Company law revision question and answer

Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations:

a) Vulture‟s son has recently come of age and vulture wishes to appoint him a director of
the company.

b) The company is considering the purchase of a substantial quantity of goods from fly ltd., in which sparrow has a large shareholding through he is not a director peacock and vulture are unaware of sparrow‟s interest in fly ltd.

c) Because of adverse publicity about peacock‟s private life, vulture and sparrow wish to
remove him as a director, since he refuses to resign.

d) In view of the adverse publicity, vulture and sparrow decide to exclude peacock from
participation in the company‟s affairs.

e) The directors are advised wise & co., the company‟s auditors, that there is no possibility of the company trading at a profit in the foreseeable future and no reasonable prospect of its paying its debts.

ANSWER
Birds Limited has three directors: Peacock, Sparrow and Vulture. Explain the legal implication of each of the following situations:
a)
Appointment of directors is a power vested in the general meeting the articles and directors have no power to appoint other directors let alone their own sons.
 The appointment of a director is effected the passage of an ordinary resolution in a general meeting.
Vultures wish to appoint his son a director is untenable since he has no power to do so.

b)
 Since directors stand in a fiduciary position in relation to the company whose board they form, they are bound to avoid conflict of interest.
In this case sparrow is bound to disclose the nature of his interest at board meeting failing which the contract is voidable at the option of the company. as was the case in Aberdeen Railway Co. v Blaikie Brothers. additionally, it is a criminal offence for which sparrow is liable to a fine not exceeding kshs.2,000.

c)
Removal of a director from office is a power vested in the general meeting the companies act.
 Directors cannot remove one of their number from the office of director.
 In the case sparrow and vulture cannot remove peacock from directorship since they have no power to do so.

d)
Being a director of the company, peacock has the right to take part in the affairs of the company.
 Vulture and sparrow cannot legally exclude peacock from participating in the affairs of the company.
 Peacock has the right to sue the other directors for an order to restrain them from excluding him from the affairs of the company.
Additionally Peacock may petition for the winding up of the company on the ground
that it is just and equitable to do so. As was the case in Re: Lundie BrothersLtd.

e)
 Based on the advice of the auditor, the company is insolvent and should cease to carry on business.
 The company may therefore be wound up compulsorily or voluntarily creditors.

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