Steve Jobs and his twin sister Sarah both had a keen interest in computing and started building computers while they were studying law at University. Steve and Sarah turned what started as a hobby into a profitable business that they carried on from their parent’s home garage. When the twins graduated from University, their parents asked them to find a new business premises.

Steve found an industrial warehouse in Richmond available for rent. After learning about the benefits of incorporation in his University company law class, Steve convinced the landlord that the warehouse would be leased by a company that he intended to register. Steve promised the landlord that the company would ratify and approve the lease contract within six months of its incorporation.

Three months later Steve and Sarah registered a company, Twin Computing Pty Ltd. Two fully paid shares were each issued to Steve and Sarah and one fully paid share was issued to Steve’s new girlfriend, Mary. Steve, Sarah and Mary were all appointed as directors. Steve was also appointed as the company secretary. The company was incorporated with a constitution that reflected the replaceable rules but also contained the following provisions:

• Clause 7: Sarah is appointed as managing director of the company for 5 years with a salary of $100,000 per year.

• Clause 9: Any transaction in the name of Twin Computing Pty Ltd that exceeds $10,000 must be approved by an ordinary resolution of the shareholders.

Twin Computing Pty Ltd commenced its operations from the Richmond warehouse and all computing stock housed at the parents’ garage was transferred there. About four months after incorporation of the company, Sarah started to gain confidence in running the business as its managing director and purchased two items on credit. First, she purchased an electric bike for $9,500 and signed the sale contract as ‘Managing Director, on behalf of Twin Computing Pty Ltd’. Sarah told the salesperson that she was buying the bike to use for the company business in her position as the managing director. Sarah also purchased a fancy coffee machine for $12,000 for use with clients in the warehouse. The coffee machine sale contract was signed by Sarah and Steve. Steve also went shopping to fit out the new office and purchased, again on credit, office furniture and a photocopier for $7,000.

Five months after Twin Computing Pty Ltd’s incorporation, Mary reminded Sarah and Steve that the company still needed to ratify and approve the warehouse lease and informed them that the bike, coffee machine and office furniture dealers were demanding payment of all outstanding amounts. Mary confronted Sarah about the bike and made clear that neither she or Steve had signed for or approved for its purchase by the company.

QUESTION - ANSWER IN IRAC METHOD

Can Steve and Mary remove Sarah as managing director of the company and what would be the consequence of such removal?