Stakeholder's rights and remedies MCQs Flashcards
You act on behalf of an individual shareholder with a minority shareholding (10% of the company’s shareholding). The client has recently been unwillingly removed as a director of the company and dismissed as an employee of the company. Your client has been a shareholder in the company for 3 years (since the company was incorporated). The other 3 shareholders in the company are also the only directors in the company. The company is a small private company limited by shares (with unamended Model Articles).
Which of the following actions is both available to your client and most likely to be successful based on the information available?
Your client should bring a petition for the just and equitable winding up of the company.
Your client should bring a claim under s 33 Companies Act 2006 for breach of their membership rights. The most likely remedy is damages.
Your client should pursue an unfair prejudice claim. The company is likely to qualify as a quasi-partnership. If successful, it is likely that the court would order the purchase of your client’s shares by the other shareholders or by the company.
Your client should pursue a derivative action on behalf of the company. The remaining directors of the company are likely to have breached their directors’ duties by deciding to dismiss your client as an employee.
Unfortunately there is no action that your client can take in these circumstances.
Your client should pursue an unfair prejudice claim. The company is likely to qualify as a quasi-partnership. If successful, it is likely that the court would order the purchase of your client’s shares by the other shareholders or by the company.
Correct. This will provide your client with a mechanism to recover their investment in the company without the difficulty of having to find an external investor to buy their shares. Based on the information you have been provided this action is most likely to be successful.
You are advising an executive director of a private company limited by shares (with unamended Model Articles) in respect of the upcoming general meeting agenda item of his removal from the board of directors by the shareholders.
Your client is not only a director, but he is also a minority shareholder in the company with 10% of the company’s issued share capital. All of the shareholders in the company previously signed a shareholders’ agreement which included the following clause: ‘The shareholders shall, for as long as they hold shares in the capital of the company, procure that the company shall not without the prior written consent of all shareholders remove any director.’
In light of the above, which of the following statements represents the advice you would give?
Your client can be removed as director of the company by the shareholders passing an ordinary resolution. However, if removed, your client could bring a claim for breach of contract against the company.
Your client can not be removed as a director. The shareholders’ agreement requires unanimous consent for the removal of a director and your client will not vote in favour of his own removal.
Your client can be removed as a director of the company by the shareholders passing an ordinary resolution. As your client has an interest in his own removal, he will not be able to vote against his removal in the general meeting. If removed, your client could bring a claim for breach of contract against the other shareholders who voted in favour of his removal.
Your client can be removed as a director of the company by the shareholders passing an ordinary resolution. However, if removed, your client could bring a claim for breach of contract against the other shareholders who voted in favour of his removal.
Your client can not be removed as a director of the company as he is an employee of the company in his role as an executive director. As an employee of the company his position as a director is entrenched. If he was removed as a director, this would automatically also end his employment and breach his employment contract.
Your client can be removed as a director of the company by the shareholders passing an ordinary resolution. However, if removed, your client could bring a claim for breach of contract against the other shareholders who voted in favour of his removal.
Correct. The shareholder’s vote would still be effective under s 168(1) CA 2006, but your client would be able to bring an action for breach of contract (i.e. the shareholders’ agreement). Remember that this agreement was a private agreement amongst the shareholders and does not bind the company.
The shareholders of a company are dissatisfied with the performance of one of the directors of the company and wish for the director to be removed. The board of directors as a whole is loyal to the underperforming director and is unlikely to take any action to remove them. The company has unamended Model Articles.
What notices and/or requests should the shareholders immediately send to the board in order to ensure that the director is removed as quickly as possible?
A request for the directors to circulate a written resolution to the board.
A request requiring the directors to call a general meeting.
A special notice of the proposed resolution for removal and a request requiring the directors to call a general meeting.
A special notice of the proposed resolution for removal.
A special notice of the proposed resolution for removal and a request for the directors to circulate a written resolution.
A special notice of the proposed resolution for removal and a request requiring the directors to call a general meeting.
Correct. Shareholders can remove a director by passing an Ordinary Resolution under s 168(1) CA 2006. Section 168(2) requires the shareholders to serve special notice of the proposed resolution. The directors are not obliged to place the proposed resolution on the agenda at a meeting of the shareholders (Pedley v Inland Waterways Association Ltd) and on the facts they are unlikely to. The shareholders can call a general meeting themselves in accordance with s 303 CA 2006. In order for unhappy shareholders to ensure the resolution to remove a director is heard as soon as possible, they will submit a s 303 CA 2006 request requiring the directors to call a general meeting at the same time as sending their s 312 CA 2006 special notice to the board. The written resolution procedure cannot be used to remove a director (s 288(2)(a) CA 2006).
A is a company director. Shareholders holding 7% (the ‘Shareholders’) of the share capital of the company have served notice on the company board of directors (the ‘Board’) of intention to remove A as a director. The next general meeting is due to be held in exactly one calendar months’ time. The company has articles in the form of unamended model articles.
Which of the statements below provides the best advice to the Board concerning the resolution to remove A as a director (the ‘Resolution’)?
The Board can refuse to put the Resolution on the agenda of the next general meeting.
The Shareholders do not represent sufficient of the voting rights of the company to have the right to call a general meeting to move the Resolution.
The Board should put the Resolution on the agenda for the upcoming general meeting, since if the Board does not do so, then the Shareholders can call a general meeting to move the Resolution.
The Shareholders have not given sufficient notice to move the Resolution for the upcoming general meeting, therefore the Board do not need to put the Resolution on the agenda for this general meeting.
The Board has 28 days in which to decide whether to put the Resolution on the agenda of the next general meeting.
The Board should put the Resolution on the agenda for the upcoming general meeting, since if the Board does not do so, then the Shareholders can call a general meeting to move the Resolution.
Correct. The special notice period can be observed. Although technically the Board may refuse to place the Resolution on the agenda of the next general meeting (Pedley v Inland Waterways), it would be unwise to do so as the Shareholders meet the 5% voting threshold to call the general meeting if the Board fails to do so within 21 days of notice of intention to remove a director.
You are acting on behalf of a private company limited by shares (currently with unamended Model Articles). The 4 individual shareholders of the company are also the only 4 directors of the company. The board of directors wish to consider ways to prevent any director being removed against their will. The board has consequently asked for ways to prevent the removal of directors taking place without the prior written consent of all of them.
In light of the above, where, if anywhere, is the most appropriate place for a provision dealing with this issue to be set out?
A shareholders’ agreement.
A shareholders’ agreement or the company’s articles of association.
Nowhere is appropriate for this provision as the provision is contrary to the CA 2006 and so is legally unenforceable.
The company’s articles of association.
The contract of employment of each director.
A shareholders’ agreement.
Correct. Remember that any provision in the articles which requires the company to restrict its statutory powers in any way will be void. Shareholders on the other hand may deal with how they should exercise their voting rights however they so agree. Any such provision should be set out in a shareholders’ agreement and not the articles so that such a provision is a personal obligation between the shareholders only and not a restriction on the company.
Three individuals incorporated a business five years ago as a private limited company with unamended Model Articles. The individuals were all directors and equal shareholders in the company. Following a dispute, one of the individuals was removed as a director against their will and dismissed as an employee of the company.
The individual would like to bring a claim against the company to seek redress. What would be the best claim for this individual to bring and why?
Select one alternative:
The individual should pursue a derivative action on behalf of the company because the other directors are likely to have breached their duties in dismissing the individual as an employee.
The individual should bring a claim for breach of their membership rights.
The individual should pursue a claim for unfair prejudice because the company is likely to qualify as a quasi-partnership.
The individual should bring a petition for the just and equitable winding up of the company.
The individual should pursue a claim for unfair prejudice because the company is being mismanaged.
The individual should pursue a claim for unfair prejudice because the company is likely to qualify as a quasi-partnership.
This is a BLP question. This is a question about minority shareholder remedies. The individual should pursue a claim for unfair prejudice because the company is likely to qualify as a quasi-partnership. None of the other options are appropriate.
A private limited company (Company A), which is a wholly owned subsidiary of a private limited holding company (Company B), is planning to give a loan of £35,000 to one of the directors of Company B.
What shareholder approvals are required for this transaction?
Select one alternative:
Company B will need to seek shareholder approval by ordinary resolution.
Company A will need to seek shareholder approval by ordinary resolution.
Neither company will need to seek shareholder approval.
Both companies A and B will need to seek shareholder approval by ordinary resolution.
Both companies A and B will need to seek shareholder approval by special resolution.
Company B will need to seek shareholder approval by ordinary resolution.
This is a BLP question. This is a loan to a director of the holding company. Under s 197 CA 2006, shareholder approval by ordinary resolution would therefore normally be required from both the company and the holding company. However, the wholly-owned subsidiary exception applies to Company A, therefore shareholder approval is only required from Company B in this scenario.
A private limited company was incorporated in 2016 with unamended Model Articles. The company currently has only ordinary shares of £1 each in issue. The company wishes to issue preference shares to a new shareholder which carry a right to participate in the ordinary dividends declared by the company in addition to its preferential dividend right.
What shareholder resolutions will be required to issue the preference shares?
Select one alternative:
An ordinary resolution to give directors authority to allot the shares, an ordinary resolution to disapply pre-emption rights, a special resolution to amend the articles.
An ordinary resolution to give directors authority to allot the shares, a special resolution to disapply pre-emption rights and a special resolution to amend the articles.
A special resolution to disapply pre-emption rights, a special resolution to amend the articles.
An ordinary resolution to disapply pre-emption rights, a special resolution to amend the articles.
An ordinary resolution to give directors authority to allot the shares, a special resolution to disapply pre-emption rights, an ordinary resolution to amend the articles.
An ordinary resolution to give directors authority to allot the shares, a special resolution to disapply pre-emption rights and a special resolution to amend the articles.
This is a BLP question. This question concerns the resolutions required for the issue of participating preference shares. These shares fall within the definition of equity securities under s 560 CA 2006 therefore a special resolution to disapply pre-emption rights will be required. Since the shares are of a new class, an ordinary resolution to give directors authority to allot the shares and a special resolution to amend the articles will also be required.
Evans Ltd is acquiring the entire issued share capital in PMR Ltd – target company. Evans Ltd is a wholly owned subsidiary of Evans Clothing Plc. PMR Ltd has a wholly owned subsidiary, PMMR Plc – target’s subsidiary.
Evans Ltd is taking out a bank loan to finance the acquisition. The bank will require security in respect of the loan over the assets of Evans Ltd, Evans Clothing Plc, PMR Ltd and PMMR Plc.
Which of the following statements is correct in respect of prohibited financial assistance?
A. All of the security options fall within the prohibited financial assistance regime
B. Only the security from Evans Clothing Plc and PMMR Plc is caught by the prohibited financial assistance regime
C. Only the security from PMR Ltd and PMMR Plc are caught by the prohibited financial assistance regime
D. Only the security from PMMR Plc is caught by the prohibited financial assistance regime
E. Only the security from PMR Ltd is caught by the prohibited financial assistance regime
