Question

Billy, Sonny and Yuki are directors and shareholders of BUSY Ltd which was established in 2015. The constitution of BUSY Ltd relevantly provides that (I) no directors can be moved without their consent, (ii)any shareholder who wishes to sell their shares must first offer them to the other directors and (iii)each director is to receive a salary of $200,000 per year. The company has been successful since 2015 but no dividends were paid as all the profits were invested back into the company. The directors received only their salary. In 2018 Sonny got into a heated argument with Billy and Yuki about the direction the company Was headed. After the argument, Billy and Yuki decided to make all the business decisions in advance, calls board meeting upon short notice, restricts the speaking time available to Sonny and outvote Sonny at all the directors meetings. Sonny resisted at first but then lost interest and stopped attending meetings. Billy and Yuki convene a meeting to remove Sonny as a director at a general meeting and also to insert a clause in the constitution to allow for the distribution of the profits by increasing the directors’ salaries to $300,000 per year.

Question: What course of remedies available to Sonny?

Answer 1

Members (shareholders) can remove a director by resolution (s 203D (1)). The board or other directors cannot remove a director. This prevents a majority of public company directors from removing a director without the agreement of shareholders. Any resolution, request or notice of any of the directors of a public company which purports to remove another director is void (s 203E).

The following are the remedies available to Sonny.

Company may seek shareholder approval to ratify the actions of directors in certain circumstances. The court may consider the effect of shareholder ratification in oppressive conduct proceedings (outlined further in question 8 above). Under the common law, shareholders may ratify the actions of directors provided their actions were not:

a breach of statutory duties;

fraud on the minority;

the defeat of a member’s personal right;

an insolvent transition to prejudice creditors; or

an illegal act.