Problem
Acme Pty Ltd has an issued share capital of 15,000 "A" class shares and 5,000 "B" class shares. The holders of the "B" class shares are entitled to be paid a 10% dividend before any payment of dividend is made to the holders of the "A" class shares, in any financial year. Otherwise, the rights of the holders of the "A" and "B" class shares are identical. John, Carmen and Beatrice each hold 5,000 "A" class shares; Nick holds 1,000 "B" class shares and Carmen holds the remaining 4,000 "B" class shares. Carmen is the Managing Director and John is a director and the company secretary of the Company. The company has adopted the Replaceable Rules in the Corporations Act.
John and Carmen wish to get rid of Nick from the company. They seek your advice on the following questions:
• What procedure must be followed to remove the right to receive the 10% dividend enjoyed by the "B" class shareholders, and how may Nick oppose the removal of this right?
• What procedure must be followed to cancel the "B" class shares, and how may Nick oppose the cancellation?
Beatrice wishes to purchase more shares in the company and seeks help from John and Carmen to do so. The bank is willing to lend Beatrice the money to do so but wishes to get collateral for the loan. Further Carmen is in a financial problem and wishes to sell her shares back to the company.
• Could the company lawfully grant a security over its land to the bank in order to provide collateral for the loan to Beatrice ?
• Could the company offer to buy back Carmen' shares and then cancel them?
• Carmen bought a $150,000 car on credit and signed the contract "Managing Director of Acme Pty Ltd". She plans to let her daughter use this car. Acme is not a large company as its revenue was $ 200,000 in the last financial year. Is the contract binding on the company?