had no subsisting authority, and the sale was pursued on an exaggerated and improper claim. Protection for defective appointment and the rule of indoor management did not assist a purchaser who was not bona fide and was fixed with notice of the governing articles. The court further held that a sale by the company still amounted to a transfer within the statutory scheme, so a duly executed transfer instrument and delivery of the share script remained necessary. In the absence of those requirements, registration of the purchaser was unlawful and the share register had to be corrected in the plaintiff's favour.

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Issues: (i) whether the alleged lien, notice of demand and sale of the plaintiff's shares were valid when the directors who took those steps had vacated office or were otherwise not lawfully appointed; (ii) whether the purchaser acquired a good title protected by the articles, the Companies Act and the rule of indoor management; and (iii) whether the company could register the purchaser as holder of the shares without a proper instrument of transfer.

Issue (i): whether the alleged lien, notice of demand and sale of the plaintiff's shares were valid when the directors who took those steps had vacated office or were otherwise not lawfully appointed.

Analysis: The company's power to sell under the articles was conditional. The debt relied upon to support the sale was not established to the extent claimed, and the directors who resolved to enforce the lien and issued the notice had ceased to be directors after the expiry of the statutory period for holding the annual general meeting. Acts done by persons whose appointment is merely defective may be protected, but that protection does not extend to acts of persons who have no subsisting authority or whose office has expired. The court also found that the sale was pursued for an improper purpose and on an exaggerated and unreal claim.

Conclusion: The resolution to enforce the lien, the notice of sale and the sale itself were invalid and ineffective as against the plaintiff.

Issue (ii): whether the purchaser acquired a good title protected by the articles, the Companies Act and the rule of indoor management.

Analysis: Protection under the articles and the rule in Turquand's case depends on good faith and an innocent purchase. The purchaser was found not to be a bona fide purchaser and did not enter the witness box to establish innocence or lack of prior knowledge. The rule of indoor management could not assist him because the relevant defects were not purely internal irregularities and the purchaser was fixed with notice of the controlling articles. A sale founded on unauthorized steps by expired or improperly appointed directors could not be validated in his favour on the facts proved.

Conclusion: The purchaser did not acquire a title protected by the articles, section 86, or the rule of indoor management.

Issue (iii): whether the company could register the purchaser as holder of the shares without a proper instrument of transfer.

Analysis: A sale of shares by the company in enforcement of lien remained a transfer within the statutory scheme and was not exempt from the requirement of a duly executed instrument of transfer and delivery of the share script. Article 19 could not be read so as to override the statutory requirement. In the absence of a proper transfer deed, registration in the purchaser's name was not lawful.

Conclusion: The register could not lawfully be altered to record the purchaser as holder of the shares.

Final Conclusion: The plaintiff was entitled to succeed, the impugned sale and registration could not stand, and the share register had to be corrected in the plaintiff's favour.

Ratio Decidendi: Acts done under company articles by persons whose authority has expired are not saved by the doctrine of defective appointment or indoor management, and a purchaser who is not bona fide cannot claim protection against the true owner where the statutory and contractual conditions for sale and registration have not been satisfied.

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