Company law

“Section 39 of the Companies Act 2006 simply brings to an end the troublesome history of the ultra vires doctrine. Section 40 on the other hand, is still alive with issues of interpretation and the difficult task of balancing competing interests.”

Discuss the accuracy of this statement.

Question 3

April, May and June are all former graduates of London Cosmopolitan University. In 2010, the trio decided to form an IT company called “Mercury Ltd” after completing their course. They are all involved in the management of the company. The share distribution of the company are as follows: April 65%, May 25% and June 10%. The company only pays directors’ remuneration and does not declare dividends.

June is upset about a number of issues that have happened in the company recently. In July 2017, the company proposed to sell part of its business for £300,000.00. June suggested that the business should be independently valued to determine its true worth, but April and May argued that this was not necessary as it’s only been a year since the business was last valued and another valuation would cost the company extra money. At the board meeting approving the sale, April and May voted in favour of the proposal while June voted against it. It later transpired that the real value of the business at the time of the sale was £500,000, an increase of £200,000 since it was last valued.

June feels that her views are frequently ignored at board meetings. She is unhappy with the style of management practiced by April and May and believes that it is a breach of the company’s constitution. She further argues that the company has not been maximising its profit-making potentials recently because of bad business decisions made by April and May.

She is also aggrieved that her voting power was diluted recently by the issue of new shares.

As a result of the above, June lost interest in the management of the company and stopped attending board meetings and also started ignoring company memos. Consequently, April and May decide to remove her from the management of the company. Following her removal April and June decided to increase their remuneration on the grounds of extra work.

(a) Advise June as to what remedies, if any, she may be entitled to as a minority shareholder in respect of each of the above incidents. (80 marks)

(b) What difference, if any, would it make to your answer in respect of the sale of the business if it had been sold to April and April had sold it a few months later for £550000? (20 marks)

You must support your answer with relevant legal authorities using the IRAC system for the problem questions. Please note that the IRAC system does not apply to essay questions.

NB:
The following sources from Books and journals must be included.
1. Mayson, French and Ryaan, Company law, 35th ed, 2018, Oxford
2 Digman, and Lowry, Company law, 10th ed, 2018, OUP
3. MClaughlin, Unlocking Company law,
4. etc, Journals

NB: OSCOLA reference