Question

Brad and Jen are husband and wife. Five years ago, Brad and Jen, together with their friend, Angie, set up a company called Organics Farm Pty Ltd (Organics Farm) to operate an organic farming business in Queensland. The three of them met at the University where Brad and Jen were each completing a degree in agriculture and Angie a degree in commerce. All three have a passion for organic produce. When they set up the company after completing their university studies, it was agreed by the three of them that they would have equal shares in the company and that they would all be directors. It was also agreed that Brad and Jen would be responsible for the day to day running of the farm whilst Angie would be responsible for the finances and the marketing and sale of the organic produce. The business has been running successfully and it now has a strong market presence throughout Australia. During one of Organic Farm’s board meetings, Angie proposed that they look towards expanding into the Asian market. Angie explained that she had done some research and that her investigations showed there was a demand for organic produce. She suggested using the company’s surplus funds to conduct further market research into the export market. Brad and Jen voted against this proposal because they wanted to use the surplus funds to donate to the local school to build a swimming pool which Brad hoped would be named after his grandfather. Angie queried whether this was an appropriate use of corporate funds given that the demand for organic produce was just starting to grow in Asia and that Organics Farm could really capitalise on this growing demand. But Angie’s concerns were dismissed by Brad and Jen. Shortly after this board meeting, Brad and Jen called a general meeting of Organic Farm’s shareholders and a resolution was passed removing Angie as a director. In the next board meeting, Brad and Jen resolved to increase directors’ remuneration and to stop paying dividends.

(a) What action can Angie take against Brad and Jen in relation to the donation of funds to the local school? Angie believes that there has been a breach by Brad and Jen of their common law and statutory duty to act in good faith, in the best interests of the company and for a proper purpose.

(b) What action can Angie take against Brad and Jen for the non-payment of dividends?

Answer 1

FACTS OF THE CASE:

In the above case Brad and jen husband and wife along with his friend Angie they start a company called organic farm pvt limited (five years ago). In there Brad and jen are taking responsibility of daily activities of the farm and Angie take the responsibility of financial and marketing activities.

They earn good revenue during the period and here Angie wants to expansion there business.But Brad and jen wants to build a swimming pool for the local schools like a donation and named it with his grandfather name. Angie was not agreed with them and she wants to expansion of there business to Asia because in Asian countries organic farms has a great value.

Provision:

Subject to section 128, the company may by ordinary resolution remove any director before the expiration of his period of office, and may by an ordinary resolution appoint another person in his stead; the person so appointed shall be subject to retirement at the same time as if he had become a director on the day and also in shareholderss divided must be paid to run the business in a great way but here in the above case Brad and jen was passing a resolution in board meeting and decreases the dividend and increase the remuneration.

Conclusion :

a) By apply the above provision company can donate some revenue to local authorities by the mutual agreement or any deed was mentioned previously in there agreements. There is no restrictions on the spending of revenue . But it was utilized towards the farm expansion but not for the construction of swimming pools to local authorities. So here Angie was correct and the removal of director before completion of there period was mentioned in the above provision.

b)angie can take action against Brad and jen for non payment of dividend the following actions are discuss below:

124. Unpaid Dividend Account

(1) Where a dividend has been declared by a company but has not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid Dividend Account.

(2) The company shall, within a period of ninety days of making any transfer of an amount under sub-section (1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if any, and also on any other website approved by the Central Government for this purpose, in such form, manner and other particulars as may be prescribed.

(3) If any default is made in transferring the total amount referred to in sub-section (1) or any part thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such default, interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per cent. per annum and the interest accruing on such amount shall enure to the benefit of the members of the company in proportion to the amount remaining unpaid to them.

(4) Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid Dividend Account of the company may apply to the company for payment of the money claimed.

(5) Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the company along with interest accrued, if any, thereon to the Fund established under sub-section (1) of section 125 and the company shall send a statement in the prescribed form of the details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the company as evidence of such transfer.

(6) All shares in respect of which unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be transferred by the company in the name of Investor Education and Protection Fund along with a statement containing such details as may be prescribed:

Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with such procedure and on submission of such documents as may be prescribed.

(7) If a company fails to comply with any of the requirements of this section, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.