Question 2

CocoaTeaLtd was incorporated as a private limited company in November 2010 and has issued 500,000 shares, all with a nominal value of $1 each. The Company's two Directors,Caylineand Robin, each own 100,000 shares.Tino, a local businessman, owns 200,000 shares and the remaining 100,000 shares are owned by a number of local investors.

Since it was incorporated, the company has run at a loss and has never made a profit.Tinobelieves that this is due toCaylineand Robin'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 inCocoaTeaLtd with a view to votingCaylineand Robin out of Office.

Caylineand Robin discoverTino'splan. Accordingly, they caused the Company to issue 300,000 new shares and offer to sell them to their friend, Gabrielle. However, Gabrielle cannot afford to buy these shares, but she does offer to sell her car toCocoaTeaLtd as part-payment for the shares. The car is only worth $250, 000 butCaylineand Robin accept the car as part-payment providing that Gabrielle uses the voting rights attached to her shares to defeat any resolution that aims to removeCaylineand Robin from Office. The remaining payment comes in the form of $50,000 which Gabrielle loans fromCocoaTeaLtd.

Tino, realizing that his scheme to oustCaylineand Robin has failed, wishes to sell his shares, but he cannot find a buyer.CaylinetellsTinotheCocoaTeaLtd will purchase the shares. By now,Tinohas 250,000 shares and he agrees to sell them toCocoaTeaLtd. The Company purchases the shares and they are duly cancelled. Having rid themselves of the troublesomeTino,Caylineand Robin recommend that a dividend be paid at a rate of 10 cents per share. Gabrielle agrees and between them, the dividend is declared and paid out.

Provide detailed discussions based on established legal principles to advise the Parties above on the following:

1.WhetherCaylineand Robin's actions to issue new shares to Gabrielle was lawful?

2.Whether there was a valid payment of the shares by Gabrielle?

3.In what circumstances can a company purchase its own shares and whether a legal purchase was made ofTino'sshares?

4.Whether there was a lawful payment of dividends?