Question

A1 Distributors Pty Ltd is a wholesale distributor business which acts as agent for distribution electronic products. Alex, Sue and Peter are three directors of the company and equal shareholders in the company. Sue recently represented the company at a marketing seminar in Japan. During the seminar she was introduced to a leading distribution company which is looking to acquire business in Australia. Sue was told the Japanese based company would pay 4 times the current value of the shares in A1 Distributors and to start the relationship would supply at a substantial discount on a line of fridges. Sue advised that A1 Distributors would not have the capacity to take on the line of fridges but put forward her family company Sue’s Electronics Pty Ltd as a service provider who could deliver on the contract.

When Sue returned to Australia she offered to buy Alex’s and Peter’s shares at 2 times their current market value. Once she acquired their shares she then sold them to the Japanese company for the agreed 4 times value.

Alex and Peter discovered what Sue had done.

a)       Provide advice on the rights of A1 Distributors Pty Ltd have against Sue.

b)       Discuss whether Sue has a fiduciary relationship with respect to Alex and Peter in acquiring their shares in A1 Distributors Pty Ltd.   

Answer 1

a) Alex and peter has a right to file a case in the court against sue for violation of their rights. They can also ask for 4 times value of their shares that sue will get by selling it. The reason is that they three were equal shareholders in the company. Alex and peter were also equal shareholders in the company so they also had a right to know all the happenings in Japan while Sue was a representative in the seminar in Japan.

Sue should have told them about his dealing with a company that it will pay them 4 times the current value of the shares. Sue just offered them that he will buy their shares at 2 times their currents value of shares .He did not tell them about that he is going to sell their shares to another company at 4 times value of their current shares.

The right to get the equal profitability and right to transparency of transactions, between the shareholders, has been violated.

b) Yes, Sue had fiduciary relationship with respect to Alex and peter in acquiring their shares in A1 distributers Pty because he was representing the seminar of the company on behalf of the. This is implied and obvious that sue will work with utmost good faith, honesty, loyalty and fairness.