company law

Question

ABC Ltd was incorporated in November 2010 and has issued 10,000 shares,

all with a nominal value of 1 each. The company's two directors, Maryand Paul, each own 2,000 shares. John, a local businessman, owns 4,000 shares and the remaining 2,000 shares are owned by a number oflocal investors.

Since it was incorporated, the company has run at a loss and has never made a profit. John believes that this is due to Maryand Paul's poor management of the company. He also believes that, with new management, the company could be extremely profitable. He therefore starts buying from the local investors the shares that they hold in ABCLtd with a view to voting Maryand Paul out of office.

Maryand Paul discover John's plan. Accordingly, they cause the company to issue 6,000 new shares and offer to sell them to their friend, Nancy. However, Nancy cannot afford to buy these shares, but she does offer to sell her car to ABC Ltd as part-payment for the shares. The car is only worth 3,000 but Maryand Paulaccept the car as part-payment providing that Nancy uses the voting rights attached to her shares to defeat any resolution that aims to remove Mary and Paul from office. The remaining payment comes in the form of 2,000, which Nancy borrows as a loan from ABCLtd.

John, realising that his scheme to oust Paul and Mary has failed wishes to sell his shares, but he cannot find a buyer. Mary tells John that ABC Ltd will purchase the shares. By now, John has 5000shares and he agrees to sell them to ABC Ltd. The company purchases the shares and they are duly cancelled. Having rid themselves of the troublesome John, Mary and Paulrecommend that a dividend be paid at a rate of 10 pence per share. Nancy agrees and between them, the dividend is declared and paid out.

Discuss the validity of Mary and paul's actions

points to consider

1. issuing of new shares
2. payment for new shares
3. purchasing of John's shares
4. payment of the divident