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''Rolled Steel Products (Holdings) Ltd v British Steel Corp'' 986Ch 246 is a UK company law case, concerning the enforceability of obligations against a company. The case was one of the last significant cases on '' ultra vires'' under English company law before the provisions abrogating that doctrine in the Companies Act 1985 became effective.


Facts

Rolled Steel Products Ltd gave security to guarantee the debts of a company called SSS Ltd to British Steel Corporation. This was a purpose that did not benefit Rolled Steel Products Ltd. Moreover, Rolled Steel's director, Mr Shenkman was interested in SSS Ltd (he had personally guaranteed a debt to British Steel’s subsidiary Colvilles, which SSS Ltd owed money to). The company was empowered to grant guarantees under its articles but approval of the deal was irregular because Mr Shenkman's personal interest meant his vote should not have counted for the quorum at the meeting approving the guarantee. The shareholders knew of the irregularity, and so did British Steel. Rolled Steel Products wanted to get out of the guarantee, and was arguing it was unenforceable either because it was ultra vires, or because the guarantee had been created without proper authority. At first instance
Vinelott J Sir John Evelyn Vincent Vinelott (15 October 1923 – 22 May 2006) was a leading barrister at the Chancery bar and an English High Court judge in the Chancery Division from 1978 to 1994. He was born in Gillingham, Kent, and studied at Queen E ...
held British Steel’s knowledge of the irregularity rendered the guarantee ultra vires, void and incapable of validation with the members’ consent. British Steel appealed.


Judgment

The Court of Appeal held that the transaction was not ultra vires and void. Simply because a transaction is entered for an improper purpose does not make it ultra vires. He emphasised the distinction between an act which is entered into for an improper purpose (which is not beyond the capacity of a company, or void) and an act which is wholly outside a company's objects (and hence ultra vires and void). However, it was unenforceable because British Steel, with knowledge of the irregularity, could not rely on a
presumption of regularity The presumption of regularity is a presumption that forms part of the law of evidence of England and Wales. It is expressed by the maxim of law ''omnia praesumuntur rite et solemniter esse acta donec probetur in contrarium'', which may be shortene ...
in the company’s internal management. Since British Steel ‘constructively knew’ about the lack of authority, they could acquire no rights under the guarantee. On ''ultra vires'' Browne-Wilkinson LJ said the following. On the question of authority Slade LJ held that the ''
Rule in Turquand's case ''Royal British Bank v Turquand'' (1856) 6 E&B 327 is a UK company law case that held people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This "indoor management rule" or ...
'', which would ordinarily entitle a person dealing with a company who to assume the company's own internal rules were complied with, did not apply when it came to someone breaching a rule to further their own personal interests. 986Ch 246, 283-284


See also

* UK company law *
Capacity in English law Capacity in English law refers to the ability of a contracting party to enter into legally binding relations. If a party does not have the capacity to do so, then subsequent contracts may be invalid; however, in the interests of certainty, ther ...
*
Agency in English law Agency in English law is the component of UK commercial law that deals with the application of agency law in the United Kingdom, and forms a core set of rules necessary for the smooth functioning of business. In 1986, the European Communities ena ...
* First EU Company Law Directive 68/151/EEC * '' Hartog v Colin & Shields''
939 Year 939 ( CMXXXIX) was a common year starting on Tuesday (link will display the full calendar) of the Julian calendar. Events By place Europe * Hugh the Great, count of Paris, rebels against King Louis IV ("d'Outremer") and gains su ...
3 All ER 566 * '' Howard v Patent Ivory Manufacturing Co'' (1888) 38 Ch D 156 * '' Morris v Kanssen'' 946AC 459, a presumption of irregularity cannot be relied on by company officers


Notes

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References

* L Sealy and S Worthington, ''Cases and Materials on Company Law'' (9th edn OUP 2010) 95, 119 United Kingdom company case law Court of Appeal (England and Wales) cases 1986 in case law 1986 in British law Steel industry of the United Kingdom