Question 1: Member’s rights and remedies
GML owns 92% of the issued shares in Explorer Ltd. The remaining 8% of the shares are held by five individuals, including a Mr Owen who owns 0.5% of the issued shares. Mr Owen is a high profile individual who has at times been critical of the Chinese government’s activities in the South China Sea. GML is concerned that its ongoing association (through Explorer) with Mr Owen may harm its relationship with its Chinese customers.
At a meeting of Explorer, a resolution is passed amending the constitution of Explorer, to allow any member who was entitled to at least 90% of the issued shares of Explorer to acquire compulsorily, the shares of any other member at a price of $20.00 per share. Explorer shares have recently been valued by an independent expert at $15.78. Mr Owen does not attend this meeting and the majority shareholder (GML) does not vote. The resolution is passed unanimously by the four other minority shareholders.
Mr Owen is challenging the validity of the amendment. Will his challenge succeed?
Question 2: Director’s duties
JV Mine Pty Ltd is 50% owned by GML. In 2009, GML was approached by QMNE Ltd, the other shareholder in JV Mine, to make a further major investment in JV Mine, to enable it to develop a new copper mine.
The then directors of GML delegated to others, including a geologist, the task of obtaining the technical information about the amount of copper that might be able to be mined. The report prepared for the directors indicates that the proposed investment in the mine should be very successful. Queried by his fellow directors about the optimistic forecasts, Mr Chester (who has a geology qualification) assures them that all appears to be in order.
However, some of the information has been negligently prepared. This means that, when the directors rely on the report and invest GML’s funds in the mine, the investment will not be as successful as the report indicates. Have the directors of GML (or any of them) breached their duty of care?