Kirks Pte Ltd as a manufacturer of health drinks has made substantial profits in its four years of operation. However the directors have not declared any dividends. Instead, the directors have approved large salary increases for themselves and the chairman over the last four years, which has left the company with very little profits.

Janelle who is a shareholder in the company is struggling to maintain her expensive lifestyle, and is unhappy with the board's decisions.

As the end of the 2015-2016 financial year approaches:

Janelle wants to force the directors to declare a dividend, and finally get a return on her investment.

The directors are unsure of whether the Kirks Pte Ltd will continue to make a profit in the next financial year ended 31 December 2017, and fear the company may not have enough money to pay its debts if they do declare a dividend.

REQUIRED:

a) Advise Janelle whether she can force the directors to declare a dividend to the shareholders if the company has made a profit. Advise Janelle of any other remedies available to her as a member.

GUIDE

Students should note that directors have the power to declare dividends, not the members s s 403) - therefore cannot force other directors. Dividends only out of profits.

Students should consider oppression remedy s 216. Relevant grounds here are the high exec salaries: see Shamsallah Holdings Pty v CBD Refrigeration and Airconditioning Services Pty Ltd; Sanford v Sanford Courier Service Pty Ltd;

(10 marks)

b) Advise the directors of Kirks Pte Ltd as to whether they can declare a dividend if

Empire does not make a profit in the 2015/2016 financial year. Advise the directors of the consequences if the payment of the dividend causes Empire to become insolvent.

GUIDE

Note requirements of s 403 and the meaning of profit

Note personal liability of directors duty s s339 guilty of insolvent or fraudulent trading and breaching s 403

o Civil Penalty

o Criminal Penalty if dishonest

(5 marks)

Total 15 marks