Question

Bill and Clare are mushroom farmers. Three years ago, they were persuaded by Vernon, Bill’s brother to incorporate a company to start selling mushrooms to supermarkets. To do this Vernon invested heavily and they established Mushroom TopiaPty Ltd (Mushroom). Vernon and Bill each had 300 shares in Mushroomwhile Clare had 200 shares. All three of them actively participated in the company's management and each became directors.

Last year Clare suffered a mild heart attack and decided that she should resign from the board of Mushroom and transfer her shares to her daughter, Gail. Vernon and Bill did not object and the transfer was registered. Shortly afterwards, Vernondiscovered that Gail's fiancée, Tom, was a major shareholder in and a director of a large interstate company that intended to expand its business and would possibly be a serious competitor to Mushroom. Vernon called a general meeting of Mushroom which passed a special resolution adopting the following internal rule:

"If a member of the spouse or child of a member carries on or is a director of a business that in the opinion of the directors is a competitor or a potential competitor of Mushroom Topia Pty Ltd, the directors may require that member to sell her or his shares to a person named by the directors at a fair price fixed by an independent expert appointed by the directors."

The resolution was passed by Vernon and Bill, who were the only people at the meeting. Gail was on her honeymoon in the Cook Islands at the time and did not receive the notice of the meeting until she returned home. When she returned, she was given a notice requiring her to sell half her shares to Vernon's daughter, Vega, and a half to Bill's wife, Clare, at a price of $20 per share (the value put on the shares by Graeme, the independent expert appointed by Vernon and Bill).

Required: Gail does not want to sell her shares in Mushroom. Advise Gail:

(a) if the meeting had the power to adopt the internal rule set out above?;

(b) if she has any grounds to challenge the notice requiring her to sell her shares?

that all I got in my assignment

Answer 1

Facts of the Case: The Mushroom company is managed by three shareholders, Vernon, Bill and Gail ( transfree shareholder from original shareholder Clare), Gail is enaged and her fiance is in competing business of Mushhroom and as per the directors excluding Gail it is interpreted that sooner her fiance may become giant business and Chip companies and their biggest competitior in the market. accordingly, Bill and Vernon has given notice to Gail, but same time she not recived the same and " special resolution" for transfer of shares of Gail shares to Vernon daughers and Bill's wife at the valuers decided by the vernon and bill itself.

Quorum of the Meeting : At Least two members in case of Private concern.

Resolutin need to be passed only if more than 50% present shareholders voted in favour of Agenda / matter.

Here in the aboe facts stated: Vernon and Bill attended the meeting ( it means two memebers are present)

Quorum is satisfied, voting should be more than 50% of the present members in the meeting.

(a) As per Law, Meetings can be held unless otherwise restricted by the Article of Associations of the Company. Such meeting can be called by the members as per the regulations and article of associations.

(b) Secondly as per regulations, Vernon and bill has sent notice as per law to the gail, non recipt, of the notice can never be stands as a ground to invalidate the meeting agenda.

Contrary to it, Share transfers is voluntarily act, hence passing meeting for transfer of share is valid as per law, Quorum an votings. but same can never be assumed to be transfered just simply by passing a resolution.

Accordingly can conduct meeting and meeting is valid, but such act can never force to sell the shares ofgail to vernon's daughter and gill's wife.