Ludwig Quaye, YEAR 2 #youmatter

COMPANY LAW TUTORIAL QUESTIONS

When can directors appoint directors?

1. when there is a casual vacancy (Politis v. Plastico)
2. appointment of executive directors.

In all other cases members appoint directors.

Pre-incorporation contract (On disclosure) Where promoter’s own property is involved

(section 12 (4) i.e. where the property belongs to the promoter himself then he is
disabled. (section 13).

Conflict of duty and interest: section 203 and 207.

General fiduciary duties of directors (s 205 (a) – General fiduciary duties.

3 particulars are mentioned. Do they cover all aspects of a director’s fiduciary duties?
Are they exhaustive? See 205 (a) (b) (c). there may well be other circumstances or
situations not covered by these 3 provisions. 205 (a) (b) qualify under the consent under
section 206. (c) is governed by section 207 so that a director could contract with a
company.

What is the difference between consent under section 206 and the ratification of a
contract in which the promoter’s property is concerned as under section 12 (4)? Ans: the
affected persons should not be part of the voting process in both situations or else it
would be invalidated. The specific nature must be mentioned (s 206). So this is not
merely a situation of ordinary resolution.
In both situations consent (directors) ratification (promoters) may be after the event. S
206 (2) 12 (4).

Section 209 deals with remedies i.e. where there is a breach of fiduciary duties.

Just and equitable winding up

C: Ebrahimi v. Westbourne Galleries.
Conditions for its operation
Small private company
Distribution
Restriction on transfers
Deadlock

There is the expectation that all will participate in the management of the company.
These form the basis for the just and equitable winding up of the company.

Section 217: injunction or declaration in the event of illegal or irregular activity: 2 points:
Injunction
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Declaration.
This is important for ultra vires. (Foss v. Harbottle) section 217 is available only to a
member. Section 218 is available to members, debenture holders etc.
Section 217 gives a member a right to sue where a resolution has not been properly
passed i.e. an exception to the rule in Foss v. Harbottle which said that the company
could by itself change the irregularity . See Edwards v. Halliwell.

Question 3 of the new tutorial sheet

Issues: NB! Directors in the facts are also executive directors (remuneration issue).
1. Non payment for shares
2. sale of company’s property to prime estates
3. conflict of interest
4. financial assistance (section 56 (1) (c), section 58 (exceptions)
5. resolution not to declare dividends (directors recommend and shareholders
approve).
6. executives remuneration increased by 200%
7. complete disregard : oppression (section 218)
8. is she entitled to have her investment back?
9. company wants to buy back her shares (purchase of own shares by a company).

ANSWERS
1. The terms of issue determine the consequences of non payment for shares. It
depends on whether she is a member.
2. section 202 (a) (c) and section 205 on sale of the property to Private individual.
Where a director has a direct or indirect interest there must be disclosure. (section
207 will apply.
3. see Aberdeen v. Blaikie : ignored higher bids : 1. Heron v. Lord Grade 2.
Dawson v. Coats
4. financial assistance: This was indirect. Section 56 (1) (c), s. 58. See Belmont v.
Williams. The use of the proceeds from the sale to purchase shares. They are
void or voidable. (section 56 (4) (6). At what time can the company avoid the
transaction? Does Mrs Lartey remain a member of the company? NB! She
breached her fiduciary duties as a director: section 209.
5. meeting and notice: board resolution is all that is required.
6. executive remuneration. Section 192 194 (4).
7. complete disregard of her interest as what? See section 218 (1) (a) must be a
member and must be oppressed in your capacity as a member. Re Sam Weller?
8. wants her investment back? “buy back”. (a) through a loan: it cannot do it. Has to
come from the share deals account. Section 63. (b) general position about a
company wanting to buy back its own shares. Section 59 (4) section 59 (b) +
proviso (i.e. re issue those shares). Section 218 (2) (c).

TUTORIAL QUESTION . (FINAL SHEET) Q. 5

Issues
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1. removal of lamptey and Eshun from their executive positions in the company by a
resolution of the board. (see section 192 who appoints and removes executive
directors? Ans: directors).
2. fixing of director’s remuneration. (wrong because directors cannot do it. Only
ordinary resolution of members. (is the board resolution valid?). C: Re Duomatic
S 194 (4) 192.
3. unfair treatment. Yes, if board exceeded its power. No, if not.
4. No AGM for 2 years. Section 149 (1) (3). In this case the exception does not
apply.
5. conflict of interest: establishment of rival company. S. 205 i.e. business in
competition with GLS i.e. Cisse Jnr is competing with the company.
6. breach of fiduciary duties: section 203 : directors must all times work in the best
interest of the company. Section 202 (5), 204: Improper purpose: see Rolled Steel
v. British Steel. Borrowing should not exceed stated capital.
7. the take-over bid. (requirement of section 234 satisfied? Section 230, 231 234
(grievous hostile take over) s. 234 gives 4 conditions (offer to buy all the shares,
same terms offered to all shareholders, accepted with thoughts by nine-tenths of
the shares of 75% of shareholders.
8. Role of directors in take over. See Dawson v. Coats= Directors have fiduciary
duties only to the company. Section 234= same terms and offers to all
shareholders s 233.
9. Issue of new shares. Section 202 (1) (b) = ordinary resolution is required. Father
40% son 20% = 60%. They can pass an ordinary resolution.
10. what remedies do Lamptey and Eshun have? See section 217, 218 . Section 203:
best interest of the company?

Tutorial question 8
1. Private or public company? Listed . It is a public company because only public
companies can make invitations to the public to raise capital. It is listed because
of the prospectus.
2. invitation to the public (whether the prospectus was examined and approved by
the SEC). what should be stated there. Schedule VII of the Code. LI 1728: critical
for the SEC to examine and approve the prospectus. See 275.
3. Experts consent = s 278: Requirments? Who is an expert? Ans: a person whose
profession or calling gives him the authority to make the statement he is making.
Being a reputable geologist, Mr Lartey’s statement is authoritative. Mr lartey has
given and not withdrawn his consent (critical for expert opinion). 0.5%
undisclosed to Mr. Lartey. Section 320 : Lartey’s responsibility – does it amount
to false inducement to invest? Conflict of interest because of the 0.5% promise +
section 287> investor can rescind.
4. role of auditors. They owe a duty to the members as a whole. NB! It is not the
duty of auditors to detect fraud but if they come across fraudulent deals it is their
duty to disclose it to the directors.
5. role of directors= section 279? Prospectus must be signed by every director to
ensure individual and collective responsibility so that where there are omissions,
we will know where the fault lies.
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6. auditors’ duty toward Miss Okudzeto. Section 320> lartey’s responsibility.

Conflict of interest (?) see Caparo Industries v. Dickman. State the 4 conditions
(satisfied) section 278.
7. other remedies: section 286, 287, 291.

TUTORIAL QUESTION 14
Area of law: fettering of discretion. It has two main aspects (s 203).
1. at all times act in the best interest of the company (section 203).
2. only when taking a decision
see FULHAM FOOTBALL CLUB V. CABRA ESTATES
DAWSON V. COATS

Area of law: General fiduciary duties of directors. It involves the proper purpose (section
204). Amount involved in ,….. to stated capital (s 202 (1) (a).

Area of law: Amendment of regulations . See OKUDZETO V. IRANI BROS.

appointment of directors. Also on removal of directors.

Area of law: who can bring an action under section 218? Ans: a member, debenture
holder, Registrar. He is a non shareholding director removed without reason. Also on
procedure for removing a director see section 185: he must make both written and oral
presentation.

TUTORIAL QU 13
1. creation of new shares
2. issuing of new shares
3. alteration of regulations
4. payment for shares
5. is Prof Smart a shareholder?
6. registration of resolution
7. removal of Kofi Poku as a director
8. Proper notice of EGM , Quarate?
9. director’s remuneration
10. no AGM
11. no declaration of dividends
12. remedies : Section 217 applicable, section 218 applicable. Basis for a just and
equitable winding up?

ANSWER
1. see section 57 procedure. See Asafu Adjaye v. Agyekum) on informal
shareholders agreement. If they are acting intra vires together, they can do what
they propose to do even though the code or regulations states otherwise.
2. section 202 (1) (b) on issuing of new shares = pre-emption rights. To by pass
section 202(1) (b) an ordinary resolution of the company must be passed therefore
 Ludwig Quaye, YEAR 2 #youmatter

it is not a prohibition. No evidence of the resolution. Cite Asafu Adjaye v

Agyekum on issuing of new shares. Authorization of ordinary resolution needed
to issue Kotey with the new shares.
3. section 22, 26 on alteration of the regulations for the alteration of the company’s
business.
4. section 42 on payment of shares. (1) valuable consideration may be given for
shares. The patent right was not.
(a) must be registered with the registration being within 28 days.
(b) In the event of involuntary consideration, part of the shares may be taken to be
unpaid for.
5. section 30 on membership of companies. Section 30 (2) agrees with the
company. See Nuneaton’s case. see also Cudjoe v. Conte. Under section 30 (5)
Prof is not a member i.e. forfeiture for non-payment. Was his name ever in the
register of members? ( register of members + share certificate.) not adequate
membership.
6. secretary to inform Register-General in the face of lack of documentation. Only
an informal agreement on the basis of Asafu Adjaye v. Agyekum.
7. removal of Kofi Poku as Director. Section 185. Notice under s 103. He didn’t
attend. The critical issue is not his failure to attend but whether he received notice.
Did Prof vote if he is not a member? Was there a quorum for the EGM?
8. appointment of Kotey as director. Consent: see Politis v. Plastico. Qualified and
competent see 182, 185. if there is a share qualification he is not qualified.
9. director’s remuneration: who recommends? Who approves?
10. no AGM> section 149 . Qualifies under section 149
11. no declaration of dividends: Re Sam Weller
12. Advise, see section 217 : anything being done ultra vires? See section 218: is he
being oppressed in his capacity as (1) member, (2) as an officer. Basis for a just
and equitable winding up?

QUESTION 15
1. Premature Trading section 27, 28, 29.
2. is the appointment of Ms. Daniels as a secretary valid? Section 190, 191. need not
have a secretary at incorporation but at commencement (filing) section 27.
3. loan agreement with Mr. Nasty. Can the company lawfully enter into a loan
agreement before receiving its certificate to commence business? It must be
registered in the register of charges: see section 107, 111. Effect of non –
registration: see COHEN V. COMET PER EDUSEI J. see Rep v. James Town
Circuit Court, Ex Parte Annor per Taylor J. It must be void as a charge but valid
as a loan agreement i.e. binding only as a contract not as a charge.
4. the sign read “good morning ent”. It must be changed: section 121.
5. borrowed 200 million after issue of certificate to commence business. Minimum
stated capital assumed. Company had borrowed beyond its stated capital of 220
million (200 million + 50 million = 250 million). Had the company breached a
prohibition? Ans : no. Ordinary resolution can by pass that restriction.
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6. can the money lender petition for the winding up of the company? Act 180 or Act
179? Go under Act 180. under what circumstances can a creditor apply for
winding up?
7. having filed for winding up, as a holder of a floating charge, there is
crystallization. What will be the priority between Mr. Nasty and the floating
charge holder?