Bob, Ted and Alice are directors and shareholders of East Coast Developments Pty Ltd (ECD), a property development company which owns and operates a caravan park in Eastern Victoria. The company was set up four years ago.

Bob and Ted are brothers though not close. Ted and Alice are friends and partners in a management consulting firm. Bob is an unemployed musician and parent of four young children, the oldest is 13 years of age. The total number of issued shares in ECD is 1,500 ordinary shares. Each shareholder has 500 shares. All the shares are fully paid. ECD has been very successful but has not paid any dividends to its members for the last two years. Profits have instead been invested in further development projects in the tourism industry.

Bob' wife was diagnosed with a serious illness last year and he is very short of money to look after his family as well as pay for the ongoing medical treatment. Bob approaches Ted and Alice and asks them to consider whether ECD could begin to pay dividends again to its members. Ted and Alice refuse to consider Bob's request as it would upset the “long-term goals of ECD”. Bob is upset by this response and announces that he wants to sell his shares. Ted and Alice refuse to buy him out and demand that Bob resign as a director because he has lost his objectivity and the faith of the other directors. Bob resigns reluctantly. He asks to see ECD's most recent set of financial statements; Ted and Alice refuse to provide the information stating that as he has resigned, he has no rights to company information. Bob discovers accidentally that ECD has been paying large “management fees” to Ted and Alice's consulting firm.

Required:

Explain and discuss, 3 (three) forms of action that Bob as a member could take against the other directors for-

1. not paying dividends (5 marks)
2. Bob’s resignation (3 marks)
3. the refusal to let him see the recent financial statements (2 marks)    

Answer rating: 100% (QA)

Step 1 Problems Particulars Actions of Bob not paying dividends A company can pay dividend only to the shareholders of the Company out of the profits ... View the full answer