AF205 Assignment 2 – Navneet Nischal Chand – S11157889

Semester 2, 2019

(i) Diagram (Before)

Shareholders: X Y Uncle

Type of Shares & 50,000 Class A 50,000 Class

A (Ordinary) 20,000 Class B
Percentage: (Ordinary)
Shares (Preference)
Shares Shares
(41.67%) (41.67%)
(16.67%)

Plastic Co Pte Ltd

Company: Directors: X & Y

Business: Reliable Plastics

Diagram (After)

Shareholders: Bua Uncle

Type of Shares & 100,000 Class A

20,000 Class B
Percentage: (Ordinary)
(Preference)
Shares
Shares
(83.33%)
(16.67%)

Plastic Co Pte Ltd

Company: Directors: Bua and Husband

Business: Reliable Plastics

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 AF205 Assignment 2 – Navneet Nischal Chand – S11157889
Semester 2, 2019

(ii) Issued Capital = Class A (Ordinary Shares) + Class B (Preference Shares)

= (100,000 * $5) + (20,000 * $5)
= $500,000 + $100,000
Thus, Issued Capital = $600,000

Paid-Up Capital = Class A (Ordinary Shares) + Class B (Preference Shares)

= (100,000 * $3.50) + (20,000 * $5)
= $360,000 + $100,000
Thus, Paid-Up Capital = $450,000

(iii) According to Section 10 of Schedule 2, “A Company may appoint a person as a Director by

resolution passed in the General Meeting.”

According to Schedule 2,Section 11(3), “If a person is appointed under this section as a Director of a
Private Company, the Company must confirm the appointment by resolution within 2 months after the
appointment is made.”

Thus in this case, X & Y will have to resign then only the acquisition will take place. The ordinary
shareholders will appoint the Directors as per the special resolution which requires more than 75% of
shares. In this scenario, Bua holds more than 75% of shares, that is 83.33% of shares, thus she will
appoint herself as the Director. When Bua became the Director she can appoint her husband “H” as
another Director.

(iv) According to Companies Act 2015, section 210(b) [Solvency Test] ; A person who is a Director of a
Company;

“if under the Company’s Articles of Association the Directors of the Company are permitted to declare
a dividend, at the time at which it declares a dividend, must ensure that immediately after the
payment or declaration of the dividend, the Company is solvent.”

If the two conditions outlined above are true, then it is legally permissible. However, if the conditions
outlined above are not true, then it is not legally permissible.

Yes, it is legally permissible. It depends if the following conditions are:

- If the financial reports of Plastic Co Pte Ltd shows an undistributed profit of atleast $200,000.
- If Plastic Co Pte Limited remains solvent after making distribution of $200,000

Yes, it is legally permissible but it also depends if the financial reports of Plastic Co Pte Ltd shows an
undistributed profit of at least (minimum) $200,000.

(v) The existence of the Class B shares will impact Proposal one as dividends are paid first to Preference
Shares. In Proposal One, Bua intends to repay loan as interim dividend of $200,000 on Class A (Ordinary)
shares which will receive dividends after the preference shareholder (uncle) receives dividends.
Although Bua will own 83.33% of the shares, she will have no say in payments of dividends, uncle who
owns preference shares which does not have any voting rights will receive dividends first and if the

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 AF205 Assignment 2 – Navneet Nischal Chand – S11157889
Semester 2, 2019

company is unable to pay dividends in current financial period, the company will cumulate the
preference dividends until next financial period until the preference shareholder receives the dividends.
Thus, the existence of Class B (Preference) shares may not impact the decisions of the company but it
does impact the cash flows of the company in terms of dividends.

(vi) Yes, the second proposal (Proposal Two) shall be legally permissible on the grounds that Bua and
her Husband “H” are the Directors of the company and hold 83.33% of the total shares (Class A,
Ordinary shares) which has voting rights. Since Class A (Ordinary) shares have voting rights, the directors
“Bua and her Husband ‘H’ ”, have the authority to make decisions as per a special resolution which
requires more than 75% ownership of shares (Bua and her husband hold more than 75% shares, that is
83.33% shares). The uncle has no say in the operations of the business as he is neither a director nor has
voting rights since he owns Class B (Preference) Shares.

In Proposal Two, Bua intends to take a $200,000 long-term loan (expected duration of 6 years), when
Bua and her husband “H” will be appointed as the new directors, the company (Plastic Co Pte Ltd) will
grant me (lender) a mortgage over the current factory premises as security for the loan which I shall
give.

If in future, Bua is unable to repay the loan installments, she can sell the land and repay me in full, thus, I
will be able to recover the loan amount with accrued interest payments or by using the mortgage charge
over the mortgaged property (factory premises and land) and the residual will be returned to Bua.

Another perspective is that if Bua does not have a credit balance in her bank account, but has an
overdraft facility available to repay the loan installments plus accrued interest payments to me.

In both scenarios, Bua’s Proposal Two is legally permissible as discussed in the above arguments.

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