Your client

You are employed as a graduate at a boutique business advisory practice in Singapore. One of the clients of the firm is a public company incorporated in Singapore - Sihat Enterprises Ltd (Sihat). The company is a leading retailer of health and wellness vitamins and supplements.

Management and capital structure

The board of Sihat consists of three directors: Hasim, Alycia, and Jason. Hasim is the managing director, Alycia is a director and the company's chief financial officer. Both Hasim and Alycia work full-time in the company and are paid an executive salary. Jason is a non-executive director and is not involved in the day to day operational decisions of the company and is paid a director's fee. Hasim has a business background and recently completed her MBA from the prestigious INSEAD SG Business School. Alycia is not an accountant and has no formal university qualifications but has a good reputation in the industry having performed in similar roles for the last 15 years. Jason is an Olympic weightlifter and runs his own personal training company for wealthy celebrities.

Sihat has 250,000 ordinary shares on issue and 50,000 preference shares. Its two major shareholders are a private equity firm and a 24-hour gym chain. Its capital structure is as follows:

• Cap-X Financial Ltd (100,000 ordinary shares - 40% - plus 50,000 preference shares with no voting rights but preferential dividends fixed for 5 years)
• All Day Fitness Gyms Pte Ltd (30,000 shares - 12%)
• Other public shareholders (120,000 ordinary shares - 48%)

Recent events

Early in 2017, the directors met to consider the results of a clinical trial of Sihat's latest product - Powerlift 5000. The results show that the product is highly effective at increasing strength for weight lifters but has several dangerous side effects if taken for more than three months at a time. The directors decide to market Powerlift 5000 without warning customers about the potential long-term side effects. By January 2018, Sihat has received hundreds of complaints and receive notice of a class action against the company for unfair practices. The legal action has the potential to cost the company $5 million in compensation.

Meanwhile, two months ago, Jason accepted a position on the board of Joy Health Products Pte Ltd (Joy), a company that is a commercial competitor of Sihat. When this is discovered by Hasim and Alycia, they are furious. An investigation uncovers that Jason has provided confidential information to Joy about Sihat's strategic plan for the next five years. They request Jason to immediately resign as a director of Sihat. However, Jason refuses. The other directors now want to hold a shareholders meeting to remove him.

Hasim has telephoned your firm to request an urgent meeting for advice on these matters.

REQUIRE

The partner at your firm has asked you to write an initial briefing document for Hasim. You have been instructed to prepare written answers to the following questions in time for the meeting scheduled to start in one hour.

In your report to the partner you must address the following:

1. Advise whether any of the directors have breached their duties as a director under the Companies Act.

(15 Marks)

2. Advise of the potential penalties if any of the directors are found to have breached the Companies Act and what the company could claim against the directors.

(5 Marks)

3. Explain the procedure involved in calling a shareholders meeting.

1. Who can call a shareholders meeting?
2. How much notice is required? What must be included in this notice?
3. What percentage of the vote is required to pass a resolution removing Jason?
4. Do shareholders have to attend personally or can they appoint a representative (proxy)?