John is a qualified accountant and a shareholder in BestCleaner Ltd (BL), a small private company in the business of manufacturing cleaning chemicals which was established one year ago. The company has four directors. The company's articles provide:

7. John shall be employed as the company's accountant and shall not be removed from office except for misconduct.

8. Where a shareholder intends to sell her shareholding in the company, the shareholder must inform the directors, who must acquire the shares in equal proportions at a fair price. John has since worked as the accountant of the company. A recent auditing of the books of the company revealed some errors in the company's financial statement and that they were due to John's negligence. However, there is no evidence that John has engaged in any intentional misconduct.

The board of directors of BL has recently made a decision to relieve John from his position as the company accountant. The directors, who are also majority shareholders, passed a special resolution in a recent General Meeting to alter the effect of Clause 8, which now reads:

8. (new) Where a shareholder intends to sell her shareholding in the company, the shareholder must inform the directors, who must acquire the shares in equal proportions at a price to be determined by the directors in their absolute discretion.

Advise John on:

(a) whether the board is bound by Clause 7; and

(b) whether John can challenge the alteration of Clause 8 under the common law.

Answer rating: 100% (QA)

a The board of directors of BL is bound by Clause 7 of the companys articles ... View the full answer