Question 5: Share issues

Caitlin is the sole director of CCP Ltd. The company has no constitution. Caitlin holds 1000 A shares in the company (which have the rights and obligations set out in s36 of the Companies Act 1993 (CA), and her partner, Andrew holds 2000 B shares (which have a dividend preference provided for in their terms of issue). Caitlin and Andrew are the companys only shareholders.The company has a current asset backing of $2.85 per share, and Caitlin recently received an offer of $2.70 per share for her shareholding.

The company is in need of some more funds, and Caitlin decides that the company will issue to Natalie 5000 new shares. She decides to issue the shares for $1.50 each, and provides in their terms of issue that they will have a dividend preference ranking above B shares.

Caitlin takes no other action in relation to the share issue.

Answer the following questions. Refer to relevant provisions in the Companies Act 1993 to support your answers.

(a) Does Caitlin have the power to unilaterally issue shares? (2 marks)

(b) Has Caitlin met the necessary notice requirements for issuing shares? (2 marks)

(c) Should Andrew have been offered the option of acquiring the new shares before they were offered to Natalie? Explain your reasoning. (2 marks)

(d) Was Andrews approval for the share issue required? Explain your reasoning. (4 marks)

(e) Has Caitlin correctly addressed the issue of consideration for the new shares? (5 marks)

(f) Assume Caitlin has not correctly addressed the issue of consideration. What penalty might she face? (1 mark) [