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Harry, Minh and Jackson have been appointed by the general meeting as directors of Mobile Technology Ltd (MTL), an unlisted public company limited by shares. When MTL was formed it adopted an objects...

Harry, Minh and Jackson have been appointed by the general meeting as directors of Mobile Technology Ltd (MTL), an unlisted public company limited by shares. When MTL was formed it adopted an objects clause as part of its constitution; this clause restricts the company to the manufacture, purchase and sale of plasma televisions and DVD players. The company was incorporated in Melbourne where its head office is situated, and it has manufacturing facilities in Shanghai China. Shareholders in MTL are unhappy with the way in which the directors are running the business and are critical of the low level of dividends that they have declared and the unresponsive attitude of directors to the concerns of shareholders. The directors justify their approach, and point to the stable and slowly increasing share price of the company to the disgruntled shareholders.

1.    James and Jenny Lee are husband and wife (who together hold 60% of the shares in MTL) and they seek to take a bigger role in the management of the company. They advise the directors that they should change their business strategy and pay more attention to their wishes as majority shareholders. They threaten to sack the directors if they do not comply with their wishes. They also threaten to take over the management of the company.

2.    Martin Lu is a minority shareholder in MTL (holding 5% of the shares) and he is concerned that the directors will run down the company and drain it of its assets. The directors have not shown themselves to be troubled by Martin’s concerns and say that the minority shareholders like Martin should mind their own business. Martin seeks an extraordinary general meeting of shareholders to discuss these concerns, but the board is reluctant to call a meeting.

3.    In response to the shareholders’ concerns, and without consulting the shareholders, the directors of MTL seek to change the business of MTL to focus on manufacture and distribution of Smart phones and I Pods as they believe that the television and DVD market is saturated and demand will start declining if it has not done so already. The directors propose to enter into contracts for MTL to acquire a mobile phone manufacturing firm in Shanghai with a view of implementing their strategy.

4.    The directors seek to avoid these pressures from the shareholders by setting up another company (Stan Mobile Pty Ltd) that they control and plan to sell the television business of MTL Ltd to their new company. At the same time, a Chinese company has come to the directors with a generous offer to buy the television assets of MTL at a significantly higher price than the amount that Stan Mobile Pty Ltd is prepared to pay MTL for these assets. The shareholders are not advised that this major asset is to be disposed of in this way or that the directors’ private company is involved.


Required:

Advise what are the various legal issues and causes of action that are available to the shareholders arising from the directors conduct in the above circumstances. Students should answer this question with reference to the relevant provisions of the Corporations Act 2001 and the relevant case law



Oct 07, 2017
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