Question Four

BlueMagic Ltd. is a public company. Its directors have decided to venture into transport business acquiring a fleet of public service vehicles. They did not notice that this activity is outside its objects clause. The companys chairman. Odhiambo Omesa who owns 10% of the voting shares negotiated a loan which was in excess of the companys issued capital from Frank Opiyo, a financier. Frank Opiyo did not refer to any of the companys registered documents nor did he inquire into the purpose to which the money would be put. The money is used the directors to pay part of the purchase price of the vehicles. The rest of the purchase price remains unpaid. Some members who hold a substantial amount of shares in BlueMagic Ltd. intend to move a resolution to insert into the memorandum, an object permitting the acquisition and use of the vehicles. One of the directors of BlueMagic. announces that if this is done, he will apply to court to have the new object clause quashed. Advise the directors of the company. (10 marks) Question Five

Hamstead Limited issued a prospectus inviting members of the public to subscribe for its shares. It was stated in the prospectus that the money was required for the purchase of modern equipment to be used for expansion of the companys business. On the strength of this statement, Bahati Basiku purchased shares of the company but she has since learnt that all the money received was used to repay the debts of the company which were long overdue. Bahati Basiku feels shortchanged and seeks your legal advice. Analyse the legal principles applicable in the above case and advise him appropriately. (5 Marks)

Question Six Jimmy Gatigu is a non-executive director of Kuzi Limited, a listed company. Shortly after attending a board meeting where arrangements were finalised for an agreed takeover bid of the company Sahara Limited, Mr.Gatigu bought shares in Kuzi Limited from the listing in the securities exchange. He thereafter bought shares of the same company from Jane Uza, a shareholder. Immediately the takeover bid was made public, Jimmy Gathigu sold all the shares he had bought at a profit. Discuss whether Kuzi Limited, Jane Uza and Sahara Limited are entitled to any legal action against Jimmy Gathigu for recovery of profit. (5 marks)

Question Seven Tom Sakaja a sole trader carrying on a business in the printing industry has asked Milele Bank Limited to advance him Sh.500,000 as additional working capital. The bank is prepared to advance the money on condition that Tom Sakaja offers a security. Tom Sakaja has a share certificate for 5,000 shares issued Jewel Company Limited. Tom Sakaja wants to know whether he can use the shares whose value is Sh.650,000 as a security for the loan. He further seeks to know whether he would still receive dividends even after he has charged the shares to the Bank. Advise Tom Sakaja. (10 marks)