The objective of this report is to evaluate the activities and practices related to company law that may assist in setting a specific standard for a business firm. This report is based on a specific scenario of Jupiter publication Ltd that may analyze:
- Provide an advice to Tim, May, Harry and Belinda that whether they have breached any administrative or fiduciary duties within Jupiter Publications ltd by considering appropriate knowledge of company law.
- Advise Mark, a minority shareholder, of appropriate actions that may take against the directors.
Company law should be followed by all businesses in order to work under rules and regulations formulated by government that helps to maintain business operational activities. There are different types of roles and responsibilities will be assessed in this report in context of directors in order to understand mistake taken by them. Company law 172 and 175, 174 will apply for this scenario or business case study. An advice related to the case study situation is provided at the end of report in order to provide information whether they have breached any of their roles, responsibilities, administrative or fiduciary duties as directors of Jupiter publication Ltd.
A). Advising May, Harry, Tim and Belinda in order t understand their roles and fiduciary duties
According to the case study there are four directors of a company Jupiter Publications Ltd which was formed in 1998. Each one of them is covering 15% of the business shares effectively. Remaining 40% share belongs to the other five investors who largely remained passive. There is a person Peter Higgins who is a writer and publish books who had also made a deal with Jupiter Publications for a political thriller which he was writing currently. The book of Peter also featured interns in The White House being brain washed into becoming political assassins effectively (Chang, 2018). In case peter said that he want a advance fee for the book. The board members refused to pay to peter as they also mistakenly believed that there is no record available of peter in publishing saleable stories. May knows that peter has published a few stories successfully using different pen names. Tim and May both be happy with this. It can be said that there are different activities made by May and Tim and both are connected to each other. May made an instant agreement with peter knowing that he is successfully updating stories. When Tim and Harry found involvement of May with Peter they decided to take a legal action against May and Peter. May produced evidences which shows that there is no agreement made between Jupiter publications and Peter Once, he also discovered that Jupiter publications had ending lawsuits over copyright infringements effectively. Board also passed a resolution in which there are no proceedings taken against Tim. They organised a shareholder meetings which ratify breaches of duty on May and Tim Part. These two also voted in the favour of resolution. These two made a mistake against firm. The two owners are liable for all this condition within business. Tim and May both failed to think long term profits for the firm and themselves. In case they both are is in breach of Section 172 in which the action can be taken by only board members and failure to consider stakeholders would also constitute as a breach. They both are aware of situation of Peter that he is a successful writer using alternative names but kept the information between them (Ferran, 2016). Thus, the firm mistakenly found Peter as a wrong involvement person and decided to cancel the contract, Tim and May both are not able to complete their fiduciary duties and have reached to breached on their administration duties effectively. In this case, they put themselves in a situation of conflict. However, the action taken by firm against is right from the point of view of Harry but Tim was earlier involved in the situation and information with May.
Apart from this, their mistake prevents them to grab an opportunity of corporate development and improvement in terms of profits and production. In this section the opportunity is diverted by company itself in terms of these all four directors with involvement of Tim and May specially and effectively. Directly or indirectly their mistake steals a customer of business and also misappropriate assets of company is made. In this conflict of interest, the following case study is linked to Section 175 CA 2006. According to state 175 (1), a business director must avoid a situation where he or she has or have an indirect or direct interest that conflict or may be conflicts with the business interest efficiently. The duty is breached by both Tim and May simply by avoiding a situation where there may be a chance of conflict of interest. Section 175 (2), reflects a principle in Cooley V IDC which applies in a situation in specific exploitation of any information, opportunity or property (Hu, 2015). A director is also able to keep his or her personal profit if the shareholders are consent by resolutions. In addition to this, it can be said that a director is also able to take benefit and advantage of a corporate opportunity in his or her own account if the business has already considered the same thing or proposition rejected in a good and effective faith. According to this, Tim and May are able to take advantage of opportunity from Peter in terms of publishing the book which will definitely increase their profitability and production. In addition to this, May take advantage of this opportunity and should not guilty about the connection made with Peter effectively. A disadvantage is their that only Tim and May knows that the publication will rock and help business to increase profits. In this case, they should aware other board members Harry and Belinda that they are making mistake by refusing proposal of Peter (Ng, 2015). There is a valid authorisation also provided in the Section 175 (5) in which authorisation prevent the action from becoming a breach effectively. This is different for private and public businesses that Jupiter is a Ltd company. The authorisation doest not make any sense and mistakenly refused proposal of Peter which was a corporate opportunity for business in order to enhance their profitability. In the lack of authorisation the directors are responsible for the fiduciary duties and in this case study the all are is in a breach. The section 175 (4) considered that the situation is not reasonable to be regarded as a situation of conflict effectively. It can be said that trade secrets are kept by directors sometimes in order to make individual profits but with the advantage and effective use of business reputation and goodwill. They are able to make profits from their own experience, knowledge and benefit purpose (Kraakman and Hansmann, 2017). There is a lack of effective proactive supervision in Jupiter publication Ltd according to the case study. The situation will consider in Section 174 CA 2006. In respect to this, it can be concluded from the given case study of Jupiter publication Ltd that there is a certain connection between Tim and May which was the main reason behind missing an opportunity of corporate advantage to the business. The opportunity was taken by May with a contract with Peter in order to earn profits. In respect to this, a director is responsible for managing and controlling business functions in order to enhance production and profitability that helps to achieve desired goals and objectives. According to the case study, the four directors are responsible for missing this as a corporate advantage or opportunity which is a loss for all the members.
The director should take advantage of any business opportunity but after company profits. This will help to grow business and develop different factors such as competitive advantage which will help to compete others in the market. Peter comes in business as an opportunity which was missed by directors not all of them mistakenly and effectively. May and Tim was well known of situation which they should discussed with other directors Harry and Belinda. This will help business to achieve a corporate advantage which was beneficial for all. May take advantage of Peter agreement by making a secret contract which also produced effective profits (Ho, 2015). Harry and Tim wants to take a legal action against this activity that May also produced some evidences which shows that there is no agreement or contract made between Peter or Jupiter publication Ltd which was refused due to the mistake of directors. There is a lack of effective proactive supervision in Jupiter publication Ltd according to the case study and lack of authorisation which prevent directors to think about company in proper manner. It can be said that Section 172 and 175 (1) (2), will be applied effectively to this case which will help to determine roles and responsibilities of a director in a firm in order to achieve business growth and development efficiently (Phiri, 2017). In addition to this, advice for all the directors is that they should keep ensure their roles, responsibilities and duties that helps to enhance business profitability and production. This will help to both business and directors to achieve desired goals and objectives which also help towards development and sustainable growth effectively. Every business directors should think of their company specially when an opportunity comes from outside in the context of business development. This will help all the members as well as employees to increase their personal growth to achieve goals and objectives. They all are responsible for managing company laws in order to regulate business smoothly and effectively (Hughes, 2016).
Belinda have been able to take the decision that the book of will not be able to gather adequate amount of recognition and profitable as the topic has already become saturated and various books have already being written on the subject matter. Hence, the proposal being made Belinda proved to be wrong as the book led to generate maximum amount of revenue and was able to become major best seller which happened to increase the overall profits of Peter and May. In this scenario, directors have right to indulge in preparing a risk assessment scenario for the organization before opting for any type of decision, that can ultimately prove to increase the overall loss of the company. Since the directors are the bridge between management and shareholder, it is their duty to ensure that all the decisions that have been made by them is able to fulfil the requirements of both the parties. It is also the duty of directors to ensure that statutory obligation of the company is appropriately being met. Also, it must be ensured that they act within their powers, that are clearly being defined in Companies Act. 2006 of UK. It is important for the directors to act in good, which was breached by May in the given scenario. It helps in promoting the overall success of the organization. It is substantial for the directors to consider various aspects of the organization before taking any type of decision. They must ensure that what are the likely consequences of strategical step taken by them and whether it will prove to be beneficial in the long term or not.
The main desire of every company is to maintain the reputation in such a manner that it is able to perform appropriately and effectively in the non conducive environment as well. It also helps in ensuring that desirable profitability and revenues have been achieved by the organization. Directors plays a substantial role in this scenario, where they are required to act fairly in the environment so that maximum profit can be generated out of it.
Advising Mark, a minority shareholder, regarding possible actions that can be taken against directors
There are certain decisions made by the organization where it becomes difficult to satisfy. Although, much power is not held by minority shareholders and hence do not enjoy much influence on decision making aspects of management of the company, there are certain aspects being considered by the statutes and law of United Kingdom, which can help in protecting their rights and interest. A minority shareholder has right to bring the claim in case of when the company has been or is generally being managed in a manner that is ‘unfairly prejudicial’ to certain or to all of its shareholders. These types of claim can appropriately be initiated in any type of the company. Generally, these claimants are initiated where the shareholder plays adequate amount of role in the functioning of management of the organization. As per the general principle of organization, it is generally managed by its directors where, decisions are made in accordance with the overall decision that has been made in context with the shareholders through a general meeting which is binding to minority shareholders as well (Nakamura, 2017). There are basically three types of remedy that can be initiated Mark against management of the organization. These are mentioned as under:
The unfair prejudice petitions
Petition with respect to just and equitable winding up of the company.
The derivative claims
The primary method to opt for reliving the minority shareholders is by bringing an unfair prejudice petition. Every type of claim made by the minority shareholders seeks to present different type of remedy. However, the common theme related to it is that, these strategies help minority shareholders to obtain value out of their shares.
The remedy being received in an unfair prejudice petition that the shareholder has right to make the purchases of majority petitioner purchases at a determined price by the court. Just and equitable winding up can give an order to winding up the company even if it is solvent and ensure that the nest assets are ultimately distributed to the shareholders. The other remedy available to Mark is derivative claim which seeks to enforce claim to the directors in such a manner that it can help in creating overall benefits to the company, with the view of overall increase in the value of assets which it ultimately be available to be distributed to the shareholders (Costa, 2015). The claims of minority are considered to be appropriate only if the company is insolvent and shares of the claimant have substantial amount of value through which one can demand justice from the side of management of the company.
An unfair prejudice petition is a statutory remedy, which is available to the shareholders of the organization under section 994 of Companies Act 2006. It is the primary procedure which is being taken care of by the shareholders, who are the victim of ‘unfair prejudice’ conduct. The court have been able to give wide discretion with respect to this remedy that is generally granted to the petitioner. The most often remedy granted to the shareholder is that they can now be able to make purchases of majority purchase of minority shareholders whose value is generally determined by the court. The court can also give order regarding derivative actions, which is one of the other remedies that are made available to the minority shareholdersn as court do not have any right to give any kind of winding up orders to the organization as it does not lie in its periphery.
Another aspect of remedy that can be made available to Mark is Just and equitable wind up. It is the remedy that is generally provided on the grounds of Insolvency Act 1986. This remedy is made available to shareholder only in the scenario where, petitioner must be able to discuss regarding substantial surplus of winding up (Boschma, 2017). In this scenario, insolvency procedure is required to be followed by the organization so as to attain maximum benefit against that steps that has been taken by the organization with respect to its directors. The circumstances in which winding up is suggested is similar which are generally tend to crop up in unfair prejudice petition as well. However, the disadvantages attracted towards winding up of the organization are required to be entailed by the team as well (Sjåfjell, 2014).
Another remedy available to mark is Derivative claim. It is the statutory remedy that is made available to the shareholders. The provisions are being comprehensively discussed section 260 to section 264 in the companies act 2006. It not only benefits the organization but adequate amount of benefits is achieved by the shareholders as well. The claim can be made only on behalf of various compliances, such as, default, breach of duty, negligence and breach of trust by the directors. Derivative claim may not be initiated by the court if it finds that it is not within the positive interest of organization. Hence, the good faith of claimant and company is considered in this scenario.
Hence, in the end, it can be stated that there are various steps that are available and are being issues by Companies Act 2006 of UK, that can be adopted by minority shareholders so as to gain adequate amount of benefits out of it. It can help in taking him the actions that can help in gathering adequate amount of benefits of being a minority shareholder as he may not enjoy adequate amount of rights in this scenario due to less benefits available to them as they have very less interest in overall functioning of the company and its management decisions (Havenga, 2015).
From the above report, it can be concluded that, directors play an important role in decision making aspects of the company. It helps in ensuring that the organization is able to achieve ling term profits due to the decision aspects made by them considering all the important situation related to it. Further, risk assessment is also an important aspect to be managed by the organization in a manner that maximum benefits out of it can appropriately be achieved. The report also outlined regarding role of minority shareholders and the steps that can be taken by them if they are not satisfied with any of the decisions of the boards in this scenario, they have right to take remedial measures, which can be presented in three ways in front of the court. These are, The unfair prejudice petitions, Petition with respect to just and equitable winding up of the company, the derivative claims. It helps in ensuring that the best possible strategies are initiated for minority shareholders as well.
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