10 CASES CORP LAW docx CORPORATION LAW PROBLEM SOLVING QUESTIONS 1 Johnson, who was the sole owner of a piece of land, after knowing that such piece of land would be recovered by the local government.
CORPORATION LAW PROBLEM SOLVING QUESTIONS Johnson, who was the sole owner of a piece of land, after knowing that such piece of land would be recovered by the local government to build a road, sold the land to Somerset Ltd (private)—his solely owned company The land was then recovered (bồi thường) by the government with a small amount of compensation Somerset Ltd.’s creditors take legal action against Johnson Can they succeed under UK Law? Will your answer be different if Vietnamese law applies? (các chủ nợ khởi kiện Johnson) coi xem no co phai incorporated entity ko? neu ko thi ko dc ap dung CA2006 Issue: Whether Somerest is an incorporated entity? Rule: - Lifting The Corporate Veil doctrine - The Companies Act 2006 by section 177 Analysis: - According to ground of Lifting the corporate veil doctrine: + “A company is nothing more than an ‘alter ego’: The company exists with no substance and is freely used and controlled by the shareholders; the management existence is useless + If can prove the elements of ‘alter ego’, the company is not truly a legal person because a legal person must have its own assets (quyền có tài sản riêng), the management belongs to the shareholders not the directors, the use of the assets have to be put through a process of voting in the shareholders’ meeting while in an alter ego company, all of the assets can be freely used by the owner and owner can order the directors (quyền điều hành) to follow what they want - The Companies Act 2006 by section 16(2) and (3) recognises an incorporated company as having a personality such as to distinguish it from those separate personalities of its members This separate existence has several important consequences It provides a company with: + The right to sue and to be sued in their own name + Retain and enjoy its profits + Have the capacity to contract with anybody including their only shareholder It further benefits and protects shareholders who are not in that capacity liable for the debts of their company and cannot be held liable for any wrongdoings - Here, Johnson was aware of the fact the land will be recovered by the government for a low price so he decided to sell the land to his company with the actual price (which is higher than the recovered price) è Somerset Ltd has to suffer the loss from this transaction Conclusion: - If Somerset Ltd is nothing more than an alter ego of Johnson, Somerset is not a legal person and Johnson must bear liabilities ⇒ The company’s creditors can take legal action against Johnson, a court holds an individual shareholder liable for a company’s debts if the company is deemed to be nothing more than an alter ego of the owner - If there is not enough evidence to prove Somerest is alter ego è Johnson is the sole owner of Somerset Ltd so he highly can be the director Johnson has duty to declare interest in proposed transaction or arrangement (s177) If not, Somerset Ltd.’s creditors take legal action against Johnson VN: - According to article 74 about Juridical persons in Civil Code 2015 An organization shall be recognized as a juridical person if it meets all of the following conditions: a) It is legally established as prescribed in this Code and relevant laws; b) It has an organizational structure prescribed in Article 83 of this Code; c) It has property independent from other natural and juridical persons and bears liability by recourse to its property; d) It participates independently in legal relations in its own name → If Somerest Ltđ has all the conditions, Somerest is Juridical person - If Somerest is Juridical person, Somerset Ltd.’s creditors can’t take legal action against Johnson Because according to article 87 (1) about Civil liability of juridical persons: + Clause 1: “Each juridical person must bear civil liability for the civil rights and obligations established and performed in the name of the juridical person by its representative” + Clause 3: “A member of a juridical person shall not bear civil liability of the juridical person for the civil obligations established and performed by such juridical person, unless otherwise prescribed by law” - If Somerest is not a juridical person, Johnson has liabilities for the company's loss from this transaction Somerset Ltd.’s creditors can’t take legal action against Johnson 2 Acorn Plc (public) was formed years ago At the time of formation, Acorn Plc issued 1,000 shares to 130 different shareholders Three shareholders each hold 200 shares; the remaining 127 shareholders hold the other 400 shares The stated business purpose of Acorn Plc is to "purchase new computers for resale to consumers and to conduct all business incidents to the purchase and resale of new computers" Justin, Jessica, and Jeremy, the three shareholders of 200 shares each, were the promoters of the company and were intended to be the initial members of the board of directors The articles of the company were properly filed, and a certificate of registration was received a short time later Justin was named as the registered agent (người đại diện theo pháp luật) in the articles of association Justin, Jessica, and Jeremy assumed the duties of running the company, but never held a shareholder’s meeting They have run the company for years, and none of the other shareholders has objected to the fact that the shareholders’ meeting was not held The business had been quite successful until the last year In the last year, Justin, Jessica, and Jeremy have made some changes in the business They have begun accepting used computers as trade-ins, and have begun offering computer-training classes In addition, they have been offering word-processing services and have also been buying and selling used office equipment other than computers All of these additional operations have been unprofitable thus far A group of the other shareholders has sued in an effort to stop the carrying on of these other businesses Do they have a basis for such a suit, and if so, what remedies would they have in accordance with UK Law? Issue: - Whether directors suffered any legal consequences after failure to hold an annual general meeting? - Whether when the purpose of the company is changed, directors have violated the duty to act within powers? Rule: The Companies Act 2006 by section 171, section 336 (1), section 336 (3) Application: - About Consequence of failing to hold annual general meeting (S336): + Due to 336(1): “Every public company must hold a general meeting as its annual general meeting in each period of months beginning with the day following its accounting reference date (in addition to any other meetings held during that period)” (a company must hold a general meeting annually within months of the end of its financial year) lời cô In this case, the directors haven’t continuously held the meeting for years + Due to 336 (3): “If a company fails to comply with subsection (1), an offence is committed by every officer of the company who is in default” → When directors fail to hold annual general meetings, a criminal offence is committed by every officer of the company who is in default In this case, the directors of the company continuously failed to comply with s336(1), thus directors of the company bear criminal offence - About Duty to act within powers (S171): + The decision to make some changes in the business is very important > It must be approved by a special resolution Moreover, if the articles of association require only the approval of shareholders is a must regarding the change of business purpose, in this case, those directors are deemed to violate the duty to act within powers + If the company’s constitution does not let the directors also have the right to change the business purpose of the company → 3J is considered are deemed to violate the duty to act within powers according to section 171 (1a) + If the company’s constitution authorises the director also have the right to change the business purpose of the company → 3J don’t breach the duty to act within powers Conclusion: Thus, the other shareholders can base on the two grounds mentioned below to bring suit against 3J The remedy can be used here is compensation for the company: + When the directors (3J) haven’t continuously held the meeting for years → suffer a criminal offence for violating provisions of the annual general meeting + If the company’s constitution does not let the director also have the right to change the business purpose of the company 3 Biztec Plc designs and installs computer software Recently, the board has passed resolutions: - to reject a proposed contract with Wintelli University to install a new computer system in its library The board did not see that there was enough profit in the contract to make it commercially viable After the meeting, Derek, a director of the company, approached Wintelli University and has been offered the contract in his personal capacity which he intends to accept Which duty of director did Derek violate? Issue: Whether Derek violated the duty to avoid conflict of interests due to section 175? Rule: The Companies Act 2006 by section 175, section 180 (b4) Application: - In this case, Derek is a member of the Board of Directors (BODs) He is involved in the negotiating process thus he knew about the contract He exploited the information that he got from being the director of the company and used to reach the contract for himself Even Though Biztec does not wish to receive the benefit from signing the contract with Wintelli University However, it does not mean Derek can replace the company to receive the benefits from the contract - In other words, he violates the duty to avoid the conflict of interests regulated in section 175 (2) about the exploitation of information or opportunity that a company could have had section 175 Duty to avoid conflicts of interest (2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity) - Derek can avoid liability and not infringe this duty if he can prove that shareholders have given him authorization to so under section 175(4b) and 180(4b): + section 175 (4b): This duty is not infringed if the matter has been authorised by the directors + section 180 (4b) about 180 Consent, approval or authorisation by members: where the company’s articles contain provisions for dealing with conflicts of interest, are not infringed by anything done (or omitted) by the directors, or any of them, in accordance with those provisions Conclusion: Derek can avoid liability if he can prove that shareholders have given him authorization to so under section 175(4b) and 180(4b) If not, he violates the duty to avoid the conflict of interests regulated in section 175 (2) and may suffer liability to compensate the company for available losses - to purchase some new computer equipment from Kitech plc This contract was negotiated by Lucas, one of the company’s directors, who, unknown to Biztec plc, has been paid a £5,000 commission (tiền hoa hồng) for recommending Kitech plc to the company Which duty of director does Lucas violate? Issue: Whether Lucas violated the duty not to accept benefits from third parties (S176)? Rule: The Companies Act 2006 by section 176, section 180 (b4) Application: - Lucas violates the Duty not to receive benefits from 3rd parties under section 176 (1a) In this case, Kitech is the 3rd party Lucas is paid a £5,000 commission by Kitech to use his influence to make his company enter into the contract with Kitech “A director of a company must not accept a benefit from a third party conferred by reason of his being a director” - Obviously, this commission is given to Lucas for the reason of his being the director of Biztec Lucas then influenced the company to enter into the contract with Kitech As a consequence of breaching the general duty, he has to compensate for the company - Lucas can avoid liability and not infringe this duty if he can prove that shareholders have given him authorization to so under section 180 (4b) about 180 Consent, approval or authorisation by members: “where the company’s articles contain provisions for dealing with conflicts of interest, are not infringed by anything done (or omitted) by the directors, or any of them, in accordance with those provisions” * Conclusion: Lucas can avoid liability if he can prove that shareholders have given him authorization to so under section 180(4b) If not, Lucas has infringed the duty not to receive benefits from 3rd parties under section 176 and may suffer liability to compensate the company for available losses 4 Paradise Plc’s board of directors has proposed that the company will employ Summerset Ltd to carry out an efficiency study The principal shareholder and managing director of Summerset Ltd is Mary; she is married to Smith, a director of Paradise Plc Smith fails to mention the connection Advise Smith of the legal situation? Issue: Whether or not the Summerset is a person connected to Smith? Rule: Section 177 CA2006 about Duty to declare interest in proposed transaction or arrangement Section 252 CA2006 about Persons connected with a director Section 253 CA2006 about Members of a director’s family Section 254 CA2006 about Director “connected with” a body corporate Analysis: Firstly, Mary is a person connected to Mr Smith because she is his wife, one of members of a director’s family due to s253(2a) “ (2) For the purposes of this Part the members of a director’s family are (a) the director’s spouse or civil partner”- Director’s Spouse is wife or husband of director” and s252(2a) appointed the following persons (and only those persons) are connected with a director of a company are members of the director’s family (see section 253) As a result, it can be concluded that Mary is a person connected to Mr.Smith Moreover, she is also the principal shareholder and managing director of Summerset Ltd Summerset Ltd can be considered as a body corporate connected with Smith under s.254(2) as his wife is the principal shareholder of Summerset (owns more than 50% shares of the company) “A director is connected with a body corporate if, but only if, he and the persons connected with him together— (a) are interested in shares comprised in the equity share capital of that body corporate of a nominal value equal to at least 20% of that share capital, or (b) are entitled to exercise or control the exercise of more than 20% of the voting power at any general meeting of that body.” So the contract between Paradise Plc and Summerset Ltd is actually the transaction between the company and person connected with a director under s.252(2) Mary is a person connected with the director thus Mr Smith in this case needs to fulfill the duty to declare interest in the proposed transaction or arrangement before Paradise Plc enters into the contract with Summerset.Ltd according to S177 CA2006 about duty to declare interest: “If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors” Summerset Ltd is a person connected with the director thus Mr Smith in this case needs to fulfill the duty to declare interest in the proposed transaction or arrangement before Paradise Plc enters into the contract with Summerset Ltd If he fails to so, Smith will violate the duty to declare interest in the proposed transaction or arrangement and will suffer civil consequences of breaching general duties due to section 178 CA2006 * Conclusion: The transaction between Mr Smith and Paradise is the one between a person connected with the director and the company The proposed transaction in this case is the transaction referred in Sec177, thus, Smith, as a director of Paradise needs to fulfill the duty to declare interest in the proposed transaction or arrangement before Paradise Plc enters into the contract with Summerset Ltd S5 Donna formed a private company several years ago by issuing 500 shares in the UK There are 10 shareholders, with the smallest shareholder owning 25 shares, and Donna holding the most at 100 shares The company needs additional cash, but the current shareholders not wish to have any additional shareholder What are their options and what additional factors should the current shareholders consider in raising the additional cash based on the general rules on financing of a company? Issue: What are their options and what additional factors should the current shareholders consider in raising the additional cash based on the general rules on financing of a company? Rule: Section 561 CA2006 about Pre-emption right of current shareholders Section 617 CA2006 about Alteration of share capital of limitted company Analysis: There are two ways for this company to raise more capital: debt financing (to borrow money from the creditors) and equity financing (to issue new shares) For the first method: debt financing (to borrow money from the creditors), this method creates a debtor-creditor relationship Creditors have priority over equity holders and must be paid interest on the money borrơed before dividends are paid to shareholders In a dissolution of corporation, creditors receive their principal before equity holders receive anything Debt financing method cannot allot shares to the public, the company still keeps the same number of shareholders and satisfy the wish of not having any additional shareholders In the 2nd method: equity financing, there is a high chance of the company to have new shareholders when allot new shares However, there is a notice that the current shareholders not wish to have new shareholders Therefore, when a company issues new shares, it needs to follow the requirement under section 561 about the Pre-emption right of current shareholders as long as the company satisfies conditions to enact preemption rights in private company The current ones have the right to be offered new shares in proportion to their shareholdings CONCLUSION: In conclusion, there are two methods to raise the company’s share capital The first one is debt financing in which the company can borrow money from third parties such as creditors The second one is equity financing, which means allotting new shares and the company has to follow the rule under section 561 about the pre-emption right of current shareholders Five years ago Bolus plc, a pharmaceutical manufacturing company bought premises in Smallville, as part of the town’s regeneration program Bolus currently employs two thousand local people, many of them in lower paid semi-skilled jobs, and its business has thrived It has a good reputation in the locality as a responsible employer and it sponsors the local football team The factory is adjacent to farmland on the edge of the town Apply UK law, discuss the legal issues concerning the directors’ and company secretary’s duties arising from the following scenarios: a) Bolus’ premises are rapidly becoming too small to accommodate anticipated growth (sự phát triển dự kiến) in the next five years At the last general meeting (Cuộc họp ĐHĐCĐ bất thường), the shareholders authorized the directors to “decide, after further research, whether to expand the existing site, or relocate to Oldcastle” (an industrial city 100 miles away) Issue: Whether the director of Bolus has to adhere to any general duties under sec 171 to 177? Rules: Section 171 CA2006 about Duty to act within powers Section 172 CA2006 about Duty to promote the success of the company Section 174 CA2006 about Duty to exercise reasonable care, skill and diligence Analysis: Firstly, Directors here need to fulfill the duty to act within powers under s.171, must act in accordance with the company’s constitution, only exercise powers for the purposes for which they are conferred In this case, Shareholders authorized the directors to decide whether to expand the existing site, or relocate to Oldcastle Therefore, directors can only decide whether to expand the existing site, or relocate to Oldcastle only when they have done further research The 2nd duty is the Duty to promote the success of the company (s.172) as Directors have to consider which place will bring the best benefits to the company and help Bolus company to grow rapidly so they have to act in a way to promote the success of the company S172(1) lists a number of matters that the directors must take into account when deciding what is in the best interest of the company Thus, the decision whether to expand the site must be made in good faith to promote the success of the company The 3rd duty is Duty to act in reasonable care, skill and diligence due to s174 The problem in this case is a big one as directors have to decide whether to expand the existing site or relocate to Oldcastle, which is huge manufacturing and costs lots of money Directors cannot decide it carelessly but need to make a decision with reasonable care, skill and diligence * Conclusion: In short, the directors of Bolus, through the decision-making period, have to adhere to the duty to act within powers, duty to promote the success of the company and duty to exercise reasonable care, skill and diligence If they fail to perform these duties, they will suffer/bear available liabilities b) The board has commissioned a feasibility study (đánh giá khả thực dự án) for the new development from Make-It-Happen Ltd, a small company owned by Arthur Tansy, stepson to Basil Pepper who is one of the directors of Bolus This cost Bolus £10,000 (substantial non cash access) * Issue: Whether MIH Ltd (Company Limited By Share) is a person connected with Basil Pepper? * Rules: Section 177 CA2006 about Duty to declare interest in proposed transaction or arrangement Section 190 CA2006 about Substantial property transaction: requirement of member’s approval Section 252 CA2006 about Persons connected with a director Section 254 CA2006 about Director “connected with” a body corporate * Analysis: Firstly, Author Tansy is a person connected to Basil Pepper because she is his stepson, one of members of a director’s family due to s253(2c) “ (2) For the purposes of this Part the members of a director’s family are (c) the director’s or step- children and s252(2a) apphe following persons (and only those persons) are connected with a director of a company are members of the director’s family (see section 253) Therefore, it can be concluded that Author Tansy is a person connected to Basil Pepper Moreover, she is also owned of Make- It- Happen Ltd MakeIt- Happen Ltd can be considered as a body corporate connected with BasilPepper under s.254(2) as his step-son is owned of Make-It-Happen Ltd (owns more than 20% shares of the company) “A director is connected with a body corporate if, but only if, he and the persons connected with him together— (a) are interested in shares comprised in the equity share capital of that body corporate of a nominal value equal to at least 20% of that share capital, or (b) are entitled to exercise or control the exercise of more than 20% of the voting power at any general meeting of that body.” So the contract between Bolus and Make- It- Happen Ltd is actually the transaction between the company and person connected with a director under s.252(2) Author Tansy is a person connected with the director thus Basil Pepper in this case needs to fulfil the duty to declare interest in the proposed transaction or arrangement before Bolus enters into the contract with Make It Happen Ltd according to S177 CA2006 about duty to declare interest: “If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors” Author Tansy is a person connected with the director thus Mr Smith in this case needs to fulfil the duty to declare interest in the proposed transaction or arrangement before Bolus enters into the contract with Make It Happen Ltd If he fails to so, Smith will violate the duty to declare interest in the proposed transaction or arrangement and will suffer civil consequences of breaching general duties due to section 178 CA2006 Supposed that the value exceeds 10% of the company assets’ value, whereas the contract costs £10,000, exceeding the value of £5,000, thus due to sec 191(2a) this is a substantial non-cash asset “An asset is a substantial asset in relation to a company if its value (a) exceeds 10% of the company’s asset value and is more than £5,000” and the contract is a substantial property transaction due to S190, which requires shareholders’ approval for the contract to be implemented/executed So, the contract needs the approval of shareholders before being executed * Conclusion: + Basil Pepper must declare his interest in the transaction between Bolus Plc and Make- It- Happen Ltd If Basil Pepper fails to declare his interest in this contract, he will bear liabilities for available losses + Contract transaction between Bolus Plc and Make- It- Happen Ltd need shareholders’ approval to be executed c) Cedric Smeek, Bolus’ company secretary, ordered a computer from Crash Ltd costing £1000 in Bolus name He then sold it on to his daughter in law for £1,300 The transaction was discovered by Prudence Hope, the head of Bolus accounts department (phịng kế tốn), and she has refused to issue payment to Crash Ltd (she thinks Cedric Smeek should pay the money, not Bolus company) Company secretary has powers like Director Issue: Who are the parties in that contract of buying the computer? Is the contract valid or not?Whether or not Cedric violates duty to act within powers in this case? Rule: Section 171 CA2006 about Duty to act within powers Analysis: In this case, directors are in charge of the daily business aspect of the company and the secretary is in charge of administrative aspects in the company, but the company secretaries have the duty like directors Cedric entered into a contract with Crash Ltd under Bolus’ name This was a valid contract because it satisfies essential elements of a valid contract under UK law: offer, consideration, capacity, legality, Beside, Crash Ltd entered into the contract with bona fide It is unfair for Crash Ltd if the contract is voidable Thus, the first contract between Cedric on behalf of Bolus and Crash Ltd is a valid one Therefore, Bolus has to make payment to Crash for the computer as being a party to this contract After the first contract, Cedric sold the computer to his daughter However, he is not the owner of the computer but Bolus, so this contract is voidable because Cedric cannot sell the computer Mr Cedric’s daughter in law has to return the computer to Bolus as the valid contract between Bolus and Crash in which the computer belongs to Bolus not Cedric Mr Cedric has to return £1,300 to his daughter in law and she can require Mr Cedric to compensate for her losses Mr Cedric violates the duty to act within powers under s.171 As the company’ secretary, Cedric has duties like Director of the company He has the power to enter into the contract to buy computers from Crash Ltd on behalf of the Bolus company However, he didn’t use his power for proper purposes This power is conferred on him to the business for the company, not for his own benefits Thus, in this case, he used his powers for improper purposes * Conclusion: In conclusion, the contract between Cedric on behalf of Bolus and Crash Ltd is valid thus Bolus and Crash are the parties to the contract of buying the computer The second contract between Cedric and his daughter is voidable Aside from that, Cedric violates the duty to act within powers according to S171 CA2006 In a shareholders’ meeting of Summer Holidays PLC (SHP) the following issues have been raised Would your answer will be different under VNese law: a One director of the company set up his own company Issue: Whether or not the director of the company is allowed to set up his own company? Rule: S.171, S.172, S.173, S.174, S.175, S.176 and S.177 Analysis: We can see that there is no conflict of interests arising from the act of the director to set up his own company according to S.172 (Duty to avoid conflict of interests) However, the director is also the director of Summer Holidays PLC (SHP) He has to make sure that there is no conflict of interests when his own company enters into a contract with Summer Holidays PLC Moreover, he has to follow all the general duties regulated from S.171 to S.177 If he fails to so, he will bear all responsibilities * Conclusion: The director of the company is allowed to set up his own company but he has to make sure that he adheres to the general duties under S.171 to S.177 b Directors of the company decided to divide a current ordinary share into two (2) ordinary shares (subdivision of share) Issue: Whether or not directors have the authority to make a decision about shares split on their own? Analysis: According to S.618(3) about Subdivision or consolidation of shares, a company may exercise a power conferred by this section only if its members have passed a resolution authorising it to so In other words, if directors want to divide a current ordinary share into two ordinary shares, an ordinary resolution of shareholders authorizing them to such subdivision must be passed Hence, this is an important matter so directors need shareholder’s approval to decide this issue If directors decide to divide shares on their own, they will violate the Duty to act within power under S.171 * Conclusion: Directors only have the right to split the shares if shareholders authorized them to so by passing an ordinary resolution Without the shareholders’ ordinary resolution, the directors can be considered in violation of the duty to act within powers under S.171 c Directors of the company decided to transfer £500,000 to Harry, a director of the company, as compensation for loss of office Issue: Whether or not the directors are eligible to make payment for loss of office on their own? Analysis: According to s.215(1a), a payment for loss of office means a payment made to a director or a past director of a company by way of compensation In this case, we can clearly see that the payment of £500,000 the directors transferred to Harry, who is a director of the company is a payment for loss of office However, under S.217(1) about Payment by company: requirement of members' approval, this transaction needs shareholders’ approval Moreover, regulated to S.217(3b), a resolution approving a payment for loss of office in this case must not be passed unless a memorandum setting out particulars of the proposed payment (including its amount) is made available to the members of the company whose approval is sought at (i) the meeting itself or (ii) the company's registered office for not less than 15 days ending with the date of the meeting In other words, the Board of Directors cannot decide this matter themselves They need shareholders to authorize them to so by passing an ordinary resolution before giving this amount of money to Harry If no resolution containing the approval of the shareholders had been passed, the directors violated the duty to act within powers under S.171 The Board of Directors will bear all responsibilities if they decide to transfer £500,000 to Harry on their own * Conclusion: The directors are not eligible to transfer £500,000 to Harry, a director of the company, as compensation for loss of office on their own This transaction needs shareholders’ approval to be executed The Directors of the company can only make payment for loss of office to Harry if there is an ordinary resolution passed by shareholders on this matter If they decide this matter themselves they will violate the duty to act within power under S.171 and bear all responsibilities related to this transaction Mr A is a director of Mega Co Ltd which operates in hospitality industry (CN dịch vụ hotel) Explain whether Mr A breaches his duty as a director in the following cases and if so, what duties have been breached? Discuss any defense which may be available to A in cases he breached his duty (Note that Companies Act 2006 (UK) is the applicable law): a Mega Co Ltd signed a contract with Peter Electronic Co Ltd in which Mr A holds 35% of share capital for the provision of services Issue: Whether Peter Electronic Co.Ltd is a person connected with Mr.A? Rules: 171, 177, 252, 254 Analysis: Peter Co is a person connected with MrA - director of Mega Co Ltd Mr A holds 35% of share capital of Peter Electronic Co Ltd, which means this company is connected with Mr A - a director of Mega Co., under s.252(2b) and s.254(2a) Therefore, the contract between Mega Co Ltd and Peter Electronic Co Ltd is the transaction between the company and person connected with a director under s.252(2b) Thus, this is a situation in which the director contracts to his own company So, Mr A has to adhere to the duty to declare the proposed transaction under s.177 If he failed to so, the duty to declare interest would have been infringed This is the contract between the company and the company’s director, so it must be approved by the shareholders This kind of contract needs an ordinary resolution passed by shareholders to be implemented If the contract is executed without shareholders’ approval, MrA will violate the duty to act within power under s.171 Conclusion: As Peter Electronic Co Ltd is a person connected with Mr.A (section 254.2.a), the contract between two companies Mega Co Ltd and Peter Electronic Co Ltd is a specified contract that needs shareholders’ approval Mr.A is a member of the BoD, so in the process of signing the contract, MrA has to fulfil the duty act within powers according to section 171 Moreover, Mr A is a director of Mega Co Ltd and he also holds up to 35% of the share capital in Peter Electronic Co Ltd, he has to declare his interest that he would acquire from that contract b Mr A failed to attend the meeting of directors of Mega Co Ltd due to his illness Issue: Whether the act of failing to attend the meeting of directors made Mr A to breach the directors’ general duties? There is not enough legal grounds to conclude whether or not he violated any of his duties as a director because of the fact that Mr A was absent only one time as he was ill In the Model Article of Association, particularly Article 18 which lists cases in which the director is forced to retire from his office