Company law tutorial question year 3 Semester1. 1. “Under the ordinary rules of law, a present company and a subsidiary company, even a 100 per cent subsidiary company, are distinct legal entities and in the absence of an agency contract between the two companies, one cannot be said to be the agent of the other. This seems to be clearly established by the rule in Salomon v. A. Salomon & Co. Ltd. ” Critically discuss. 2. “The principle laid down in Foss v. Harbottle continues to create a significant obstacle to minority shareholder action. Discuss. 3. Layton Co. Ltd. , private company with Articles in the form of Table A, has in its memorandum, the following clauses: “The objects for which the company is established are: (i) to manufacture, process and distribute computer software and CD Roms; (ii) to purchase and hold property, to borrow or to lend money, and to dispose of funds or property owned by the company; and (iii) to do anything that is in the opinion of the directors necessary to make profits from the use of the assets of the company. ” Geoff and Marcia, two of the directors of Layton Co.
Ltd. , own approximately 20 percent of the shares in Layton Co. Ltd. Stacy, a director, unbeknown to the board of directors, purports to enter into a contract with High State Developers Ltd. , “on behalf of Layton Co. Ltd. ,” for the construction of a health spa for stressed executives. In order to secure machinery, Stacy writes to Health Fanatic Inc. , on Layton Co. Ltd. ‘s stationery, offering Health Fanatic Inc. the contract to provide technical training for any staff employed by the spa. Health Fanatic Inc. accepts the offer. Layton Co. Ltd. , now refuses to build he health spa due to a depression in the market and is consequently not in need of Health Fanatic Inc. ‘s services. Discuss. 4. Tamara and Kathy have been conducting business as artefact restorers for several years. In January, 1999, Tamara and Kathy decided to incorporate their business. In order to facilitate the building of the registered head office of the company, Tamara purchased land from her grandfather for$50,000. Meanwhile, Kathy executed a contract on behalf of Heritage Ltd. , engaging the services of Sherry, a geology expert, to carry out a geological survey.
Sherry submitted a report headed “subject to confirmation” which stated that the land was suitable for building a multistoried complex and that there was evidence of mineral deposits. In June 2004, Heritage Ltd. was incorporated as a public company with Tamara, Kathy and Bill as its directors. Tamara promptly sold the parcel of land to Heritage Ltd. for $2. 2 million and submitted an invoice for $70,000 for services rendered prior to the incorporation of Heritage Ltd. In April 2005, Tamara, unbeknown to the board, enters into an agreement with Jump Up Inc. or the acquisition of a fleet of trucks. It is customary for Heritage Ltd. to lease trucks as acquisition is extremely costly. Advise. The capital of Bush Tea Co. Ltd. consists of fully paid up ordinary and preference shares. The governing regulations of Bush Tea Co Ltd. provide as follows: “17(a) Preference shareholders shall receive a cumulative preference dividend of 5% half yearly; and (b)Two votes shall be attached to each preference share issued. ” Due to an outbreak of the Pink Mealy bug disease, the production of bush tea has dramatically declined.
The board of directors of Bush Tea Co. Ltd. proposes to alter clause 17(a) of the governing regulations to reduce the preference dividend from 5% to 2% and to move a resolution to increase the voting rights of ordinary shareholders. Advise the preference shareholders. 5. In 2001, Mr. Ingenious decided to build condominiums on a parcel of beach front property which he had purchased in 1996 for $40,000. On March 26th, 2001, Mr. Ingenious instructed Mr. Safe Guard, an attorney-at-law, to incorporate a company to be called Beach Haven Ltd. to manage the condominiums. Immediately after leaving Mr.
Safe Guard’s office, Mr. Ingenious entered into an oral agreement on behalf of Beach Haven Ltd. with Fast Seal Cement Ltd. for the supply of building blocks for the construction of the condominiums. The company, Beach Haven Ltd. , was eventually incorporated, in January, 2002. Its board of directors consists of Mr. Ingenious, Mr. Deke, Ms. Peta-Gaye and Ms. Jayanti. At the directors’ meeting of February, 2002, the board of directors resolved to purchase the beach front property from Mr. Ingenious for $1million. Unfortunately, due to a slump in the real estate market Beach Haven Ltd. s profits declined significantly. It has been discovered that, prior to incorporation, Mr. Ingenious contracted with Wire Steel Inc. , signing on behalf of Beach Haven Ltd. , for the supply of 12 tons of high-tension steel at a price well above the market price. Mr. Deke, in March, 2003, hired his girlfriend, as a consultant, for $10,000 per month without board approval. The cement blocks purportedly purchased on Beach Haven Ltd. ‘s behalf are discovered to be of inferior quality. Advise Beach Haven Ltd. 6. Sashawa Enterprises Ltd. (SE Ltd. ) is a public company incorporated in Jambah.
The Articles of Association of SE Ltd. are in the form of Table A. The objects clause of the Memorandum of Association contain the following provisions: (a)To carry on the business of the manufacture of textiles and clothing apparel; (b)To borrow money; (c)To do all such things which in the opinion of the directors may be conveniently carried out by the company. In January, 2001, Michael and Midge, two directors of SE Ltd. , contracted with Caribbean Construction Ltd. to build a coffee shop on premises adjacent to the corporate headquarters of SE Ltd. To finance this project SE Ltd. orrowed $5 million from Careless Bank Ltd. This loan was approved quickly, since Careless Bank Ltd. was a long standing customer of SE Ltd. and Careless Bank Ltd. was satisfied of Caribbean Construction Ltd. ‘s credit worthiness. After the events of September 11th, 2001, the profits of SE Ltd. declined considerably. SE Ltd. is no longer interested in constructing the coffee shop and is refusing to pay both Caribbean Construction Ltd. and Careless Bank Ltd. Nevertheless SE Ltd. is desirous of donating $12 million dollars to the International War Relief Fund. Discuss.