Discuss the rights of Cindy, as a shareholder, and of Sierra Hotel
Project description:
CASE:
Andrew and his wife Betty formed Health & Fitness Ltd, a private limited company. Andrew and Betty own 70 percent of the company and 30 percent is owned by Cindy. The three are also the only directors of the company, with Andrew appointed as the managing director. Each director receives a monthly salary of £5000 from the company. The board of directors decided that the company should invest in the health food business. To generate capital the company decided to sell one of its businesses, the Health Club, to the Sierra Hotel. All the directors agreed to the sale. However, after the sale of the Health Club, Andrew, as managing director, decided to invest in a health spa business with Betty’s agreement. Cindy disagreed with the decision on the ground that the health spa would not generate as much profit as the health food business. Cindy also found out that the Health Club had been sold by Andrew at a much lower price.
Cindy is always out-voted by Andrew and Betty in the shareholders’ and directors meetings.
In the last 2 years, Betty has been busy with her own business, a shop selling organic food, and has not been able to perform her duties as director of Health & Fitness Ltd. However she continued to receive her director’s salary from the company. The company has also been leasing a property owned by The Sierra Hotel. The company still owes the hotel rent for 6 months amounting to £60 000. The Sierra Hotel wants to collect the debt from Andrew and Betty who are the majority shareholders.