In order to frustrate a threatened take-over bid, the directors of Kesho Ltd. issue to themselves and their nominees sufficient ordinary shares for cash so as to give themselves control of a majority of the shares which give the right to vote at a general meeting. Mwananchi, a minority shareholder who had hoped to benefit selling to the bidder, is very annoyed the action of the directors. Advise him as to his legal rights.

 This problem is based on abuse of power directors.
By issuing shares to themselves and nominees, the directors are exercising the power to issue shares for a purpose other than that for which the power is conferred. As was the case in Piercy v Mills and Punt v Symons.
 The directors are therefore guilty of breach of duty to the company.
 Since directors owe their duty to the company as opposed to individual shareholders (Percival V. Wright) Mwananchi has no action against them.
My advise to him is to instigate the convention of an extra ordinary general meeting of the company to resolve the matter. The meeting may resolve that the company sue the directors for breach of duty or ratify the transaction, whereupon it becomes a valid act of the company. As was the case in Bamford and Another v Bamfordand Others.

(Visited 33 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published. Required fields are marked *