Company Law: Director's Duties, Share Transfers Analysis & Cases

This document presents a comprehensive analysis of a company law assignment, addressing key aspects such as director's duties, conflict of interest, and share transfers. The assignment delves into scenarios involving Mrs. Betty Bloggs and her indirect interest in a transaction, exploring the implications of Section 177 of the Corporation Act. It further examines the roles of other directors under Section 180 and the specific obligations of a sole proprietor under Section 186. The document also analyzes a situation where a company's members pass resolutions regarding factory relocation and director removal, referencing relevant sections of the Act. Finally, it investigates the legalities of share transfers under Section 770, considering the rights of shareholders and the powers of companies to reject transfers. The analysis is supported by case law and relevant statutory provisions.

COMPANY LAW

INTRODUCTION
Every corporate is incorporated for a distinct purpose and in different various sizes and
shapes. On the basis of these criteria the key variations in their conduct can be defined (De Lacy,
2013). But one element which remains constant throughout all the companies is that the
corporates stand as a separate legal person from their directors and shareholders, subject to some
exceptions. In pursuance to this law the present study seeks to analyze some situations and
establish the relevant law in context of the given facts.
QUESTION 1
(a)(i)
The director's of Production Ltd. are considering to purchase a new machine for their
factory from one Jack Bloggs. However, it has been identified that one of the directors Mrs.
Betty Bloggs is wife of Jack. Hence, in accordance to the given facts it can be said that Betty has
an indirect interest in the proposed transaction. Further, the company does not have a
constitution.
Section 177 of the Corporation Act imposes a duty on the directors of the company to
avoid circumstances which have the potential to create a direct or indirect interest in a
transaction or any dealing by the company (French, and. et.al, 2014 ). Therefore, it is duty of a
director to ensure promotion of interests of the company at all times and in case of any such
conflict appraise the other directors of the exact interest of the director. Section 177 (2) further
provides that such interested or related directors are required to declare the extent of the interest
at a director's meeting or through a notice under Section 184 or 185 of the Act. The law also
makes a distinction between the public companies and private companies and specifically
provides that a private company without the constitution can authorize a conflict of interest until
and unless there is no invalidation for such authorization. The House of Lords in the case of
Aberdeen Rly Co. v. Blaikie (1854) has opined that the fiduciary duty of a director is to be loyal
to the company and in situation of a conflict of interest a mandatory declaration shall be made
by such a director (Wells, 2015). In addition the director shall not be liable to vote in the
director's meeting on the concerned transaction.
In accordance to the given facts and the relevant law stated herein above the company is
required to develop a constitution to govern the activities of the company. In furtherance to
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which Betty Bloggs being the interested director for the proposed transaction shall be made
liable to either serve a notice to all the directors before the meeting in accordance to Section 184
or 185 of the Act or make a direct declaration at the directors meeting. The situation of conflict
of interest can be said to arise as Betty, one of directors to the company, is wife of the Seller of
the machine with which the proposed transaction is to be undertaken. Hence, in such a situation
Betty has an indirect interest in the said transaction and causes the arisen of the situation of
conflict of interest. In pursuance to the same, section 177 of the Act is attracted to make Betty an
interested director. Further, it is important to highlight that she cannot be counted in the quorum
of the director's meeting and cannot not even vote for the resolution to be passed for approval of
the concerned transaction. In addition, any profits extracted from the transaction shall be that of
the company and the director shall have no relation with it (Kershaw, 2012).
Thus, it can be concluded that the current situation attracts the applicability of Section
177 which mandates the related/interested director, Betty Bloggs to stay out of the quorum of the
director's meeting, even if she is present in the said meeting.
(a)(ii)
Once the interested director fulfils the duties under section 177, the duties of the other
director under Section 180 comes into play. Section 180 requires consent and authorization of
other members of the meeting to validate or invalidate the conflict situation in relation the
proposed transaction (Enriques, 2015). Further it shall also be determined if the declaration so
made by the director is valid under law or not.
In the given scenario the other directors of Production Ltd. shall on receipt of a notice or
a declaration in director's meeting in pursuance to section 177 of the Act are under an obligation
to ensure that the situation of conflict of interest has in fact arisen and the interested director is
required to stay out of quorum and voting to be held in the meeting (Sealy, Len, and Sarah,
2013). The other directors are required to act in accordance to the general duties imposed on
them by the Act. Once, the conflict situation is authorized the director's shall decide on the
proposed transaction on an arms length price and treat it as any other transaction.
(b)
In the given scenario Betty Bloggs is the sole proprietor of the Production Pvt. Ltd. and
has decided to enter into a transaction to purchase new machine from her husband John Bloggs.
In such an event wherein the director is making a purchase of a machine from the husband, then
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the obligations imposed on the director shall be different from those imposed on the directors of
other companies. It is important to highlight that Sole proprietorship firm has no separate identity
from its owner. Hence, transactions entered into by the firm/company shall be considered as
entered into by the proprietor thereby imposing a direct liability on him. Section 186 is also
attracted by the circumstance so created. The provision requires the director of the firm to make
a declaration in this regard in accordance to law, which shall be considered during the next
meeting if it is declared through notice (Dustmann, Christian, and Tommaso, 2014). It has also
been provided by the courts and established by the House of Lords that this section shall not have
any effect on the application of section 231 of the Act.
In pursuance to the above stated law it can be inferred that Betty being the sole proprietor
of Production Pvt. Ltd. is under an obligation as per section 186 to make a declaration either
through a notice or during the meeting. However, this shall have no impact on the functioning of
the transaction and the process of undertaking the contract shall be carried out in accordance to
section 231 of the act. In addition it is important to highlight that the profits realized by the
company shall be that of Betty and there is no separation of profits in such a scenario. Therefore,
it can be concluded that Betty being the sole proprietor shall be under an obligation to make a
declaration but this law shall have no affect on the working of the transaction.
QUESTION 2
Kelvin-Decline Ltd. are operating to manufacture and supply fashion clothes, which they
now intend to move to China, against the resolution passed by the members of the company with
80% votes at the Annual General Meeting. However, it has been observed that the company is
devoid of any constitution and is not even registered under the prevalent laws of the nation.
Hence, the management of the company needs to incorporate under the Corporation Act and
develop a Article of Association and Memorandum of Association for governance of its
activities.
 Members resolution not to sell facility
In the instant case it has been observed that the members of the company pass a
resolution with 80 % of the votes in favour of not moving the factory to China. The resolution
was passed in a duly called AGM by the directors of the company. Section 292 of the
Corporation Act specifically requires the resolution to be written and in effect to be in
consistence with the enactments and also the constitution of the company. In addition it shall not
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be defamatory or vexatious in nature. Section 283 of the Act provides that a resolution passed by
majority of the members i.e. more than 75% of the voting rights, then in such a case a special
resolution is said to be passed by the members under the Companies Act (Baird, 2013).
On analysis of the relevant laws it can be inferred that the resolution passed by the
members cannot be invalidated by the directors of the company and non-adherence of the
resolution shall be considered as against the company laws. Hence, the directors move to ignore
the resolution passed by the majority of the members shall be completely in violation of the laws
and shall further make them liable under the provisions of the Act. Removal of Director
The members of Kelvin-Decline Ltd. pass a resolution to remove the director, against the
move of the director to ignore the resolution passed by the 80% of the members at the AGM. In
accordance to law, Section 168 of the Act provides that a director may be removed by a ordinary
resolution in a duly called upon meeting (Armour and Wolf-Georg, 2013). For conducting a
valid meeting the provision further mandates serving of a special notice. In addition the
resolution passed by the members shall not be defamatory or frivolous as per section 292 of the
Act.
In accordance, to the given facts the resolution passed by the members do not satisfy the
requirements of Section 168 and Section 292 of the Act and hence, shall stand invalid in the eyes
of law. Replacement of Managing Director
In light of the law stated above in terms of section 168 and section 292 it can be
concluded that any resolution passed in connection to removal of the MD shall also be invalid in
the eyes of law.
In accordance to the Company Act, a director may be removed from his position before
the expiration of his tenure only if an ordinary resolution is passed in a meeting called upon by a
special notice to remove a specific director (Dolzer, Rudolf and Christoph, 2012). In addition,
the resolution passed by the members to remove the director was in reaction to the decision of
the directors to ignore the initial resolution passed by 80% majority. This could amount to a
violation of section 292 of the Act.
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QUESTION 3
Rebecca owns fully paid and partly paid shares in Narrow Pvt. Ltd. and Wide Ltd. She
now wishes to transfer the share to Jess for which she has submitted appropriate documents with
management of both the companies. Section 770 of the Act provides for registration of transfer
and specifically provides that in the event the transfer in not delivered in a proper instrument, the
requested transfer shall not be allowed by the company (Enriques, 2015). In addition, it is
mandatory for the instrument to be stamped in accordance to the Stock Transfer Act 1982. the
director's of the company can reject the transfer unless the requested transfer is for only one class
of shares and is in favour of not more than 4 transferees. It has also been established that the
constitution or the Share Agreement can restrict the transfer of shares.
In the given scenario Narrow Ltd. has acted might have acted in accordance with the
Agreement so entered between the two. In the event the agreement does not provide for any
clause restricting the transfer the company can be said to have acted in a wrong manner. In such
an event Rebecca can move the court to claim he r right of transfer of shares which are even fully
paid. In the case of Wide Ltd. It can be inferred that the rejections might be on the premise that
the requested shares were partly paid up. Or the share agreement included any restriction to this
effect.
Hence, it can be concluded that the companies have the power to refuse to record a
transfer under few circumstances and in such situation the shareholder has no recourse.
CONCLUSION
On analyzing the company law with respect top various scenarios it can be concluded that
the applicability varies from case to case. In addition, the companies to be incorporated in the
nation are required to prepare a constitution for the functioning of their processes on the basis of
which they can be incorporated under the provisions of Corporation Act.
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