Question
Cathy and Rachel are the directors and shareholders in Pets First Pty Ltd. They have been having cash flow problems with respect to acquiring a
Cathy and Rachel are the directors and shareholders in Pets First Pty Ltd. They have been having cash flow problems with respect to acquiring a third vehicle (with equipment) to expand their business. They approach John to invest in Pets First Pty Ltd. John has offered to invest $100,000 into Pets First Pty Ltd on the basis that he will be issued with 50 Ordinary shares in the company (equating to 20% of the Company). At a general meeting of shareholders John is appointed non-executive director of the company. Pets First Pty Ltd's cash flow position has improved as a result of the investment from John, and substantial profits are earned in the following two years. John becomes aware that Cathy and Rachel have increased their salaries as executive directors (CEO and CFO) and have also declared bonuses to themselves. John becomes concerned that no dividends have been declared and at the next board meeting raises his concerns including his objection to the increase in Cathy's and Rachel's salary. Cathy and Rachel took offence to this an actioned the following:
At a directors meeting (no notice provided to John) a resolution was passed to assign a recent RSPCA contract to a new company formed by Cathy and Rachel as the sole shareholders.
Cathy and Rachel then called a General meeting with shareholders (no notice provided to John) and resolved that John will be removed as director of the company.
At the General Meeting of shareholders, the director's decision to assign the RSPCA contract was ratified by the shareholders with a vote of 80% (John not being present).
John comes to you with the following questions. You are required to answer:
(a) Can John bring a personal or derivative action against Cathy and Rachel, and what should John consider in making this decision?
(b) If John brings a personal action, should John bring it under the general law or make an oppression claim under s 232 Corporations Act 2001 (CTH)?
(c) What remedies should John seek?
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