Question

Kestrel Pty Ltd (Kestrel) is a small family company which operates a business breeding kestrels, eagles, falcons and other large birds of prey. Keenan, Chelsea and Campbell are all siblings and the only directors of Kestrel, and each owns 25 ordinary shares. Clause 15 of the constitution of Kestrel provides that Keenan, Chelsea and Campbell shall be directors of Kestrel at all times.

Late last year Keenan fought with the rest of the family and now Chelsea and Campbell don’t want him to have anything to do with the company.

At a recent board meeting, Chelsea and Campbell passed the following resolution (Keenan voted against the resolution):

Kestrel Pty Ltd (ACN 123 456 789) Written resolution Share Issue Resolved that: As Kestrel Pty Ltd requires additional capital to purchase more inventory, Kestrel Pty Ltd shall issue 25 ordinary shares to Chelsea and 25 ordinary shares to Campbell in consideration of $5 000.00 for each share. Signed: Chelsea (Chairperson) 1 January 2019

An extraordinary general meeting is held in February where a special resolution is passed to remove clause 15 of the Kestrel Pty Ltd constitution. A second resolution is then passed at the meeting to remove Keenan as a director.

After removing Keenan from the board, Chelsea and Campbell attend a board meeting where they suspend dividends indefinitely and increase their directors’ salary.

After the February meeting, Chelsea and Campbell realise that they can sell bird droppings to farmers for use as fertiliser, which could make them a lot of money. Chelsea and Campbell register a new company called BirdFert Pty Ltd, in which they are the only shareholders and directors. BirdFert collects the droppings from Kestrel at no price (using Kestrel’s employees) and sells the droppings to farmers at a massive profit.

(a)                       Are there any claims Keenan can commence in his name for the actions that Chelsea and Campbell have undertaken?

(b)                      To what remedies might Keenan be entitled?

Answer 1

In the given question, we can see that Keenan, Chelsea and Campbell are the only shareholders of the company, Kestrel Pty Ltd (Kestrel). Due to the fight, Chelsea and Campbell joins together and continue the business by removing Keenan. As we can see, Keenan holds 1/3rd shares of the company before removal. But after the fight, 25 shares each is issued to Chelsea and Campbell. Now the total shares of the company is:

Keenan = 25 shares

Chelsea = 25+15 = 40 shares

Campbell = 25+15 = 40 shares

Total shares of the company = 105 shares

Percentage holding:

Keenan = 25/ 105 = 23.80%

Chelsea = 40/ 105 = 38.10%

Campbell = 40/ 105 = 38.10%

As we can see here, the combined holding of Chelsea and Campbell will be 76.19%.

To remove clause 15 from the articles of the company, for the necessary modifications, you will need to hold a meeting of the directors and pass a Special Resolution. A special resolution is a resolution of the company's shareholders which requires at least 75% of the votes cast by shareholders in favour of it in order to pass. Where no special resolution is required, an ordinary resolution may be passed by shareholders with a simple majority – more than 50% – of the votes cast.

(a).

As the total shareholding of Chelsea and Campbell is more than 75%, they can remove the Clause 15 by passing a special resolution. Also, they can remove Keenan from the post of director because, a Company has the authority to remove a Director by passing an Ordinary Resolution.

Therefore, we can conclude that, Keenan can't commence any claims in his name for the actions that Chelsea and Campbell have undertaken.

(b).

The only remedies Keenan would be entitled would be the amount equivallent to the 25 shares held by him and 1/3rd share of profits made by the company, Kestrel Pty Ltd (Kestrel), prior to his removal.