Tutorial 11

Question 1

A family company is run by key members of a large family, with six members holding the majority of shares, while shares are distributed around many other members of the family, who are the minority members.

While the company complies with all formal administrative procedures, including holding an annual general meeting, the six members basically run the company for their own benefit. The directors have authorized that no dividends will be paid, that the directors will receive significant fee increases, and they have ratified at one meeting that a director who was lent a large amount of money does not have to pay this back. It appears also the directors have been employing close family members in the company at very high pay rates. The directors refuse to answer any concerns of the minority members, either directly or during company meetings.

What rights do the minority members have in this situation?

Question 2

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Nobby is a retired businessman, he holds a significant number of shares in Badger Co Pty Ltd. Nobby has been quite unhappy about the management of the company, particularly as it seems that directors have had pay increases each year, and seem to have significant benefits in the form of cars, trips and various other expenses paid on their behalf. Nobby suspects that the directors are acting generally for their own benefit, and not in the interests of all shareholders. Nobby is particularly interested in how certain shareholders have increased their holdings, and whether the company has been assisting a particular group of shareholders at the expense of the shareholders in general.

While Nobby has asked various questions at company meetings, he is not satisfied with the answers he has received. He believes there may be a case for bringing an action against the directors under some part of the Corporations Act. Nobby needs to gather some information so that he can determine whether to bring an action for oppression or perhaps a statutory derivative action against directors who are misusing their position.

What are the means that Nobby might attempt to use to gather information about the company, in order to consider his options in taking action?

If Nobby does find that the company is acting unfairly or prejudicially against some members, what type of action can he instigate?

Question 3

If a company has had a profitable year, does it have to pay dividends? Who makes the decision as to whether a dividend is paid, and how much the dividend should be?