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problem 1: Safe and Sound Ltd is a public company whose business is the manufacture and sale of home security systems. 

Only 100,000 shares have been issued: Kate Smith and her sister Sarah each hold 30,000 "A" class shares; their mother owns 10,000 "A" class shares; their brother, Jim, owns 5,000 "A" class shares; and their other brother, Rob owns 25,000 "B" class shares.  Jim, Kate and Sarah are the company's directors.

The company adopted the replaceable rules of the Corporations Act in its constitution, which also contains the following provision:

"The "B" class shares carry with them the right to be paid a 12% dividend before any payment of dividend is made to "A" class shareholders, in any financial year".

The company has traded successfully for a number of years.  Indeed, in January 1998 its "A" class shares were independently valued as being worth $100 each, and its "B" class shares as being worth $150 each.  Recently, however, Rob has become concerned with the way in which his sisters are managing the company.  He fears they are not paying sufficient attention to their duties, and that the company is sliding into debt.  Rob accuses his sisters of "bumbling incompetence" at a family gathering one Sunday afternoon, and a blazing row ensues. The sisters storm out muttering "once a trouble-maker, always a trouble-maker!"

Over the page are four problems on which Rob seeks your advice. ANSWER ALL of four problems (PARTS A-C) giving full reasons for your answers and referring to relevant cases and statutory provisions where appropriate.

Part A: Rob demands from the directors copies of the company's financial records for the current financial year. His request is refused.

What rights does Rob have to the information requested, and how can he enforce those rights?

Part B: Rob has now received notice of an extraordinary general meeting to be convened in one month's time. The notice informs him that certain motions will be proposed at the meeting. They are:

a) That a dividend of 20% be declared and paid to holders of the "A" class shares and no dividend be paid to "B" class shareholders.

b) That a new provision be inserted into the company's constitution to the effect that "B" class shares are to carry no right to vote at company meetings.

c) That a gift of $10,000 to Calum and Alexander (Kate and Sarah's husbands) be approved.

Rob wishes to contest all three motions in any way that he can. Consider each motion individually, and advise Rob of the legality of each motion and his rights to challenge each, if passed.

Part C: Rob later receives a notice from the company advising that the extraordinary general meeting referred to in Part B has been cancelled. However, shortly after, he also receives notice of another extraordinary general meeting to be convened in 14 days time.  At that meeting, the following resolution will be proposed:

"That all 'B' class shares be cancelled, and that the holders of those shares be paid $1.00 per share as compensation"

Rob seeks your advice as to whether he can challenge the resolution if it is passed.

Business Law & Ethics, Finance

  • Category:- Business Law & Ethics
  • Reference No.:- M91445

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