Company Law: Fitmania Ltd Case - Coursework Example

Company Law The first issue in respect of this question requires a discussion of the amendment of articles and its effect that is removal of director. It needs to be pointed out that the process that has been laid down for removal of a director is by means of a resolution and can be seen in s.168 Companies Act 2006. It says that a company may remove a director by means of an ordinary resolution at a meeting before the expiry of the term of the director, notwithstanding the agreement between him and the company. It needs to be pointed out that special notice for such removal is required. However the section does not deprive the director of compensation or damages. Furthermore, the director has been given a right under s.169 to protest against the removal and is to be heard on the resolution at the meeting and the requirement of representations. As far as amendment of articles is concerned it has to be undertaken in accordance with s.21 of Companies Act 2006. Model Articles of 2008 provide for termination of directors. As far as the removal is concerned no power is provided for in the articles and the validity of the provision of removal would not stand and so it would be suggested to Billy wise to remove Roger by means of the Companies Act 2006 and follow its procedure. It is important to mention that such removal may lead to claim for damages (Southern Foundries Ltd. v. Shirlaw)1. In respect of the sale of shares by Zander on the facts there can be no claim on his part and he cannot claim that he should have been made aware of the acquisition..  In respect of the issue of Billy Wise paying of the Fitmania in his capacity as director of Minor Ltd. There would be problems which would be found by the liquidators and there would be a potential conflict of interests. There can be a potential infringement of s.172 that is the duty to promote the success of the company, to exercise independent judgment under s.173 and most importantly under s.177 duty to disclose interest in the proposed transaction and therefore there would be breach of general duties under s.178. Furthermore, there was no declaration done under s.182-184. Thus the liquidator would find that the transaction by Billy Wise should have been declared in Minor Ltd, that is he being a director of Fitmania Ltd. and this breach would lead to the transaction being reversed or Billy Wise being held personally liable to the extent of the transaction. Furthermore there can be said to be the infringement of common law duties of exercising reasonable care and skill under s.174 CA 2006. (Re City Equitable fire Insurance Co. Ltd.)2 The liquidator’s power terminates the directors’ power. (Measures Brob Ltd. v. Measures) The powers of the director are transferred to the liquidator. (Silkstone and Haigh moor coal co. v. edey)3 In respect of Fitmania Ltd. issuing new shares to its employees, it is important to mention that such takeover would require the approval and the new shares that have been issued would create a hurdle for the takeover and so the resolution in the general meeting may not get approved. In respect of deletion of the critical statements from the company’s accounts the liability of the auditors as well as the liability of the director that is Billy Wise needs to be discussed. As far as the appropriate person to become the claimant for the breach of duties is concerned, it can be said that the company is the proper claimant (Percival v. Wright)4. Thus duty to shareholders would only be owed where there are special facts. (Allen v. Hyatt)5. However, it has been found that the directors are not liable where the decision of the directors was to benefit the employees. (Re Welfab Engineers Ltd.)6. In respect of the current situation it can be said that there has been a breach of the fiduciary duties of a director. The fiduciary duties are categorized into three broad categories that is to ct bona fide; proper exercise of power; avoid conflicts of interest. Bona fide requires them to exercise the discretion which is in the interests of the company. (Re Smith & Fawcett Ltd.)7 On the facts of the question it can be said that there would be liability on Billy Wise as he breached his obligations and indulged in an unlawful act. The result of such a conduct led to the distribution of dividends which clearly goes against the interests of Fitmania and so liability would be owed by Billy Wise to Fitmania As a result there can be a disqualification of Billy Wise whereby he would be stopped from acting as a director of any company in order to protect his own interest. (Re Lo-Line Electric Motors Ltd)8.The idea of disqualification is protection of public from losing money through companies. (Re Sevenoaks Stationers (Retail) Ltd.)9 As far as the potential investor is concerned under the established principles of negligence under the head of tort law, it is clear that the auditors do not owe any liability to the potential investors and so there can be no claim by the potential shareholder against the auditor or the company. The auditors can be held to be accountable to the company that they were in breach of their statutory obligations but they can rely on the fact that this was done on the express instruction of Billy Wise and so liability should be placed upon him. Liability to Fitmania can be asserted by the company and so the auditors would be held accountable in accordance with s.532-538 of the Companies Act 2006, but there is a strong possibility of the liability being mitigated because of Billy Wise’s instructions. References DIGNAM, A. J., & LOWRY, J. P. (2010). Company law. Oxford, Oxford University Press DAVIES, P. L., & GOWER, L. C. B. (2008). Gower & Davies: the principles of modern company law. London, Sweet & Maxwell ROSE, F. D., & ROSE, F. D. (2009). Company law. London, Sweet & Maxwell KEANE, R., & KEANE, R. (2007). Company law. Haywards Heath, West Sussex, Tottel Pub TAYLOR, C. (2009). Company law. Harlow, Essex, England, Pearson Longman. RIDLEY, A. (2009). Company law. London, Hodder Education. Read More