law presentation (q 1,2,3,4,5)

8/10/2019 Law Presentation (Q 1,2,3,4,5)

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CHAPTER 6REMEDIES


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The two organs in a company :

Members at general meeting

The board of directors

Companies Act 1965 required certain businessescan be conducted by the members at general meeting.

However, calling of general meeting are usually

left to the board of directors, and if the directors are also

holding the majority shares in the company, thedirectors will be in control.


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Section 131B reinforces the role of the directors byproviding that the board of director is to manage

the companys business and affairs subject to theAct and the companys MA and AA.

This makes a director is primarily responsible forthe management of the company.

What happens if directors conduct are not alignedwith the wishes of the members?

>>Members may remove the director

>> Members may take steps to alter MA and AA tocurb the power of the directors.

**but they only can do this if they are in control.


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Most of the time, minority shareholders are not incontrol, if the wrongdoers is in control, the

likelihood of the wrongdoer being sued is very small. Reasons:

>> Their limited votes do not allow them to effect of

the aforementioned changes.>> Doctrine of separate legal entity and doctrine ofprivity allow only the company institute legal action.

>> Proper plaintiff rule: which means where a wrong

is done to the company, the company is the properplaintiff in any legal proceedings, not individualshareholders.


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However, the majority is unlikely to bring an action on

an irregularity if the irregularity works to theiradvantage.

The rule in Foss v Harbottle is abused, wrongdoer maycause the company and members to suffer losses.

It is disadvantageous and oppressing the minorityshareholders rights.

Therefore, minority shareholders need remedies so that

can take actions against the wrongdoer in certainsituations.


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Question 2

Identify the differing remedies

available to minority

shareholders under the

common law


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a)Personal Action(action taken personal capacity)

-If the majority shareholders, violate a personal right of a

minority shareholder, then he can file a personal actionagainst the wrongdoers to rectify such a violation

-allowed to take action if he is deprived of his rights as a

member

(i.e. violation of the articles of association of theCompany or of the terms of any shareholder agreement

etc.).


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b)Representive action (Taken on behalf of himself and

other members)

-Personal right to take action against the company and

majority.

-Represent himself and other affected members,for therights of members generally affected.

-Representative action will avoid multiplicity of actions


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c)

Derivative Action(company named as defendant/guilty

members pay damages to company and no further

action taken for wrongdoers)

-Wrongdoers can be shareholders and directors of the

Company, as well as third parties.

-The wrong was committed against the company bythose control,the chance of the company taking action

against the wrongdoers is slim.

-The court allows minority member to commence actionagainst wrongdoers.

-As the company victim it alllows it has to be made

party to the action


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Question 3

Differentiate between the

derivative suit from representativeaction and personal action.


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The action is taken by the member in his personalcapacity to enforce his personal rights against thecompany.

When a person is deprived of his rights as a memberor if is property is expropriated, the member is theproper plaintiff and may commence proceedings inhis or her own name.

Case: Brown v British Abrasive Wheel Co

Personal action

D i i A i


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Derivative ActionThe plaintiff shareholders do not sue on a cause of actionbelonging to themselves as individuals. Instead, they sue

in a representative capacity on a cause ofaction that belongs to the corporation.

The real party in interest is the corporation, and theshareholders are suing on its behalf.

As the company is the proper plaintiff, any benefitstemming from successful proceedings will be enjoyed bythe company

It is allowed only if the wrongdoers are in control of thecompany and thus have prevented the company fromtaking action

Examples: the directors have abused their powers or

expropriated the companys assets.


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Representative action

The action is taken by a member on behalf ofhimself as well as other members. He representshimself and other affected members, for the rightsof members generally are affected.

a member may sue on behalf of himself and othermembers who have the same personal right. Thus,the representative action will avoid multiplicity of

actions in respect of the same matter.


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Section 181 provides a remedy for a member in the

event the affairs of the company are conducted in amanner which is:

a) Oppressive

b) Discriminatory

c) Prejudiciald) Contrary to his interest as a member


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S218(1)(f)

- Where directors act in their own interest or mannerthat appears to be unfair or unjust, court can wind upthe company.

S218(1)(i)

- Court can wind up the company where it is just andequitable to do so.


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S181(2)

- Provides that the court may with a view to bringing anend or remedying the complaint, make such orders asthe court deems fit.


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- Some of the orders which may be made by the courtare:

a)Direct or prohibit the wrongful act

b)Cancel or vary the transaction or resolution

c)Regulate the conduct of the companys affairs

d)Order other shareholders or debenture holders or the

company itself to purchase the interests of the affectedminority

e)Wind up the company


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S181A(4)

- Provides that the following persons may apply to thecourt to commence, intervene or defend an action onbehalf of the company. They are known ascomplainant.


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Complainants are:

a)Member of the company or a person who is entitled to

be registered as a memberb)Former member provided the application relates to

circumstances in which the member ceased to be amember

c)Director of the companyd)Registrar of companies


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Question 5

Which party has the right to commence

legal action on behalf of the company?


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1) A complainant may, with the leave of the Court, bring, intervene in or

defend an action on behalf of the company.

2) Proceedings shall be brought in the companys name.

3) The right of any person to bring, intervene in, defend or discontinue any

proceedings on behalf of a company at common low is not abrogated.


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Section 181A(4)provides that the following persons may apply to the

court to commence, intervene or defend an action on behalf of the

company, they are known as complainants:

A member of a company, or a person who is entitled to be the registered as member of

a company;

A former member of a company if the application relates to circumstances in which the

member ceased to be a member;

Any director of a company;

The Registrar of Companies, in a case where the company is subject to investigation

under part IX of the Companies Act 1965.

Besides Section 181B(2) provides that the complainant shall give 30


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Besides, Section 181B(2)provides that the complainant shall give 30

days notice in writing to the directors of his intention to apply for a

leave of Court to take proceedings on behalf of the company.

After the lapse of 30 days and no satisfactory response from the

directors, the complainant may apply to the court for leave.

To ensure that the complainant is serious in filling and conducting the

derivative action, Section 181C reads that any derivative actions once

commenced shall not be discontinued, compromised or settled except

with the leave of Court.

law presentation (q 1,2,3,4,5)

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