The Conduct of Lacey and Mary Beth - Essay Example

Company Law COMPANY LAW Titus Rock Manickam Order No. 285868 02 April 2009 COMPANY LAW Introduction Technically, Lacey and Mary Beth enjoy major shareholding in 14th Precincts. Hence, it is within their scope to remove Cagney from the board of directors. What remains to be seen is how they cope with Cagney as shareholder? Lacey and Mary Beth have made it clear the Cagney is not welcome in 14th Precincts. The lock has been changed in 14th Precincts offices and Cagney is refused entry inside 14th Precincts offices. It is difficult to point out whether Cagney has to proceed against 14th Precinct or Lacey and Mary Beth. Cagney’s removal as director is a company resolution. Hence, if she wishes to continue as director at 14th Precinct then it will be necessary for her to challenge the resolution. In this case, there is little she can do because Lacey and Mary Beth have major shareholding in 14th Precincts. The next step is to see if she is getting her share of the company’s profits that will be paid out as director’s salaries and bonuses. She cannot wait to see if she is or she is not going to get her share. She must draw up a claim and send it to 14th Precincts. The claim can contain demand for financial compensation. The conduct of Lacey and Mary Beth is unfairly prejudicial to Cagney. Cagney can approach the court and show that the value of her shareholding has been seriously diminished by the course of conduct on the part of Lacey and Mary Beth. No attempt was made by either Lacey or Mary Beth to talk to her. No offer was made to her to purchase her shares at a fair value. Cagney will be able to bring herself within the provisions of the Companies Act 1985 if she can show that the value of her shareholding has been seriously diminished or at least seriously jeopardized by a course of conduct on the part of those in control of the company (Company Law Essay Help: Minority Protection and Action by Shareholders). Preliminary Case To begin, it is necessary to find if the action of Lacey and Mary Beth have hurt the company. There is no mention about the problem that is behind the whole unfortunate episode. All that is mentioned is that Mary Beth belittled a suggestion made by Cagney and all hell broke loose. But what was the actual suggestion? Was it a business strategy? Did it have anything to do with the way Mary Beth was working? At any rate, whatever Cagney said, it had the potential to result in an argument that ended in Cagney’s removal from the board of directors. This leads to another issue. Has the removal of Cagney from 14th Precincts’ board of directors hurt the company? There has been undue hurry in the manner Cagney has been removed. If Cagney’s removal from the board of directors can hurt the company, then this issue must be sorted out through a court. The issues are complex. Lacey and Mary Beth are in no mood to talk. Hence, the only option is the court. In this case, the rule in Foss v. Harbottle will apply. The rule in Foss v. Harbottle is a complex common law rule which governs the circumstances when a shareholder may bring an action in respect of matters concerning the company. The rule is a preliminary matter which has to be argued before the main action can proceed. The rule is complex and the judgments are not consistent. There are two parts to the rule. Firstly, if a wrong is done to the company, the company is the ‘proper plaintiff’, so only the company may sue and an individual shareholder may not sue. The question arises. How can a company sue? In this situation, even a minority shareholder can represent the company. Secondly, if the company wrongs a shareholder, the shareholder may not sue if the act complained of could be done by an ordinary resolution in general meeting. Hence, if Cagney could have her problem solved through an ordinary resolution, she may not have to go to the court. However, so far as Lacey and Mary Beth are concerned, Cagney is not a director any more in 14th Precincts. Hence, they may not welcome her presence at the company’s annual general meeting or extraordinary general meeting. However, Cagney can appear in these meetings as a shareholder. Now there are exceptions to the rule. If the justice of the case demands it, the court may allow the shareholder’s action to proceed. The exceptions are: where the act complained of is ultra vires or illegal; where a shareholder’s personal rights are infringed; where the act complained of requires more than an ordinary resolution; and where there is fraud on the minority (A summary of the law on minority shareholder protection). Cagney’s can argue that her personal rights are infringed. Other than her personal rights, no other exceptions are relevant to this case. Lacey and Mary Beth have not committed any fraud. At least, there is no mention that they have indulged in any fraud. In case the court decides that Lacey and Mary Beth were involved in oppressive act by having Cagney removed from the board of directors, the court can deliver the sentence that 14th Precincts be wound up. Or else, the court can pass orders that the company can do certain things and refrain from doing certain things. The court has wide powers and it can exercise these powers to deliver fair justice. Conclusion Prima facie, it does appear that Cagney has been treated rather badly. If the issue was not serious, they could have kissed and made up. It is possible that there are more issues than meets the eye. The issues may comprise serious problems and not-so-serious problems. Nonetheless, it is important to maintain good communication that disallows any problem from assuming monstrous proportion and slugfest that ultimately happens without warning in the absence of proper communication. Sources: A summary of the law on minority shareholder protection, Company Law Club, http://www.companylawclub.co.uk/topics/faq170.htm Alexander Marshall Wishart for and Order under s.266 of the Companies Act 2006 Granting Leave to raise a Derivative Proceeding, http://www.scotcourts.gov.uk/opinions/2009CSOH20.html Company Law Cases, http://www.lawteacher.net/cases/comp4.htm/file-67.php Company Law Essay Help: Minority Protection and Action by Shareholders, http://www.law-essays-uk.com/company-law-minority-study-area.php Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, [1972] 2 All ER 492, HL, http://www.law-essays-uk.com/company-law-cases-8.php Unfair Prejudice Petitions – The Tyranny of the Majority? http://www.selbornechambers.co.uk/publications/articles/030410.doc Read More