Sam and Kate are the directors and shareholders of Fantastic

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Contents
Question One...............................................................................................................................................2
Issue........................................................................................................................................................2
Law..........................................................................................................................................................2
Application..............................................................................................................................................3
Conclusion...............................................................................................................................................4
Question Two..............................................................................................................................................4
Issue........................................................................................................................................................4
Law..........................................................................................................................................................4
Application..............................................................................................................................................5
Conclusion...............................................................................................................................................6
Question Three............................................................................................................................................6
Issue........................................................................................................................................................6
Law..........................................................................................................................................................7
Application..............................................................................................................................................8
Conclusion...............................................................................................................................................8
Reference List.............................................................................................................................................9

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Question One
Issue
Can Bob take legal action against Sam and Kate for their actions?
Law
A company upon incorporation acquires the status of a mock legal person. Every company is
governed by its officers as it does not have a mind of its own. The directors are the prime officers
who are assigned with the tasks of undertakings acts of the company. The tasks of the directors
includes that their actions must not harm the members of the company.
The statutory derivative action (SDA) is the remedy that is available under which if any
wrongful act is conducted, then, it is the company that has the power to bring action against the
wrongdoer and is held in Foss v Harbottle (1843). (Boyle 2002)
However, the rule is considered to be harsh when no action is undertaken by the company. In
such situation, there are few exceptions under which an individual member is permitted to bring
action against the wrongdoers and is held in Swansson v RA Pratt Properties Pty Ltd (2002).
This action is imbibed under section 236 of the Corporation Act 2001, wherein any
member/former member or any officers is empowered to bring action in the name of the
company by seeking leave of the court under section 236(1)(b). The exceptions include: (Chew
2017)
i. When the ratification is inadequate;
ii. The transaction taken by the company is ultra virus;
iii. The shareholders personal right is violated;
iv. A fraud is incurred on the minority;
v. In the interest of justice;
vi. When there are chances that the company will not initiate action.
vii. The application is bought by the member in good faith.
As per section 241 of the Act, the court has the power to take actions and gave orders it deem fit.
Costs orders can also be imposed under section 242 of the Act.
Apart from the above remedy the aggrieved member also has the right to sue for statutory
oppression remedy. The court under section 233 of the Act can make orders if the oppression is
established by the member. As per section 232 of the Act, an order can be made of the conduct

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of the affairs of the company or the acts/omissions of the company or any resolution passed by
the class of members of the company are either: (Bergman 2014)
i. not in the interest of the members as a whole (Morgan v 45 Flers Avenue Pty Ltd
(1986) or
ii. Oppressive or unfairly discriminatory or prejudicial (Wayde v NSW Rugby League
Ltd (1985).
As per Thomas v H W Thomas Ltd (1984) unfairly restricting the dividends are considered to be
unfair. As per section 234, any member in any capacity or a person to whom the share in the
company has been transmitted is the authorized person to bring an action under section 233 of
the Act. As per Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] exclusion from management is
also oppressive.
Application
As per the facts,
Fantastic Graphics Pty Ltd (Fantastic) is a company and its directors/shareholders are Sam and
Kate. The company faces financial problems and thus requires finance. A directors meeting was
held that 2 shares are issued to Bob for an investment of $100,000 in Fantastic. He was also
appointed as the director. The financial position improved because of the investment but Sam
and Kate decided not to issue any dividend. Rather, they gave pay rise to themselves and also
lease two new Mercedes-Benz cars for their personal use. When Bob questioned the actions of
the Sam and Kate, then,
i. Graphics Pty Ltd was formed by Sam and Kate wherein Bob was not involved and a
valuable government design contract is diverted to the new company instead of
Fantastic.
ii. They also held a directors meeting in order to remove Bob from the position of a
director.
The acts of Kate and Sam are both involve SDA and oppressive act.
By, creating a new company and by deviating Bob from his personal rights of seeking dividends,
both Sam and Kate have violated their actions. Bob is of the opinion that the company will not