QUESTION 1

Dave, Donna and Dennis are major shareholders and the only directors of Cement & Aggregate Limited, a private company incorporated under the Companies Act 2004. They held ninety-five percent (95%) of the shares and Mark a minority shareholder held the remaining five-percent (5%). The company specializes in the manufacturing of cement and recently received a very large order for the supply of cement from Residential Development Limited, a company engaged in construction in the Housing Industry. In an effort to raise additional funds to facilitate the production of cement to fill the order, Cement & Aggregate Limited created a fixed charge over its fixed assets in favour of Financial Services Limited. The charge was created on June 1, 2020 and was registered ten (10) days after it was created. On June 12, 2020 the company created a second charge in favour of Money Lenders Limited, which was registered five (5) days after its creation. A term of the latter charge was that the company may continue to use the assets in its ordinary course of business. In the case of liquidation, the company is unsure which charge would take priority in payment. Dave, a Chemical Technologist, with over five years experience in the field, recently recommended a change in the limestone content of cement, without checking for the presence of certain minor constituent elements in the limestone. Failure to do the necessary checks, resulted in a faulty batch of cement being supplied to Residential Construction Limited. The company suffered major losses, due to the poor quality of the material which led to the company losing many of their customers. In addition, other companies having heard about the poor quality material supplied to Residential Construction Limited started cancelling their orders. On August 10, Dave and Donna authorized the sale of a property that belonged to Dennis below market value. Mark the minority shareholder, was very upset about the matter and has decided to take legal action on behalf of the company. The three directors argued that any suit brought by Mark should be dismissed as there was no allegation of fraud.

REQUIRED: Advise Cement & Aggregate Limited on all matters arising from the case. (30 Marks)