Question: Section A (carries 50% of the marks)– Pre-seen Question
Please note: Students will not be allowed to enter the examination room with any additional notes.
1. Joe, Mike and Tony are the directors of Singing Stars Ltd, a company formed and incorporated in 2010 to carry on a music recording business. Joe, Mike and Tony each own 15% of the company’s shares with the nominal value of £1.00 a share.
The remaining shares are owned by 5 other shareholders who each have an 11% holding. The company has only one class of shares and there is a provision in the company’s articles dis-applying the statutory pre-emption rights contained in section 561 of the Companies Act 2006.
In recent months the other shareholders have grown increasingly dissatisfied with Joe and Mike and their apparent lack of interest in the company. Tony has also become increasingly frustrated with the situation and so is very interested when he is approached by 4 of the other shareholders to ask his opinion about voting Joe and Mike from the board. However Joe and Mike are told of the plot by Luke, the other fifth shareholder, who offers to support them with his 11% of the vote and later to help them secure a number of lucrative contracts, providing there is "something in it for me."
Joe and Mike suggest the following:
(a) That they issue sufficient £1 shares to Luke to raise his stake to 40% to allow them to defeat the resolution for the removal of Joe and Mike from the board.
(b) After this they will pass resolutions to remove Tony from the board and to replace him with Luke.
(c) As an added incentive the shares will be issued to Luke for 60p each to allow for a tidy profit.
(d) Luke has suggested that the company might accept some land which he owns as payment for the shares.
ADVISE Tony on the legality of each of the proposed actions.
Answer: Duties of directors to the company - Section 561 obliges a company to offer new shares first of all to its existing shareholders in the same proportions they already hold shares. In other words, it upholds shareholders’ right to be protected from dilution. If they are willing to pay the price asked for the new shares, they can have them. But this only applies where the shares are offered for cash – if a company is issuing shares in exchange for shares in another company, say, or in payment for a non-cash asset, there is no requirement to offer the shares to existing shareholders first of all. The section can be disapplied, along with section 549, either in the articles or by a shareholder vote, though only by a special resolution. Again, institutional shareholders have their price: ......(short extract)
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Details: - Mark: Not available | Course: Company Law | Year: 1st | Words: 1979 | References: No | Date written: Not available | Date submitted: January 21, 2012 | Coursework ID: 717
