Corporate Law



Corporate Law

Question 1

Issues

Initially, the Board and top management at Satin Co. Limited decided that it in favour of the company to become a wholly owned subsidiary of its management company, Cotton Limited, in order to, save on accounting fees, the taxation benefits and administration charges of about $230,000. However, this has led to the management at Cotton Limited to forcefully and compulsively acquire the shares and interests of shareholders and minority owners at Satin Co. Limited. The shareholders have refused to offer their shares for sale to Cotton Co. Limited. This situation has led to a situation where Cotton Co. Limited has responded by amending the article and constitution of Satin Co. Limited.

This amendment has led to a scenario which allows a member holding more than 80% of the ownership stake at Satin Co. Limited to compulsively acquire the remaining shares. Moreover, shareholders and minority members at Satin Co. Limited have received written notice for a meeting, along with a valuation certificate and proxy form, which states that the market value of the Satin's Co. Limited shares are approximately worth $2.50 each. It should be noted that despite being the acquiring offer fair in nature, the management and shareholders at Satin Co. Limited are unwilling to sell their shares at the given offer price. Considering this dilemma, management at Satin Co. Limited is considering to pursue a legal action against the forceful acquisition of Satin Co. Limited and the amendment in the constitution of Satin Co. Limited.

Rules

In this case the detail study and interpretation of Companies' Act 1985 and Companies' Act 2006 under section 428-430F is required which can be very much helpful and supportive to resolve this issue. An exclusion of minority shareholders or squeeze-out is the constraint associated with exclusion of minority shareholders from a (not necessarily listed) corporation. Squeeze out mechanism is the compulsory redemption of shares of small shareholders by majority shareholders with a view to gain complete control over a public company and reduce shareholder servicing costs.

Strict limitations on statutory squeeze out prohibits an exclusive license of the majority shareholder, and results into a compromise between the security interests of the company, its creditors and the majority shareholder and property rights of small shareholders. Squeeze out is present in the legislation of almost all countries of the world. An annulment is not the inadequacy of the compensation and is supported by respective legislation. In that regard, the minority shareholders can refer to are the legal challenges. A challenge of the shareholder resolution is possible under this restriction, moreover, under the general rules.

A fairly independent legal challenge does not necessarily preclude the registration, especially not if a so-called safety declared. This is obtainable through injunctive relief after a balancing of interests and is designed to prevent disadvantages through abusive legal challenges. If the squeeze-out resolution is later declared null and void in the dispute process, the minority shareholders can claim for damages against the company.

It is important to note that the existence ...