Y2T Electronics Ltd (the company) was incorporated in Hong Kong some years ago by three businessmen – Mr Au, Mr Chan and Mr Wong. The nominal share capital of the company is HK$9000, divided into 9000 shares of HK$1 each. All the shares were issued to the three men and their wives in equal shares, ie 1500 to each of the six shareholders. The three men were the directors of the company. The company manufactures electronic components which it supplies consumer goods manufacturers. The greater part of the profits has been taken out of the company by way of directors’ remuneration and the balance ploughed back into the company for future development.
Mr Au died earlier this year. His shares have now been registered in Mrs Au’s name.
A resolution was passed approving the pro rata issue of 9000 shares to the existing shareholders at HK$10,000 each. The ostensible purpose of this exercise is to raise capital for expansion in the development and manufacture new products. Mrs Au’s financial position does not permit her to take up this offer; even if she had the money, she would be unwilling to invest further in the company. Mrs Au is, anyway, suspicious that the purpose of the issue of shares is to dilute her shareholding.
Mrs Au discovers that part of the additional capital will be used to replace an expensive piece of manufacturing equipment which was damaged when Wong’s son, Adam, added water instead of lubricant. There are no plans to require Adam to compensate the company. The articles of the company require an outgoing member to offer his or her shares to the directors of the company at a price fixed by the directors.
The Aus always relied on Mr Au’s remuneration from the company as their main source of income. Now that Mr Au has passed away, Mrs Au is struggling to provide for her children’s education and other expenses.
Advise Mrs Au whether there is anything she can do to “extract” some money from the company.