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 Rs1.00 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 the Companies Act .
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 Rs 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.
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