Law Report: Director Duties, Shareholder Rights, and Company Law

This legal report addresses concerns regarding potential breaches of director duties by Drew Finlayson and James Poole at Cumbrian Kibble Limited. The analysis examines whether Mr. Finlayson breached his duty to avoid conflicts of interest by favoring a supplier, Pet Nutrition Limited (PNL), potentially in exchange for personal benefits. It also assesses whether Mr. Poole breached his duty of care and diligence. The report delves into the requirements for board authorization, the impact of share transfers on voting rights, and the necessary steps for shareholders to take action. The report concludes with a discussion on the legal implications of the directors' actions and provides recommendations on how to proceed, emphasizing the importance of clear disclosure, board approval, and adherence to the company's articles of association. The analysis considers relevant sections of the Companies Act 2006, shareholder voting rights, and the potential impact of share transfers on voting power. The report also highlights the significance of the board's reliance on director information and the potential consequences of any oversight or negligence.

Running head: LAW 1
Law
Name
Institution

LAW 2
Your Name
Your Address
Chloe Morris
Her Address
Date
Dear Ms. Morris
According to the case as explained to us the following is our assessment.
Mr. Finlayson
Mr. Finlayson does prima facie appear to have breached the duty to avoid conflict of interest
and the failed to disclose the same (Companies Act, 2006, s. 175 and 177). The facts suggest that
Mr. Finlayson was purposely giving contracts to PNL Limited in exchange for the benefits he
personally received without regard to whether the company was receiving the best deal.
Notwithstanding the same, if Mr. Finlayson can prove that his insistence on dealing with FNL
and ignoring “better deals” was to promote the long term success of the company, then he would
be well within his duties to do so. Furthermore, though there exists a duty not to receive any
benefits from a third party, the section specifically states, that should the benefit be received
from a person who does business with the company then this would not be in breach (Companies
Act, 2006, s. 17 ss. 3)
Mr. Finlayson would only be in breach of his duties if he acted in a manner that saw him
benefit in expense of the wellbeing of the company.

LAW 3
Mr. Poole
With regard to Mr. Poole, it is seems clear that he breach his to act reasonable care and
diligence (Companies Act, 2006, s. 176). In assessing the right action to take, it is important to
ascertain whether this oversight was done on purpose, negligently/recklessly or innocently.
Board Authorization on Breach of Duty
The law requires that a director disclose any conflict to the board and it is only via
shareholder resolution as per the articles of association, that a director can get authorization. Any
action done within this authorization would then not be a breach. However, if the director does
not fully disclose the extent of the conflict, then the company can still claim. With regard to Mr.
Poole, it is vital to note that the board is almost completely reliant on the information and advice
given by him; should the board then act on the information only for the company to suffer, then
the company does have the right to claim.
Board Authorization on Transfer of Shares
It is necessary to get the boards authorization. Whereas, from October 2009, there is no
requirement for shareholder authorization, this applies to companies incorporated after this date.
Since this company was incorporated in 1991, it would require a resolution by the shareholder to
adopt this new policy.
Voting Rights
Every shareholder is entitled to vote. The company's articles reveal that there are only exists
one class of shares; ordinary share. This then means that every shareholder enjoys the same
rights. With regard to whether the transfer of shares would affect voting rights, the general rule
under the model articles is that each ordinary share carries with it one vote. Should Ms. Reynolds

LAW 4
acquire Mr. Finlayson's shares, then her votes would increase by a commensurate rate. This
would ipso facto result in the diminishing strength of the other shareholders’ votes. Should the
company buy the shares, this would increase the strength of each member’s vote by the ratio of
shares held by each member.
Please get back to us should you opt to pursue this matter further.
Sincerely
Your name