Question
Read the case study and answer the following questions. Darren and Adam are the sole directors and shareholders of West Coast Technology Pty Ltd. Recently,
Read the case study and answer the following questions.
Darren and Adam are the sole directors and shareholders of West Coast Technology Pty Ltd. Recently, the company began to suffer cash flow problems and needed additional capital. Darren persuaded John, a good friend, to invest $200,000 in the company and John was issued with 10 shares in the company. John now had 10% shareholding in the company and Darren and Adam each had 45% shareholding.
At a general meeting of the company John was appointed as a non-executive director of the company although John said, "I will not be attending board meetings and want to be treated as a 'silent partner'".
The investment from John improved the company's financial position and the company began to increase their profits. However Darren and Adam decided not to declare any dividends and instead gave themselves a pay rise.
John began attending board meetings and contributing to the discussion. John had some ideas about how the company could operate and increase profits. John was also critical of the decision to increase the directors' salaries instead of declaring dividends. Darren and Adam resented John's interference and decided to make some changes:
Darren and Adam formed another company, Dockers Computers Pty Ltd, in which John was not involved, and diverted a valuable government design contract that they had been negotiating to the new company; and, Darren and Adam called a shareholder meeting of West Coast Technology Pty Ltd at which it was resolved to remove John as a director. Advise West Coast Technology Pty Ltd of the legal issues in this case and if, any or all of, the directors could be in breach of their duties?
Advise John, as a minority shareholder, if he has a legal remedy under the Corporations Act?
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