ABC Pty Lid is a private company incorporated on 20 March 2016. The company’s constitution has many provisions. Some are the following:

2. Rights attaching to Shares and Issue of Shares:

2.1. Issue of further Shares and other securities: The Board may issue Shares, securities that are convertible into or exchangeable for shares or options to acquire Shares (including different Classes of Shares with different rights attaching to them).  

2.1.1 Subject to any special rights or restrictions attaching to any existing Shares, all new securities must be offered to existing Shareholders in proportion to the number of existing Shares held by them. 

2.1.2 The offer must be made by written notice to each Shareholder stating the terms of the issue.

2.1.3 Notwithstanding the provisions of clause 2.1.1 and 2.1.2, the Board may issue new securities to such persons and on such terms as the Shareholders by Special Resolution may approve.

3.            The appointment of a Business Executive 1. The company’s Business Executive shall be Lisa Howard for a period of ten years at a salary of $200,000 annually to be increased by 15% in each successive year for the term of her employment.

4. The payment of dividends: The Directors may from time to time either determine or declare that a dividend is payable on a class of Shares (taking into account the terms of issue of those Shares) and fix:

1.            The amount of the dividend;

2.            The record date, being the date on which persons who hold Shares in the relevant class at midnight at the end of that date will be entitled to receive the dividend;

3.            The time for payment.

In 2017 ABC Pty Ltd took up Lisa Howard’s family's offer to buy $900,000 of ordinary shares in the company. Lisa was issued 20% of ordinary shares of ABC Pty Ltd. David and Simon are the directors. The company has not paid dividends for many years. Lisa is extremely unhappy that no dividends have been paid and complained about the non-payment. The directors explained that dividends are not being paid because the company needed the capital to expand its business by having new projects. They showed some information about the upcoming projects and that the company’s business has expanded considerably in the last 2 years, financed entirely through undistributed earnings.

However, Lisa found out later that the directors David and Simon issued ordinary shares to Simon unbeknownst to shareholders of ordinary class. Also, David and Simon proposed $100,000 bonuses for themselves. The directors argued that they have not received a commercially realistic salary for two years. Lisa is upset and believes that it will reduce the profits and affect the prospect of dividends to her and other shareholders. David and Simon argued that Lisa does not deserve any dividends because as a Business Executive she has not contributed to the profitability of the business. After four years working as a Business Executive for the company, Lisa has been dismissed from her position. Lisa remembers that she was appointed to be the Business Executive following her family’s wishes when ABC Pty Ltd took up her family’s offer to buy $900,000 of ordinary shares in the company, and her employment conditions would be described in the company’s constitution. 

Lisa is aggrieved due to the issues mentioned above. She has hired you for assistance because she feels that her member rights are being infringed.

REQUIRED: 

Advise Lisa about her rights, if any, by referring to Australian case law and statutory law.

Answer rating: 100% (QA)

Lisa has a number of rights as a shareholder in ABC Pty Ltd Firstly under the Corporations Act 2001 Cth Lisa is entitled to inspect the companys finan... View the full answer