1. Premium Glass Ltd (PGL) has entered into an agreement with Banks Fine Glass Ltd (BFGL) to share technologies and competencies with one another with regard to the manufacture of fine glassware. Along with this agreement is an accord that gives PGL the right to nominate a candidate to sit as director on BFGL’s board. To solidify this accord, this provision was included in BFGL‘s articles of association. PGL used this right to nominate Sheila as a director. During her term as director, Sheila managed to lock horns with other members of the board, earning the ire of most of them. This has resulted in her removal as a director of BFGL.
Due to the tension that erupted as a result of Sheila’s appointment, BFGL has refused to consider any nominations for director by PGL. BFGL’s blatant refusal to consider PGL’s nomination of Shahmeen for director because of the incident with Sheila is in danger of staining the agreement with PGL with breach of duty. (Ferran, 1999)
BFGL’s deliberate refusal to consider PGL’s nominations are obviously done out of vengeance for the incident with the previous appointee, which was PGL’s candidate. In boycotting PGL’s nomination, the people behind the management of BFGL manifest that they have grown to distrust PGL’s judgment. In doing so, the other members of BFGL’s board of directors are in breach of their duty by apparently acting on the interests of their group, regardless of the interests of the company. Also the members of the board of BFGL are proposing the removal of the provision granting PGL’s right to nominate a director from the articles of association.
PGL holds 10% of shares in BFGL. As a shareholder, PGL has the right to protect its interest in the company. As a shareholder, PGL is entitled to voting rights attached to its shares. That the board members are asking for the removal of PGL’s voting rights in spite of the number of shares PGL has is a deliberate act of prejudice. Such in the boycott of PGL’s nominations, the board’s proposal to strip PGL of the right to nominate a candidate for directly is another deliberate act resulting in a breach of duty. With the decisions that the members of the board are making, it is clear that they are operating on the basis of biased opinions.
Given the situation, PGL can try to exert control by two means. The first is in exercising the voting rights associated with the shares of stock PGL owns. However, since BFGL is now trying to overpower PGL by manipulating the board’s decisions to go against PGL’s nominations and trying to strip him of his voting privilege, PGL can go by way of “exiting” via the market. By selling majority of PGL’s shares, PGL publicly manifests discontent over the activities of BFGL’s board. (Ferran, 1999).
To do so is not merely a public display of disgust toward’s the malpractice of the company. A rampant selling of shares of stock will send the price of the company’s stocks to crash. This will cause the company to be the “prey” of a takeover bid, render the board powerless and at the mercy of bidders. In doing so, PGL will be able to “get back” at BFGL, so to speak, using legal remedies. (Ferran, 1999)
In addition, PGL should do as according to The Companies Act 1985, s 459. This act indicates that a shareholder has the right to “petition the court for relief from unfairly prejudicial conduct. “ PGL has every right to go after BFGL in court for breach of duty. (Ferran, 1999).
2 .Another issue with BFGL is the selling of shares by Rebecca, one of the members of the Banks family to Orthodoxia. Orthodoxia is not a company shareholder. Rebecca has entered into negotiations for the sale of her shares. It was found out that this was done without the knowledge of the shareholders of BFGL. Sanjay, a minor stockholder was outraged at the information and has raised the issue with the. It is so apparent that the company is covering for Rebecca and purposely acting in her favor by dismissing Sanjay’s complaints.
As if adding insult to injury, BFGL’s board of directors are proposing the “alteration of the articles of association to permit any member of the company to sell his shares to a non-members without first having to offer them to the existing shareholders provided that the member obtains consent to do so in the form of an ordinary resolution”.
In this case again, the company is guilty of committing prejudicial conduct in favor of the members of the Banks Family. These activities are completely in violation of the company’s articles of association, which state that in the event that a shareholder wishes to sell his or her shares, the shares must first be offered to the company’s existing The members of the board of directors are in breach of fiduciary duty or trust. The law provides that directors have fiduciary obligations towards the company. Their loyalty, first and foremost, must be to the company and not towards a single member of a group of members who have earned their favor.
The directors owe it to the company to always act in good faith for the greater good of the company and the stakeholders. Following another person’s directions without first considering the other plans for the interests of the company. As a legal remedy to this dilemma, Sanjay should file a case in court against Rebecca Banks and the members of the board for acting in breach of their fiduciary duties to the company. (Ferran, 1999)Reference List
Ferran, E. M. (1999). Company Law and Corporate Finance. Oxford: Oxford University Press.