Rolled Steel Products Ltd gave security to guarantee the debts of

a company called SSS Ltd to British Steel. 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 Steels 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 held British Steels knowledge of the
irregularity rendered the guarantee ultra vires, void and incapable
of validation with the members consent.[1] British Steel appealed.
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 in the companys internal
management. Since British Steel constructively knew about the
lack of authority, they could acquire no rights under the guarantee.