JUDGMENT

Nallini Pathmanathan FCJ:

Introduction

[1] The issuance of new shares by a company for the purposes of raising capital for business acquisitions, growth, and expansion is often a prescription for litigation. The balance between the pursuit of lawful entrepreneurial goals by management, by raising capital through the issuance of new shares, as against the pre-emptive rights of shareholders, is a legitimate concern in company law. The shareholders' fear of share dilution and voting power is to be weighed against the need to restructure and pursue growth in the interests of the company as a whole.

[2] This concern could, arguably, be met by statutorily providing that existing shareholders always enjoy a mandatory pre-emptive right to buy newly issued shares. But this can be detrimental to the company itself in terms of its ability to raise fresh financing without delay, as it would be necessary to offer the shares to existing shareholders first. This is time consuming and favourable market conditions might be lost. The management or Directors, therefore, need a degree of flexibility in order to effect growth for a company.

[3] In order to achieve an equilibrium between these legi