CORPORATION ACT

Corporation Act

Corporation Act

Question 1:

The case is about Satin Co. Limited who's 89.5% have been held by Cotton Limited. The rest of the shares were held by Silk and some other investors. Based on the financial gains, the board of Satin has decided to become a wholly owned subsidiary of Cotton Limited but Silk has refused to sell her shares. Therefore, a meeting has been called for introducing a new clause 53 “any member entitled to 80% or more of the issued shares may compulsorily acquire all the remaining shares”. However, still Silk does not want to sell the shares and want to take legal actions against the company.

Advice:

Yes, in this case Silk can take legal actions against the company. The Companies Act 2006 allows Silk to take legal actions against her company. As per the Section 994 of the Companies Act, any shareholder of the company can take legal actions against the company in case of any action which is not beneficial for the member . The Section 994 of the Companies Act allows each and every member of the company to apply to the court for an order against the company's affairs which are not in the interest of its members i.e. shareholders and providing harm to its members. The main purpose of this section is to provide the protection to minority shareholders of the company. In history, the minority shareholders were not allowed to take any action against the acts of company. The minority shareholders did not have any right to participate in the company's affairs. However, this section of Companies Act 2006 has provided the right to minority shareholders that they can take part in company's affairs and can take legal actions against any unfair practice which will bring negative influence on the shareholders. In this case, Cotton Limited is going to acquire Satin Co. Limited by buying all the shares from minority shareholders. Therefore, as per the Section 53 of Companies Act 2006 it is the legal right of Silk that she can go to the court and take necessary actions against the company. She can file a claim that Cotton Limited's act of buying all the shares can bring negative influence on her.

Would your answer be different if the real reason for compulsorily acquiring the shares from Silk was that she discovered operating a business in competition with Satin Co and was using information gained as a member to take away some of Satin's business?

In this case my answer would be totally different. As per the company's law, no employees, director and officers of the company are allowed to misuse the information of the company. Directors, officers and employees have information about a company, if made known public, would cause investors to value the shares at more or less than market value. If directors knew something that would up the value of the shares, they would buy the shares before the knowledge became public and sell when the value of the shares ...