1 Johnson, who was the sole owner of a piece of land, after knowing that such piece of land

would be recovered by the local government to build a road, sold the land to Somerset Ltd-his
solely owned company. The land was then recovered by the government with a small amount of
compensation. Somerset Ltd.'s creditors take legal action against Johnson. Can they succeed
under UK Law? Will your answer be different if Vietnamese law applies?
Issue: Is Somerset. Ltd is an incorporated entity? Can Somerset.Ltd’s creditors take legal action
against Johnson?
Rule: Lifting the company veil doctrine;
Duty to declare interest in transaction (S177)
Application:
- According to ground 3 of the lifting doctrine, the separateness hasn’t been maintained between
the company and its shareholders. It means that the company exists no substance (an alter ego of
the owner), the management existence is useless.
If Somerset.Ltd is an incorporation, it also means that it has separate legal personality to
shareholders, has its own assets (legal person). If so, Somerset.Ltd can sue Johnson in their own
name; have the capacity to contract with anybody including their only shareholder. It further
benefits and protects shareholders who are not in that capacity liable for the debts of their
company and cannot be held liable for any wrongdoings. Besides, the use of the assets will be
put through in shareholder’s meeting. However, if Somerset.Ltd is an alter ego company, all the
assets can be used freely by the owner and the owner can be the director according to S154(1),
S155.
- In this case, Johnson knew that the piece of land that he owned would be recovered by the local
government, so he sold the land to Somerset.Ltd – his solely owned company. However, the land
was then recovered by the local government with a small amount of compensation. Therefore,
the company was loss an amount of money from this transaction.
Conclusion:
- If the company is an alter ego of Johnson, Somerset.Ltd is not a legal person and Johnson must
take the ability.
- If the Somerset.Ltd is not an alter ego of Johnson, Johnson is the solely owner of Somerset.Ltd.
According to that, Johnson can be the director of Somerset.Ltd (S154(1), S155)
*
Because the company was suffering from
Company can not pay the debt.
3 cases for improper purpose
 • Prove the improper purpose does Johnson use for (alter ego of the owner-> the company
is dominated by the owner). There’re 3 cases for improper purpose.
• If applied the (1) ground of the doctrine, have to identify the obligation. In this case,
applied the 3rd ground of the doctrine, Mr, Johnson dominated the company because he
is the sole owner of the company. Then, have to prove that Johnson was misusing the
company and the obligation. Obligation: giving the land to the gov; Seem like Somerset
was established legally before the recover of the land happen. The 1st and the 2nd are not
relevant to this case. However, the 3rd ground of the doctrine, (Somerset is an Ltd so it is
a legal person) separate with Mr Johnson. This contract ís harmful. Mr Johnson and LTD
has successfully.
• There is no separate with Mr Johnson and the company. When company is legal perrson
must transfer the ability to

*Vietnam:
- If Somerest.Ltd has all the following conditions according to Article 74 about Juridical persons
in Civil Code 2015, Somerest.Ltd is Juridical person.:
“1. An organization shall be recognized as a juridical person if it meets all of the following
conditions:
a) It is legally established as prescribed in this Code and relevant laws;
b) It has an organizational structure prescribed in Article 83 of this Code;
c) It has property independent from other natural and juridical persons and bears liability by
recourse to its property;
d) It participates independently in legal relations in its own name.”
- If Somerest.Ltd is Juridical person, Somerset Ltd.’s creditors can’t take legal action against
Johnson. Because according to Article 87(1) about Civil liability of juridical persons:
+ Clause 1: “Each juridical person must bear civil liability for the civil rights and obligations
established and performed in the name of the juridical person by its representative”.
+ Clause 3: “A member of a juridical person shall not bear civil liability of the juridical person
for the civil obligations established and performed by such juridical person, unless otherwise
prescribed by law”.
- If Somerest.Ltd is not a juridical person, Johnson has liabilities for the company's loss from this
transaction and Somerset Ltd.’s creditors can’t take legal action against Johnson.
Use clause 4 article 77 and use invalidated contract
Clause 3 make a sumption no separate between the company and the owner
2 Megaholdings Plc is the parent company of a large corporate groupIts various subsidiaries
operate in a number of different industries, including house- building. Arnold, a director of
Megaholdings, learns that a large piece of vacant land in London is about to be sold by auction.
The land is suitable for house- building, but houses can only be built if the Local Authority gives
its permissionThe Local Authority says it will give permission, but only on condition that the
company building the houses carries out very expensive landscaping works once the houses have
been built. Arnold calculates that carrying out these works will make building houses on the land
unprofitable.

To get around this problem, Megaholdings incorporates a wholly-owned subsidiary, Shellbuild

Ltd, with a share capital of £1. Shellbuild Ltd purchases the land and, in return for being given
permission to build houses on the land, enters into an agreement with the Local Authority to
carry out the landscaping works. Shellbuild quickly builds, and sells, the houses for a substantial
profit, which is immediately paid to Megaholdings as a dividend and as management
chargesShellbuild has now informed the Local Authority that it is insolvent, and does not intend
to carry out the landscaping works.

During the construction of the houses, Megaholdings told Shellbuild's sole director, Lorraine,
that she must keep costs to an absolute minimum. Megaholdings was aware that Shellbuild was
using a number of very dangerous work practices in order to cut costs, but Megaholdings did
nothing to stop this. Cecilia, a bricklayer employed by Shellbuild, was badly injured as a result.

Advise:
(a) the Local Authority whether it can force Mega Holdings to pay for the costs of carrying out
the landscaping works
M wants to have the permission of the Local Authority to build the houses on a large piece of
vacant land in London. However, the Local Authority gave a condition that it will give
permission if the company building the houses carries out very expensive landscaping works
once the houses have been built. M did not want to build the landscaping because it’s too
expensive. M establishes S - it’s the subsidiary wholly owned by M. M would leave all of the
houses and the landscaping work to S do. During the process of building the houses, M would
contribute/provide the money for S to build the houses. However, when all the houses were done,
M stops providing the money. Therefore, S did not have enough money to continue the
landscaping works. In the end, S went into insolvency. The Local Authority could not ask S to
finish the landscaping works because it did not have any money to do that.
➢ We can apply the doctrine of “Lifting the company veil”(1): [more relevant to this case than
(3)]

○ The only reason for M to set up S is to evade the obligation of duty the landscaping ⇒ S was
established for the improper purpose of M that is to avoid the obligation of building the
landscape.
○ S was created as a mean for M to evade an obligation.
○ The company veil of S could be lifted, it means S would be no longer a legal person
and M as the owner would have to be responsible for all of the obligations of S.
Therefore, M would have to spend money doing the landscaping works.
○ After the corporate veil is lifted, the obligation of a company would be a obligation of
the owner.
➢ We can also apply the doctrine of “Lifting the company veil”(3):
○ Between S and M were not separated because the share capital of S and M is only one. S
builds the houses from the money of M. There is no separateness between these two company…
(b) Cecilia, whether she can claim damages from Mega Holdings for the injuries she has suffered
Cecilia can claim damages from Mega Holdings for the injuries she has suffered. Because if M
has to be responsible for the obligation of S, M will be also responsible for the injuries that
Cecilia has suffered.

The M created the S which are the subsidiaries of the M to take the ability of the land for
permission from the Local authorities.
The M just only want to build the house

According to UK company law, a company is a separate legal person from its shareholders and
directors, and has its own rights and obligations. This means that, as a general principle, a parent
company (such as Megaholdings) is not liable for the debts or liabilities of its subsidiary
company (such as Shellbuild), even if the parent company owns all the shares of the subsidiary
company. This concept is known as the corporate veil, which protects the parent company from
being sued or held responsible for the actions of the subsidiary company
However, there are some exceptional circumstances where the courts may decide to lift or pierce
the corporate veil and hold the parent company liable for the subsidiary company’s obligations.
This may happen when:
• The parent company and the subsidiary company are in fact one economic entity, and the
subsidiary company is merely a sham or a facade to avoid legal responsibility. This may be the
case if the parent company exercises complete control over the subsidiary company’s affairs, or
if the subsidiary company has no independent existence or function
• The parent company has abused the corporate structure to evade an existing legal obligation or
to commit fraud or wrongdoing. This may be the case if the parent company has deliberately
made the subsidiary company insolvent or undercapitalised, or if the parent company has used
the subsidiary company to conceal or facilitate illegal activities
• The parent company has expressly or impliedly assumed responsibility for the subsidiary
company’s obligations, either by contract, guarantee, indemnity or representation. This may be
the case if the parent company has agreed to pay for the subsidiary company’s debts or liabilities,
or if the parent company has misled third parties into believing that it would do so
Based on these general principles, the legal issues arising from your scenarios are as follows:
a) The Local Authority may have a claim against Megaholdings for breach of contract, if it can
prove that Megaholdings was a party to the agreement with Shellbuild to carry out the
landscaping works. This may depend on whether Megaholdings signed or authorised the
agreement, or whether it made any representations or promises to the Local Authority regarding
the performance of the agreement. Alternatively, the Local Authority may have a claim against
Megaholdings for lifting or piercing the corporate veil, if it can prove that one of the exceptional
circumstances mentioned above applies. For example, it may argue that:
• Megaholdings and Shellbuild were one economic entity, and that Shellbuild was merely a sham
or a facade to avoid legal responsibility for the landscaping works.
• Megaholdings abused the corporate structure to evade an existing legal obligation or to commit
fraud or wrongdoing, by making Shellbuild insolvent or undercapitalised, or by using Shellbuild
to conceal or facilitate illegal activities.
• Megaholdings expressly or impliedly assumed responsibility for Shellbuild’s obligations, either
by contract, guarantee, indemnity or representation.
The Local Authority may also have other remedies against Shellbuild, such as applying for an
injunction to compel Shellbuild to perform the landscaping works, or seeking damages for
breach of contract.
b) Cecilia may have a claim against Megaholdings for personal injury, if she can prove that
Megaholdings was vicariously liable for Shellbuild’s negligence. Vicarious liability is when an
employer (such as Megaholdings) could be held responsible for the actions of its employee (such
as Lorraine) or agent (such as Shellbuild), if those actions were done in the course of
employment or agency This may depend on whether there was a sufficient connection between
Megaholdings and Shellbuild, and between Shellbuild and Lorraine, to establish an employer-
employee or principal-agent relationship. For example, it may depend on whether:
• Megaholdings had control over Shellbuild’s operations, policies and procedures.
• Megaholdings had delegated authority to Shellbuild to act on its behalf.
• Megaholdings had integrated Shellbuild into its organisational structure.
• Megaholdings had benefited from Shellbuild’s activities.
• Shellbuild had control over Lorraine’s work duties, hours and methods.
• Shellbuild had provided Lorraine with training, equipment and supervision.
• Shellbuild had paid Lorraine’s wages and expenses.
• Lorraine had identified herself as working for Shellbuild.
Alternatively, Cecilia may have a claim against Megaholdings for lifting or piercing the
corporate veil, if she can prove that one of the exceptional circumstances mentioned above
applies. For example, she may argue that:
• Megaholdings and Shellbuild were one economic entity, and that Shellbuild was merely a sham
or a facade to avoid legal responsibility for the personal injury.
• Megaholdings abused the corporate structure to evade an existing legal obligation or to commit
fraud or wrongdoing, by making Shellbuild insolvent or undercapitalised, or by using Shellbuild
to conceal or facilitate illegal activities.
• Megaholdings expressly or impliedly assumed responsibility for Shellbuild’s obligations, either
by contract, guarantee, indemnity or representation.
Cecilia may also have other remedies against Shellbuild and Lorraine, such as suing them for
negligence or breach of statutory duty.

3. Acorn Plc was formed 2 years ago. At the time of formation, Acorn Plc issued 1,000 shares to
130 different shareholders. Three shareholders each hold 200 shares; the remaining 127
shareholders hold the other 400 shares. The stated business purpose of Acorn Plc is to "purchase
new computers for resale to consumers and to conduct all business incident to the purchase and
resale of new computers". Justin, Jessica, and Jeremy, the three shareholders of 200 shares each,
were the promoters of the company and were intended to be the initial members of board of
directors. The articles of the company were properly filed, and a certificate of registration was
received a short time later. Justin was named as the registered agent in the articles of association.
Justin, Jessica, and Jeremy assumed the duties of running the company, but never held a
shareholder's meeting. They have run the company for 3 years, and none of the other shareholders
has objected to the fact that the shareholders' meeting was not held. The business had been quite
successful until the last year. In the last year, Justin, Jessica, and Jeremy have made some changes
in the business. They have begun accepting used computers as trade-ins, and have begun offering
computer-training classes. In addition, they have been offering word- processing services and have
also been buying and selling used office equipment other than computers. All of these additional
operations have been unprofitable thus far. A group of the other shareholders has sued in an effort
to stop the carrying on of these other businesses. Do they have a basis for such a suit, and if so,
what remedies would they have in accordance with UK Law?

Justin, Jessica, and Jeremy have committed a criminal offense because thay fail to hold the
general meeting of shareholders for 3 years (s336 CA 2006).
➢ Basically, the stated business purpose of Acorn Plc is to "purchase new computers for resale
to consumers and to conduct all business incident to the purchase and resale of new computers".
In reality, three director have made some changes in the business in the last year. They have
begun accepting used computers as trade-ins, and have begun offering computer- training
classes. The new changes are completely outside the business purpose of the company company
in the AOA without any approval from shareholders. Only shareholders can amend the AOA.
Therefore, in this case, three directors have violated duty to act within powers (s171 CA 2006).
➢ Don’t have enough information to examine s172.

According to UK company law, shareholders have certain rights and remedies to protect their
interests and to challenge the decisions or actions of the directors or the company that may be
detrimental to them. Some of the main shareholder rights and remedies are:
• The right to vote on certain matters affecting the company, such as the appointment or removal
of directors, the alteration of the articles of association, the approval of dividends, the winding up
of the company, etc
• The right to receive information and accounts from the company, such as the annual report, the
financial statements, the directors’ report, etc
• The right to inspect the company’s registers and records, such as the register of members, the
register of directors, the register of charges, etc
• The right to bring a derivative claim on behalf of the company against a director or a third party
who has caused loss or damage to the company by breaching their duties or committing fraud or
wrongdoing
• The right to bring an unfair prejudice petition to the court if the affairs of the company are
being conducted in a manner that is unfairly prejudicial to their interests as a member
• The right to apply for a just and equitable winding up of the company if it is impossible or
impracticable for the company to continue its business due to deadlock, breakdown of trust,
oppression, mismanagement, etc
Based on these general principles, the group of shareholders who have sued Justin, Jessica and
Jeremy may have a basis for their suit if they can prove that:
• Justin, Jessica and Jeremy have breached their duties as directors by acting in bad faith, without
reasonable care and skill, or in conflict with the interests of the company or its members.
• Justin, Jessica and Jeremy have acted ultra vires (beyond their powers) by engaging in activities
that are not within the stated business purpose of Acorn Plc or authorised by its articles of
association or its members.
• Justin, Jessica and Jeremy have unfairly prejudiced their interests as members by changing the
nature of the business without their consent or consultation, by diverting resources and profits
from the core business to unprofitable ventures, by failing to hold shareholders’ meetings or
provide information and accounts, etc.
If they can establish any of these grounds, they may have various remedies available to them
depending on the circumstances and the discretion of the court. Some of these remedies are:
• An injunction to restrain Justin, Jessica and Jeremy from continuing or repeating their actions
or omissions that are causing harm to the company or its members.
• A declaration to nullify any decisions or transactions that are invalid or unlawful due to breach
of duty or ultra vires.
• A damages award to compensate them for any loss or damage they have suffered as a result of
breach of duty or unfair prejudice.
• A rescission or restitution order to undo any transactions that are unjust or inequitable due to
breach of duty or unfair prejudice.
• A buy-out order to require Justin, Jessica and Jeremy to purchase their shares at a fair value or
to allow them to sell their shares at a fair value.
• A winding up order to dissolve Acorn Plc if it is just and equitable to do so in view of its
situation and prospects.
4. Biztec Plc designs and installs computer software. Recently, the board has passed
resolutions:
- to reject a proposed contract with Wintelli University to install a new computer system in
its library. The board did not see that there was enough profit in the contract to make it
commercially viable. After the meeting, Derek, a director of the company, approached
Wintelli University and has been offered the contract in his personal capacity which he
intends to accept.
- to purchase some new computer equipment from Kitech plc. This contract was negotiated
by Lucas, one of the company's directors, who, unknown to Biztec plc, has been paid a
£5,000 commission for recommending Kitech plc to the company.
Are these resolutions legally valid?
Regarding the first resolution, it is possible that Derek’s actions could be considered a breach of
his fiduciary duty to Biztec Plc. As a director of the company, he has a duty to act in the best
interests of the company and avoid conflicts of interest. By accepting the contract in his personal
capacity, he may be putting his own interests ahead of those of the company. However, whether
or not this constitutes a breach of duty would depend on the specific circumstances of the case
and any relevant laws or regulations.
As for the second resolution, Lucas’s acceptance of a commission from Kitech plc without
disclosing it to Biztec Plc could also be considered a breach of his fiduciary duty. Directors have
a duty to act in good faith and avoid conflicts of interest, and accepting payments from third
parties without disclosure could be seen as a violation of this duty. Again, whether or not this
constitutes a breach would depend on the specific circumstances and applicable laws.
In general, it is important for directors to act in good faith and avoid conflicts of interest when
making decisions on behalf of their companies. Failure to do so could result in legal action
against them or other negative consequences for the company.
Rule: s175.
the approval of the shareholder have to granted before or after the director receive the
benefit (S168). It doesn’t matter before or after as long as the is approval, permission -> no
violation.
5. Paradise Plc's board of directors has proposed that the company will employ Summerset
Ltd to carry out an efficiency study. The principal shareholder and managing director of
Summerset Ltd is Mary; she is married to Smith, a director of Paradise Plc. Smith fails to
mention the connection. Advise Smith of the legal situation?
Did the act of ignoring mention of marriage status violate any obligation?
According to the Companies Act 2006, directors have a duty to avoid situations where they have
or may have a direct or indirect interest that conflicts or may conflict with the interests of the
company. This duty applies to the exploitation of any property, information or opportunity by a
director for personal purposes, whether or not the company could itself take advantage of it.
Directors also have a duty to declare their interests in any proposed or existing transactions or
arrangements with the company. Directors are not allowed to accept benefits from third parties
that are conferred on them because they are directors or for doing (or not doing) something as a
director.
In this case, Smith may have breached his duty to avoid conflicts of interest by failing to disclose
his connection with Summerset Ltd, which is a potential competitor or supplier of Paradise Plc.
Smith may also have breached his duty to declare his interest in the proposed transaction or
arrangement between Paradise Plc and Summerset Ltd. Smith may have received a benefit from
Summerset Ltd by virtue of his marriage to Mary, who is the principal shareholder and managing
director of Summerset Ltd.
The legal consequences and remedies for breach of these duties may include damages,
injunctions, rescission of contracts, restoration of property, account of profits, or removal of
directors. The company may also take disciplinary action against Smith for violating its code of
conduct or policies. Smith may also face criminal liability if he has acted dishonestly or
fraudulently.
Therefore, Smith should immediately inform the board of directors of Paradise Plc about his
relationship with Mary and Summerset Ltd, and seek their authorisation for the proposed
transaction or arrangement. Smith should also abstain from voting or participating in any
discussions or decisions related to the transaction or arrangement. Smith should also review his
other interests and connections and disclose them to the board of directors if they may give rise
to any conflicts of interest in the future. Smith should also seek legal advice on how to remedy
his past breaches and avoid further breaches.
Khương.
Không chỉ tránh xung đột lợi ích thì cũng phải tránh những khả năng gây xung đột lợi ích, s175
CA 2006.

6. Donna formed a private company several years ago by issuing 500 shares in the
UK. There are 10 shareholders, with the smallest shareholder owning 25 shares, and
Donna holding the most at 100 shares. The company needs additional cash, but the current
shareholders do not wish to have any additional shareholder. What are their options and
what additional factors should the current shareholders consider in raising the additional
cash based on the general rules on financing of a company?
 https://www.lawdonut.co.uk/business/business-ownership-and-management/shares-
and-shareholders/issuing-and-transferring-private-company-shares-faqs
What options?
In general, there were such method for a company to call for additional cash:
1. Offer to sell new shares to mobilize more capital by the following methods: (i) Selling shares
to existing shareholders ((which it could otherwise have paid in cash as dividends) to pay for
new shares for them instead. This reduces the value of each share, making it more marketable,
without the shareholders having to find new cash to pay for the shares. It can also be used to
increase a private company's issued share capital); (ii) Public offering; and (iii) Private offering.
2. Convert issued bonds into shares. (Transfer cash debt from a bank or credit institution)
3. Depositary receipts: Attract oversea investors for the company, in particular, the receipt is not
share but the rights are the same as shareholders.
So, in this case, if Donna’s company didn’t want additional shareholders, they could offer new
shares to existing shareholders or convert issued bonds into shares or to pay cash in pay
dividends by shares or depositary receipts. Otherwise, Donna’s company is a private company
which meant the shares were limitedly offered in public or for outsiders. However, the main
point of the company to increase shares capital is not completely private, except to access bank
loans, through IPO private company could go public, IPO allows a company to raise equity
capital from public investors. However, it took time and cost money to set up.
What additional factors?
Authorization to pass those decision (under UK law):
In this case, Donna’s company had 10 shareholders which meant the authority to allot new shares
or decision to increase shares capital in the Article of Association is the shareholders. Otherwise,
in UK, private company got more shares meant more power so Donna could affect the result of
the vote while she held most shares. Under UK law, if any other shareholder presented at AoA
meeting then, just Donna and other most shareholders still could decide whether or not allot new
shares.

Húi.
Based on the general rules on financing of a company, there are such as two ways to meet company
requirement to have more additional cash:
1. The investment of existing shareholders based on their proportion to their current ownership,
this way doesn't admit more shareholders and increase the additional cash the company needs.
2. The fact that Donna formed a private company, so this type of company must follow the rule of
disclosure. Second way that the company could do to have more additional cash is by borrowing
from bank, Financial institutions. Company cannot sell stocks to other peoples outside the
companies because of the private matter, but the company can issue to there own shareholder, also
issue bonds, other securities that doesn't affect the number shareholder of the company.

There are two main types of financing for a private company: debt and equity. Debt financing
involves borrowing money from lenders, such as banks, investors or suppliers, and repaying it
with interest over time. Equity financing involves selling shares or ownership stakes in the
company to investors, such as venture capitalists, angel investors or crowdfunding platforms, and
sharing the profits or losses of the company with them.
Debt financing has the advantage of not diluting the ownership or control of the existing
shareholders, as they do not have to share their rights or benefits with the lenders. Debt financing
also has tax benefits, as the interest payments are deductible from the company’s taxable income.
However, debt financing also has drawbacks, such as increasing the financial risk and liability of
the company, as it has to repay the principal and interest regardless of its performance or cash
flow. Debt financing also imposes restrictions and covenants on the company’s operations and
activities, such as maintaining certain financial ratios, providing regular reports and accounts,
and obtaining consent for major decisions or changes.
Equity financing has the advantage of not increasing the debt or liability of the company, as it
does not have to repay the investors unless they sell their shares or the company is liquidated.
Equity financing also provides access to additional resources and expertise from the investors,
who may offer advice, guidance, contacts or support to the company. However, equity financing
also has drawbacks, such as diluting the ownership and control of the existing shareholders, as
they have to share their rights and benefits with the investors. Equity financing also has tax
implications, as the dividends paid to the investors are not deductible from the company’s
taxable income. Equity financing also requires more disclosure and compliance with legal and
regulatory requirements, such as preparing and filing prospectuses, reports and accounts, and
obtaining approvals for share issues or transfers.
Based on these general principles, some of the possible options and considerations for Donna’s
company are:
• Bank loan: This is a common form of debt financing where a bank lends money to the company
for a fixed period of time at a fixed or variable interest rate. The loan may be secured by
collateral (such as assets or receivables) or unsecured (based on creditworthiness). The bank may
also require personal guarantees from Donna or other shareholders or directors. The advantages
of a bank loan are that it does not dilute the ownership or control of the existing shareholders,
and that it may have lower interest rates than other forms of debt financing. The disadvantages
are that it increases the debt and liability of the company, and that it imposes restrictions and
covenants on the company’s operations and activities.
• Asset finance: This is a form of debt financing where a lender provides funds to purchase or
lease assets (such as equipment or vehicles) that are essential for the company’s business. The
lender retains ownership or title to the assets until they are fully paid off by the company. The
advantages of asset finance are that it does not dilute the ownership or control of the existing
shareholders, and that it may have lower interest rates than other forms of debt financing. The
disadvantages are that it increases the debt and liability of the company, and that it limits the use
and disposal of the assets by the company.
• Venture capital: This is a form of equity financing where an investor provides funds to a high-
growth potential company in exchange for a significant share or stake in its ownership and
profits. The investor may also provide strategic advice, mentoring, networking or other support
to help grow the company. The advantages of venture capital are that it does not increase the
debt or liability of the company, and that it provides access to additional resources and expertise
from the investor. The disadvantages are that it dilutes the ownership and control of the existing
shareholders, and that it requires more disclosure and compliance with legal and regulatory
requirements.
• Crowdfunding: This is a form of equity financing where a large number of individuals provide
small amounts of funds to a company via an online platform in exchange for a share or stake in
its ownership and profits. The platform may also facilitate communication and feedback between
the company and its investors. The advantages of crowdfunding are that it does not increase the
debt or liability of the company, and that it provides access to a large pool of potential investors.
The disadvantages are that it dilutes the ownership and control of the existing shareholders, and
that it requires more disclosure and compliance with legal and regulatory requirements.

3 ways

Asking money or issunging bonds or division or bank loan

7. Five years ago Bolus plc, a pharmaceutical manufacturing company bought a premises
in Smallville, as part of the town's regeneration program. Bolus currently employs two
thousand local people, many of them in lower paid semi skilled jobs, and its business has
thrived. It has a good reputation in the locality as a responsible employer and it sponsors
the local football team. The factory is adjacent to farmland on the edge of the town. Apply
UK law, discuss the legal issues concerning the directors' and company secretary's duties
arising from the following scenarios:
a) Bolus' premises are rapidly becoming too small to accommodate anticipated growth in
the next five years. At the last general meeting, the shareholders authorized the directors to
"decide, after further research, whether to expand the existing site, or relocate to
Oldcastle" (an industrial city 100 miles away).
b) The board has commissioned a feasibility study for the new development from Make-It-
Happen Ltd, a small company owned by Arthur Tansy, stepson to Basil Pepper who is one
of the directors of Bolus. This cost Bolus £10,000.
c) Cedric Smeek, Bolus' company secretary, ordered a computer from Crash Ltd costing
£1000 in Bolus name. He then sold it on to his daughter in law for £1,300. The transaction
was discovered by Prudence Hope, the head of Bolus accounts department, and she has
refused to issue payment to Crash Ltd.
According to the Companies Act 2006, directors have a duty to act in good faith to promote the
success of the company for the benefit of its members as a whole, having regard to various
factors such as the interests of employees, the impact of the company’s operations on the
community and the environment, and the long-term consequences of their decisions. Directors
also have a duty to avoid situations where they have or may have a direct or indirect interest that
conflicts or may conflict with the interests of the company. Directors must also declare their
interests in any proposed or existing transactions or arrangements with the company. Directors
are not allowed to accept benefits from third parties that are conferred on them because they are
directors or for doing (or not doing) something as a director.
A company secretary is not required for a private limited company, but some companies use
them to take on some of the director’s responsibilities. A company secretary may have various
duties depending on the company’s articles of association and any service contract, but generally
they are responsible for keeping records, submitting reports and accounts, arranging meetings,
and facilitating communication between the board, management, shareholders and other
stakeholders. A company secretary may also owe fiduciary duties to the company similar to
those of directors.
Based on these general principles, the legal issues arising from the scenarios are as follows:
a) The directors of Bolus plc have been authorised by the shareholders to decide whether to
expand the existing site or relocate to Oldcastle. This decision may have significant implications
for the company’s future growth, profitability, reputation, social responsibility and stakeholder
relations. The directors must act in good faith to promote the success of the company for the
benefit of its members as a whole, having regard to various factors such as the interests of
employees, customers, suppliers, creditors, local community and environment, and the long-term
consequences of their decision. The directors must also exercise independent judgment and
reasonable care, skill and diligence in making this decision. The directors must also consider any
relevant provisions in the company’s articles of association and any shareholders’ agreement that
may affect their decision-making power or process. The directors must also comply with any
applicable laws and regulations regarding planning permission, environmental impact
assessment, health and safety, employment rights and taxation.
b) The board has commissioned a feasibility study from Make-It-Happen Ltd, a small company
owned by Arthur Tansy, stepson to Basil Pepper who is one of the directors of Bolus plc. This
may raise a potential conflict of interest for Basil Pepper, who may have a direct or indirect
interest in Make-It-Happen Ltd through his family relationship with Arthur Tansy. Basil Pepper
has a duty to avoid situations where he has or may have a conflict of interest with Bolus plc. He
also has a duty to declare his interest in the proposed transaction or arrangement between Bolus
plc and Make-It-Happen Ltd. He should disclose his interest to the board as soon as possible and
before the board decides whether to enter into the transaction or arrangement. He should also
abstain from voting or participating in any discussions or decisions related to the transaction or
arrangement. The board should consider whether it is in the best interests of Bolus plc to
commission Make-It-Happen Ltd for the feasibility study, taking into account factors such as the
quality, cost, timing and reliability of their services. The board should also ensure that the
transaction or arrangement is fair and reasonable to Bolus plc and that it does not prejudice the
interests of its members or creditors. The board should also document their decision-making
process and rationale in writing.
c) Cedric Smeek, Bolus plc’s company secretary, ordered a computer from Crash Ltd costing
£1000 in Bolus name. He then sold it on to his daughter in law for £1,300. This may amount to a
breach of fiduciary duty by Cedric Smeek, who may have exploited his position as company
secretary for personal gain at the expense of Bolus plc. Cedric Smeek may have acted
dishonestly or fraudulently by ordering a computer in Bolus name without proper authorisation
and by selling it on for a profit without disclosing it to Bolus plc. Cedric Smeek may have also
breached his duty to act in good faith to promote the success of Bolus plc and his duty not to
accept benefits from third parties. The transaction was discovered by Prudence Hope, the head of
Bolus accounts department, who has refused to issue payment to Crash Ltd.
The legal consequences and remedies for breach of fiduciary duty may include damages,
injunctions, rescission of contracts, restoration of property, account of profits, or removal of the
company secretary. The company may also take disciplinary action against Cedric Smeek for
violating its code of conduct or policies. Cedric Smeek may also face criminal liability if he has
acted dishonestly or fraudulently.
Therefore, Cedric Smeek should immediately inform the board of directors of Bolus plc about
his actions and seek their forgiveness and approval for the transaction. He should also return the
computer to Crash Ltd or pay them the full price of £1000. He should also refund Bolus plc the
difference of £300 that he received from his daughter in law. He should also review his other
transactions and activities and disclose them to the board of directors if they may give rise to any
fiduciary breaches in the past or future. He should also seek legal advice on how to remedy his
past breaches and avoid further breaches.
8. In a shareholders’ meeting of Summer Holidays PLC (SHP) the following issues have
been raised:
a. One director of the company set up his own company.
b. Directors of the company decided to divide a current ordinary share into two (2)
ordinary shares (subdivision of share).
c. Directors of the company decided to transfer £500,000 to Harry, a director of the
company, as compensation for loss of office.
Provide your resolution with sufficient explanations to resolve the above issues
according to Companies Act 2006 (UK). Would your answer will be different under VNese
law applies?

a. One director of the company set up his own company.

Issue: Can this director set up his own company?
Rule: Section 171 – section 177 of CA 2006
Application:
As in the shareholder’s meeting, there was no conflict of interests mentioned from the act of the
director by setting up his own company. Therefore, the Duty to avoid conflicts of interests
according to S.175 was not violated. However, he still has to make sure that there will be no
conflict of interests in the future between SHP and his own company. In addition, he has to
follow all general director’s duties regulated from Section 171 to Section 177 of CA 2006. If he
fails to do so, he has to take responsibilities.
Conclusion:
That director can have his own company as long as he follows all the duties from Section 171 –
Section 177 of CA 2006 that he has already born as a director of SHP.
In Vietnamese law, this director can still establish his own company according to clause 2 Article
17, clause 3 Article 188 and Article 180 of Law on enterprises 2020. In this case, the director is
not a sole proprietorship or general partner of a partnership either. On the other hand, he does not
fall into the cases specified in clause 2 Article 17 and the most important is he is a director of a
PLC. Therefore, under Vietnamese law, he has right to set up his own company.
b. Directors of the company decided to divide a current ordinary share into two (2)
ordinary shares (subdivision of share).
Issue: Whether or not directors have the authority to decide about shares split on their
own?
Rule: S.618(3), S.171(b)
Application: According to S.618(3) about Sub-division or consolidation of shares: “A
company may exercise a power conferred by this section only if its members have passed a
resolution authorising it to do so.”. We can understand that in case directors want to divide a
current ordinary share into two ordinary shares, they must pass a resolution authorizing to do that
subdivision. Because of the importance of this matter, shareholders’ approval is needed for
directors to decide this issue. If directors decide to divide shares on their own, they will violate
the Duty to act within power referred to S.171(b). By this section, directors must not exercise
powers for the purposes for with they are not conferred.
 Conclusion: In that case, if directors of the company want to divide a current ordinary
share into two ordinary shares, they must have the approval of the shareholders through
shareholder’s meeting. They do not have the right to divise any shares without the permission
from shareholders in any case.
According to Vietnamese law, stock splits can be carried out in the following forms and
the Board of Directors shall decide the time, method and prices for selling shares:
- Dividends in shares.
- Offering shares to existing shareholders is stipulated in S.124 Law of Enterprises 2020. The
offering of shares to existing shareholders is an event in which the company increases the
quantity and types of authorized and sells all of these shares to all shareholders in proportion to
their holdings.
- Private placement of shares in S.125 Law of Enterprises 2020.

c. Directors of company decided to transfer £500,000 to Harry, a director of the company,

as compensation for loss of office.
Issue: Can directors of company transfer £500,000 to Harry (a director of the company) as
compensation for loss of office?
Rule: Section 171, Section 215 (1a), Section 217 (1 and 3b) of CA 2006.
Application:
According to S.215 (1a), a “payment for loss of office” means a payment made to a director or
past director of a company by a way of compensation for loss of office as director of the
company and in this case, directors decided to transfer £500,000 to Harry - a director of SHP.
However, this transaction requires members’ approval through a resolution because this is a
payment by the company that needs shareholders’ approval according to S. 217(1) of CA 2006.
Besides, according to S.217 (3b), a resolution approving a payment must not be passed unless a
memorandum setting out particulars of the proposed payment (including its amount) is made
available to the members of company whose approval is sought in the case of a resolution at a
meeting, by being made available for inspection by the member both: i) at company’s registered
office for not less than 15 days ending with the date of the meeting; ii) at the meeting its self.
Therefore, the directors can not decide to transfer £500,000 to Harry without an ordinary
resolution passed by shareholders. If there is no resolution passed by shareholders’ approval,
directors will violate S.171 (Duty to act within powers) and have to take all the responsibilities
for transferring £500,000 to Harry.
Conclusion:
Directors do not have any rights to make a decision about transferring £500,000 to Harry, a
director of the company as compensation for loss of office. Because this transaction requires
shareholders’ approval which means the directors can only make this transaction when an
ordinary resolution is passed by shareholders. If they decide this matter themselves, they will
violate S.171 of CA 2006 and have to take responsibilities for all the risks caused by this
transaction.
In Vietnamese law, the board of directors has right to dismiss contract with the director and also
decide other benefits of the director according to clause 2 Article 153 of the Law on enterprise
2020. We can consider the payment for loss of office for Harry is “other benefits of the director”;
however, in Law on enterprise 2020, the right of deciding other benefits for the director should
be understood that the benefits are decided when the director is still in his position. Moreover,
these regulations show that there is no payment can be made as a compensation for the loss of
office as in UK law so the transaction here seems not sensible in Vietnamese law. On the other
hand, this kind of decision has to have the shareholders’ approval by voting at the meeting and if
the resolution was ratified by the BOD against regulations of law or a resolution of the GMS or
the company’s charter and causes damage to the company, the members that vote for the
ratification of such resolution or decision shall be jointly responsible for it and pay compensation
for the company; the members that vote against such resolution or decision shall not be held
responsible.
a. One director of the company set up his own company.
• This issue may involve a breach of the director’s duty to avoid conflicts of interest under
section 175 of the Companies Act 2006. According to this section, a director must avoid a
situation in which he or she has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the company. This applies in particular to the
exploitation of any property, information or opportunity.
• If the director set up his own company without the consent of SHP or without disclosing his
interest to the board of directors, he may have violated this duty and be liable to account for any
profit made from his own company or to pay compensation for any loss suffered by SHP as a
result of his conduct. SHP may also seek an injunction to restrain him from continuing his
conflicting activity or to rescind any contract made between him and his own company.
• However, there are some exceptions to this duty, such as when the situation cannot reasonably
be regarded as likely to give rise to a conflict of interest, or when the matter has been authorised
by the directors or the shareholders of SHP. Therefore, the resolution of this issue may depend
on the specific facts and circumstances of the case, such as the nature and scope of the director’s
own company, the extent of his involvement in it, and the impact of his actions on SHP’s
business and interests.
b. Directors of the company decided to divide a current ordinary share into two (2) ordinary
shares (subdivision of share).
• This issue involves the exercise of the power to subdivide or consolidate shares under section
618 of the Companies Act 2006. According to this section, a limited company having a share
capital may subdivide its shares, or any of them, into shares of a smaller nominal amount than its
existing shares, or consolidate and divide all or any of its share capital into shares of a larger
nominal amount than its existing shares.
• However, this power can only be exercised if the shareholders have passed a resolution
authorising it to do so. The resolution may authorise the company to exercise more than one
power, on more than one occasion, or at a specified time or in specified circumstances. The
company’s articles may also exclude or restrict the exercise of this power.
• Therefore, if the directors decided to subdivide a current ordinary share into two ordinary
shares without obtaining the shareholders’ approval or in violation of the company’s articles,
they may have acted ultra vires (beyond their powers) and be subject to legal challenges from the
shareholders or other parties. The subdivision may also be invalid and ineffective.
c. Directors of the company decided to transfer £500,000 to Harry, a director of the company, as
compensation for loss of office.
• This issue involves the payment for loss of office under sections 215 to 222 of the Companies
Act 2006. According to these sections, a payment for loss of office means a payment made to a
director or past director of a company by way of compensation for loss of office as director of
the company, or as consideration for or in connection with his retirement from office as director
of the company.
• Such payment requires the approval of the shareholders by an ordinary resolution, unless it is
made by way of damages for breach of contract, by way of pension in respect of past services, by
way of payment under an agreement entered into before 2006, or by way of payment under an
agreement that has been approved by an earlier resolution. The payment must also be disclosed
in the directors’ remuneration report and in the notes to the company’s annual accounts.
• Therefore, if the directors decided to transfer £500,000 to Harry as compensation for loss of
office without obtaining the shareholders’ approval or disclosing it in accordance with the law,
they may have breached their duties and be liable to repay the amount to SHP. The payment may
also be unlawful and voidable.
Vietnamese law:
a. One director of the company set up his own company.
• This issue may involve a breach of the director’s fiduciary duty under Article 161.1(d) and
Article 165.1(a) of the Law on Enterprises 2020. According to these articles, a director must act
in good faith and in the best interests of SHP and must not use information, know-how or
business opportunities obtained from SHP for personal benefit or for benefitting other
organisations.
• If the director set up his own company that competes with SHP or exploits SHP’s information,
know-how or business opportunities without SHP’s consent, he may have violated this duty and
be liable for damages caused by his actions. SHP may also request him to return any benefits
obtained from his own company or terminate his position as a director.
b. Directors of the company decided to divide a current ordinary share into two (2) ordinary
shares (subdivision of share).
• This issue involves the change of the charter capital of SHP under Article 135.1 of the Law on
Enterprises 2020. According to this article, SHP may change its charter capital by increasing or
decreasing it in accordance with its charter and the law. The change of the charter capital must be
decided by the general meeting of shareholders or the owner of SHP, and must be registered with
the competent business registration authority within 10 days from the date of decision.
• Therefore, if the directors decided to subdivide a current ordinary share into two ordinary
shares without obtaining the shareholders’ approval or registering the change of the charter
capital, they may have acted ultra vires and be subject to legal challenges from the shareholders
or other parties. The subdivision may also be invalid and ineffective.
c. Directors of the company decided to transfer £500,000 to Harry, a director of the company, as
compensation for loss of office.
• This issue involves the remuneration and benefits of directors under Article 162.1 and Article
164.1 of the Law on Enterprises 2020. According to these articles, the remuneration and benefits
of directors must be decided by the general meeting of shareholders or the owner of SHP, and
must be stated in the charter or in a separate resolution. The remuneration and benefits of
directors must also be disclosed in SHP’s annual financial statements.
• Therefore, if the directors decided to transfer £500,000 to Harry as compensation for loss of
office without obtaining the shareholders’ approval or disclosing it in accordance with the law,
they may have breached their duties and be liable to repay the amount to SHP. The payment may
also be unlawful and voidable.

9. Mr. A is a director of Mega Co. Ltd which operates in hospitality industry. Explain
whether Mr. A breaches his duty as a director in the following cases and if so, what duties
have been breached? Discuss any defense which may be available to A in cases he breached
his duty (Note that Companies Act 2006 (UK) is the applicable law):
a. Mega Co. Ltd signed a contract with Peter Electronic Co. Ltd. in which Mr. A holds
35% of share capital for the provision of services.
b. Mr. A failed to attend the meeting of directors of Mega Co. Ltd. due to his illness.
c. Mr. A made the investment decision that resulted in Mega Co. Ltd.'s loss of profits by
20%.
d. Mr. A bought a majority share in a travel company.
e. Mr. A received a commission of 5% of the room rates from the company which wants to
hold a clients' conference in one of the hotels that Mega Co. Ltd operates.

e
1. **Contract with Peter Electronic Co. Ltd.**:
- Mr. A, as a director, has a duty to act in the best interests of the company and avoid conflicts
of interest.
- By signing a contract with Peter Electronic Co. Ltd., in which he holds 35% of share capital,
Mr. A may have breached his duty by creating a conflict of interest.
- **Defense**: If Mr. A disclosed this interest to the board and obtained their approval, he
might have a valid defense.

2. **Failure to attend directors' meeting due to illness**:

- Directors are expected to actively participate in board meetings.
- Mr. A's failure to attend a meeting due to illness may not necessarily breach his duty, but it
depends on the circumstances and the impact on decision-making.
- **Defense**: If Mr. A had valid reasons for his absence and communicated them
appropriately, it might be a reasonable defense.

3. **Investment decision resulting in loss of profits**:

- Directors have a duty to exercise reasonable care, skill, and diligence when making
investment decisions.
- If Mr. A's decision led to a 20% loss in profits for Mega Co. Ltd., he might be considered
negligent.
- **Defense**: If Mr. A can demonstrate that he made an informed decision based on available
information and acted in good faith, it could be a defense.

4. **Buying majority share in a travel company**:

- Directors must avoid situations where their personal interests conflict with those of the
company.
- By acquiring shares in a competing travel company, Mr. A may have breached his duty.
- **Defense**: If Mr. A obtained proper authorization or disclosed this acquisition to the
board, it could be a defense.

5. **Receiving commission from a client conference booking**:

- Directors should not personally benefit from transactions related to the company without
proper disclosure.
 - If Mr. A received a commission from room rates for the client conference, it could be seen as
self-dealing.
- **Defense**: Proper disclosure and board approval would be essential for a valid defense.

10. Rusile Timbers Ltd makes low-price furniture, which it sells through supermarkets. The
company has 3 directors, Archie, Bella and Charles.
Archie is a qualified accountant, and the corn parry's Charman.
Bella, who has a full-time job as a presenter of television programmers on furniture design,
has not attended any of Rustic Timbers' board meetings for over a year Rustic Timbers has
been running at a substantial loss for many months. Archie calls a board meeting to discuss
the company's Financial problems. Bella does not attend the meeting. Charles argues the
company should cease trading immediately. Archie disagrees. He says the company might
just survive if it opens its own furniture store, selling its products directly to the public. He
admits the scheme is very risky, but argues the risk is worth taking to protect the jobs of its
current employees. He tells Charles he knows of a suitable store to purchase for £105,000,
which is currently owned by his daughter, Paula. Charles objects to this, but Archie uses his
casting vote as Chairman to pass a resolution purchasing the store. Charles storms out of the
board meeting, and has since refused to speak to Archie. After six months it is clear Archie's
strategy has failed, the company's losses have increased, and the company is now being
wound up. Joan has been appointed as the company's liquidator. She has discovered that,
although the price paid for the store at the time was quite reasonable, it has since fallen in
value.
Discuss the possible breaches of duty or potential liabilities by any of the directors.
Khương.
Firstly, we point out that every faulty act of each directors in this case:
+ Bella as the director of the company hadn’t attended any board meetings while the company was
dealing with its financial problems.
+ Did Archie violate any obligation or BoD when he used his Chairman right to make a final
decision when other (1) directors refused?
So, we only considered Bella and Archie violation. The exception is Charles, because his argument
with Chairmen is regularly normal between 2 difference points of view. So, Charlie didn't violate
any obligation.
Secondly, Board of directors’ meetings must follow the regulation of the company so directors of
the company could make business decisions. Which meant, every important business decision that
led the company to success or failure must require the representation of the directors directly or
under any type of online meeting resolution. However, Bella did not attend any meetings, or
request her authorized representation for the meetings without any reasonable reason, particularly,
Bella did violate her obligation as the director when the company was in its hard time.
Thirdly, according to CA 2006, the power of Chairman did not include the right to make a decision
of his own will but to declare the decision of other directors, which meant, Archie was not allowed
to decide to pass a resolution purchasing the store without the agreement of Charles and Bella.
Even though a reasonable price was paid, Archie still doesn’t have any right to conduct his
resolution. Which meant, Archie is responsible for the damage of the company on his own.

Trung Hiếu:
Bella:
Breach of duty of management: Bella breached the basic duty of a director by not attending any
board meetings of Rustic Timbers for over a year, despite the company's financial situation being
on a downward trend.
Archie:
Breach of duty of management: Archie abused his position as a director to pass a decision at the
meeting, regardless of the objections of other directors.
Breach of duty of declare: When purchasing the store for £105,000, Archie was clearly in a
conflict of interest as the store was owned by his daughter. He was therefore required to disclose
this information to Bella publicly and request that she attend the meeting. 175 possibility
Additionally, as the value of the contract exceeded £100,000, Archie was required to call a
shareholders' meeting to pass a resolution to purchase the property from himself, Archie in this
situation acting over power that must belong to shareholders. Đoạn này là non cash asset 190.
violates duty act with his power
Breach of duty of care: Archie breached his duty to exercise reasonable care, skill, and diligence
under section 174 of the Companies Act 2006. In a similar situation, when making a decision, he
should have considered whether his decision was right or wrong based on the opinions of people
of similar position, characteristic, intelligence, and quality, such as Charles, Bella. However,
Archie ultimately signed the contract for his own personal reasons, without considering the risks.
This also proves that Archie breached another of his duties, which is to promote the success of the
company. He should have put the interests of the company above his own personal interests. violate
s174. but not sure just a possibility.

Possible breaches of duty or potential liabilities by the directors are as follows:

• Archie may have breached his duty to avoid conflicts of interest by purchasing the store from
his daughter, Paula. This is because he had a personal interest in the transaction that could have
influenced his decision as a director. He should have disclosed his interest to the board and
obtained their approval before entering into the transaction. He may also have breached his duty
to promote the success of the company by pursuing a risky strategy that failed to improve the
company’s financial situation and increased its losses. He may have failed to consider the long-
term consequences of his actions, the interests of the creditors, and the reputation of the
company. Archie may be liable to account for any profit he made from the transaction with his
daughter, or to pay compensation for any loss caused to the company by his breach of duty. He
may also be liable for wrongful trading if he knew or ought to have known that there was no
reasonable prospect of avoiding insolvent liquidation, and did not take every step to minimise the
potential loss to the creditors.
• Bella may have breached her duty to exercise reasonable care, skill and diligence by not
attending any board meetings for over a year. This is because she failed to perform her functions
as a director with the level of competence and care that could be expected from someone with
her qualifications and experience. She may also have breached her duty to exercise independent
judgement by not participating in the decision-making process of the board. Bella may be liable
to pay compensation for any loss caused to the company by her breach of duty. She may also be
liable for wrongful trading if she knew or ought to have known that there was no reasonable
prospect of avoiding insolvent liquidation, and did not take every step to minimise the potential
loss to the creditors.
• Charles may not have breached any of his duties as a director, as he argued against Archie’s
strategy and objected to the purchase of the store from Paula. He may have acted in good faith
and in accordance with his fiduciary obligations towards the company. However, he may still be
liable for wrongful trading if he knew or ought to have known that there was no reasonable
prospect of avoiding insolvent liquidation, and did not take every step to minimise the potential
loss to the creditors. He may also be liable for any debts incurred by the company after he
became aware of its insolvency, unless he can prove that he took every step to prevent it.
Joan, as the company’s liquidator, may bring an action against any of the directors for breach of
duty or wrongful trading, and seek appropriate remedies from them. She may also report any
misconduct or fraud by the directors to the Insolvency Service, which may disqualify them from
acting as directors for up to 15 years.

11. Lesedi is one of the five directors of Surfs Heaven (Pty) Ltd. Her co-directors are of the
opinion that Lesedi is neglecting her duties as a director because she is out surfing all the
time. The board of directors has therefore passed a board resolution to remove her as a
director. Lesedi is unhappy about her removal as a director of the board, as she believes
that she is in fact promoting the company by surfing regularly.
Can Lesedi be removed from the board of directors?
Issue: Can a director be removed from the board of directors by neglecting her duties as a
director?
Rule: Section 168 - 169 CA 2006
Application:
According to S.168(1), a company may by ordinary resolution at a meeting remove a director
before the expiration of his period of office, notwithstanding anything in any agreement between
it and him. A director should act under their statutory and fiduciary duties which are set out in
Sections 171 to 177 of the CA 2006 and if directors feel that a director is failing to act in
accordance with these duties, they can take steps to remove the director in question. The
procedure for removal of a director is as follows (S.169):
- “Special Notice” (under Companies Act 2006 Section 168) is given by the member(s) wishing
to remove a director at least 28 days before the meeting at which an Ordinary Resolution is to be
moved (under Companies Act 2006 Section 312);
- On receipt of the notice the Company must send a copy of the resolution to the director
concerned. A board meeting must also be called to convene a general meeting;
- The director concerned is entitled to make written representations to the company and to
request their notification to the members. The director may also speak at the meeting on the
resolution concerning his/her removal;
- The BOD may make representations to the members whether they are for, or against the
resolution.
However, in this case, the company did not follow the proper procedure of a director. They did
not give Lesedi proof of neglecting her duties as a director and falsely proved which duty of
director she was supposed to perform or whether she was ineligible or not. Furthermore, Lesedi
did not have a chance to speak at the meeting on the resolution concerning her removal. In
conclusion, Lesedi can not be removed from the BOD.
Conclusion: Because of the violation of procedure in the board's removal of Lesedi, in this
situation, Lesedi cannot be dismissed as a director.
Lesedi cannot be removed from the board of directors by the other directors without following
the proper procedure. According to Section 71 of the Companies Act in South Africa, there are
two ways to remove a director from a company: by the shareholders or by the directors.
The shareholders can remove a director by an ordinary resolution at a shareholders meeting,
regardless of any provisions in the company’s Memorandum of Incorporation or shareholders’
agreements. However, the director must be given notice of the meeting and the resolution, and
must be given a reasonable opportunity to make a presentation before the vote is taken.
The directors can remove a director if he or she has been negligent or derelict in the performance
of his or her functions, or has become ineligible or disqualified to be a director. However, the
director must be given notice of the intended action and must be given a reasonable opportunity
to make representations before the board takes a decision.
In Lesedi’s case, it seems that the board of directors has not followed the proper procedure for
removing her as a director. They have not given her notice of the resolution or the opportunity to
make representations. They have also not shown that she has been negligent or derelict in her
functions, or that she has become ineligible or disqualified to be a director. Therefore, Lesedi can
challenge her removal as a director and seek legal recourse. She can also argue that she is not
neglecting her duties as a director, but rather promoting the company by surfing regularly, as this
is related to the nature and purpose of the company.
Trung Hiếu: s168, s169 CA 2006 UK: Procedure to remove director before the expiration of her
period of office.
Special notice to shareholders: The company must send a copy of the notice of the resolution to
shareholders. This special notice must be sent at least 28 days before the shareholder meeting.
(S312 CA 2006) also Notice to the Director: BOD does not send a copy of the notice of the
resolution to remove to Lesedi.
Director's opinion: The director has the right to send a written representations to the company
about the resolution to removal. This idea must not be reasonable length and must clearly state
why the director oppose her removal. But here we can see BOD did not let Lesedi has any chance
to send representations in writing to all shareholders.
Lesedi also did not have the opportunity to be present orally at the BOD meeting remove her office.
The four other directors held a meeting without inviting her, and then suddenly announced that she
had been removed from her office as director.
12. Mars Ltd, a company based in the city of Limpopo, has five shareholders. The company
wishes to convene a shareholders' meeting to vote on certain amendments to the Articles.
Four shareholders are currently overseas and are not able to attend the meeting in Limpopo.
Without these shareholders, Mars Ltd will not have a quorum for the meeting. Mars (Pty)
Ltd does not have the facilities to hold the shareholders' meeting electronically. Advise Mars
Ltd of any options available to it in order to overcome this problem.

In case of unable to present at the meeting of shareholders, shareholders could authorize another
person in order to represent their will at the meeting. According to CA 2020, authorized person
had fully right of the shareholder in scope of their authorization. In other word, they could vote
for any amendments to the Articles under their shareholders’ will.
One possible option for Mars Ltd to overcome the problem of not having a quorum for the
shareholders’ meeting is to use proxies. A proxy is a person who is authorized by a shareholder
to attend and vote at a shareholders’ meeting on behalf of the shareholder. According to the
Companies Act of South Africa, a shareholder may appoint a proxy by completing a form of
proxy and delivering it to the company at least 48 hours before the meeting. The form of proxy
must be in writing and signed by the shareholder or the shareholder’s agent. The proxy does not
have to be a shareholder of the company.
Another possible option for Mars Ltd is to postpone the meeting until a quorum is present. If a
quorum is not present within one hour after the time at which a shareholders’ meeting is
scheduled to begin, the Act provides for an automatic postponement of the meeting for a period
of one week. At the postponed meeting, the shareholders present at the meeting in person or by
proxy are deemed to be a quorum. However, this option may not be feasible if the amendments
to the Articles are urgent or time-sensitive.
A third possible option for Mars Ltd is to amend its Articles to allow for electronic participation
in shareholders’ meetings. The Act permits a company to conduct a shareholders’ meeting
entirely by electronic communication, or to provide for some or all of the shareholders or proxies
to participate by electronic communication, as long as the electronic communication facility
enables all persons participating in that meeting to communicate concurrently with each other
without an intermediary, and to participate reasonably effectively in that meeting. The
company’s Articles may also provide for additional requirements or procedures for electronic
participation. This option may require some investment in technology and infrastructure, but it
may also increase convenience and efficiency for future meetings.

Trung Hiếu:
To give proper advice to Mars Ltd, first, since Mars Ltd is a private company, the company can
use the written resolution form to amend some provisions related to the AOA, subject to the
condition that it is not used for the purpose of removing a director or removing an auditor before
expiry of his term of office under Sections 188 and 288 of the CA 2006 UK.
To send a written resolution, the company can choose to send it by fax, email, post, or through the
company's internal shareholder management system. This method will take time to respond, but it
will be slightly faster than postponing the meeting and waiting for all the shareholders to gather
together.
The second method that can be done is to appoint a corporate representative: since the company
does not have the facilities to hold the shareholders' meeting electronically, it is difficult to hold
an online meeting.
Therefore, one of the four shareholders overseas (for the person with voting rights at the meeting)
can contact each other to appoint a representative to meet with the shareholder in Limpopo. This
is because the quorum at section 318 CA 2006 UK only requires at least two shareholders.
Therefore, the shareholders overseas do not need to spend the cost of appointing four
representatives to attend the meeting. The advantage of appointing a representative is that this
person has full voting rights like a shareholder, so you can be assured.
The third method is not recommended, but if possible, in the future at other meetings, it will be
very difficult if each time there is a meeting, there is always a representative to attend the meeting.
Then, the company can have a resolution to allow the BOD to have the authority to hold a BOD
meeting to amend some provisions of the AOA. The law requires a minimum of two shareholders,
so I will not advise Mars Ltd to have a resolution that allows one member to self-organize s318
CA 2006 UK