Dazzling Design Pty Ltd (Dazzling Design) was formed in 2010. Its main business is the supply and

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Dazzling Design Pty Ltd (Dazzling Design) was formed in 2010. Its main business is the supply and installation of garden sculptures and water features. It was formed as the result of two similar businesses joining forces. One of the businesses, ‘Landscape Ace’ was run by Alex and Bevan, and the other, ‘Garden Design’ was run by Chris, David and Ben. All had experience in garden design and landscaping. For the purposes of start-up capital, the company issued 20,000 shares at $2 each. Alex, Bevan, Chris, and David took up 2500 shares each, and Ben took 10,000. At the company’s first meeting Alex and Bevan were elected directors.

Now, in 2021 Dazzling Design is a successful company with a good reputation in garden landscaping. Alex and Bevan (who are still directors), and Chris and David, have become quite wealthy as a result of the business however Ben has had various personal setbacks and is in financial difficulty. Although the company has not paid dividends for the last 5 years Ben puts a proposal to the board that a dividend be paid. Neither Alex nor Bevan are in favour of the payment of a dividend and reject Ben’s request.

When the company was formed Chris, David and Ben were very good friends but Chris and David have recently had a falling out with Ben and let it be known that they are of the same opinion as the directors and also do not support the payment of a dividend.

Ben is surprised to find that Alex and Bevan have decided to issue 2500 shares in the company to each of Chris and David’s spouses. Ben tells the directors that he is against the share issue. Alex replies that it is none of his business and tells Ben that decisions as to issuing shares are up to the directors.

Dazzling Design uses products supplied by Jason Pty Limited (‘Jason’). Products supplied by Jason have always arrived on time and been of good quality. Alex and Bevan are in fact shareholders in another landscape supplier, 24 Pty Limited (‘24’), and they want to make ‘24’ the supplier to Dazzling Design. To achieve this goal, the directors rescind the contract with Jason and enter an agreement for ‘24’ to supply landscaping products to Dazzling Design.

(i) Discuss whether the directors have breached their duties. Explain the remedies or penalties applicable and whether the shareholders can ratify the directors’ conduct. [10 marks]

(ii) Discuss Ben’s position as a shareholder. What are his rights and what orders can he seek? What laws and procedures apply in this case? [10 marks]