Company Law Problem Question (Grade 85)

Addy, Edward and Rajah are directors of ABC Ltd, a company dealing in the manufacture of radiators. They hold 60%, 20% and 10% of the shares respectively. Fletcher and Johnny owned 5% respectively. Addy has been the company’s managing director for 12 years and is also a chartered accountant. Recently, ABC Ltd lost one of its biggest customers, YAVOO Ltd. Edward and Rajah are extremely concerned about this, as they believe that this could lead to severe financial difficulties for the company. They have mentioned this to Addy on several occasions. They have also advised Addy that there is also a potential new customer that is interested in doing business with them, SKAR Ltd. If they manage to secure SKAR Ltd as a customer then they should be able to off-set the financial impact of losing YAVOO Ltd and avoid severe financial difficulties. Addy said that he will set up a meeting with SKAR Ltd as soon as possible. The meeting took place on 16 February 2021. About six months ago, Addy’s wife Shaheen became a major shareholder and a director of XYZ Ltd, which is a direct competitor of ABC Ltd. On 20 February 2021 SKAR Ltd entered into a contract to become a customer of XYZ Ltd. Addy did not mention to Edward and Rajah of Shaheen’s role in XYZ Ltd, and it was actually Rajah who became aware that ABC Ltd did not secure SKAR Ltd as a customer, and that they began doing business with XYZ Ltd instead. It was later discovered by Fletcher, a shareholder with 5% of the shareholding that it was actually Addy who diverted this business opportunity to XYZ Ltd and further investigation revealed that he did this with two other potentially lucrative deals. This has adversely affected Fletcher’s interest in the company. Approximately four months ago, the board of ABC Ltd purchased three plots of land next to its current site in order to build additional factory space and storage facilities. Addy initially suggested the transaction and successfully persuaded Edward and Rajah to agree to the purchase. Edward and Rajah have recently discovered that XYZ Ltd was the seller of the three plots of land. At a general meeting last week, Addy voted in favour of a resolution to ratify the purchase of the three plots of land, and the resolution was successfully passed. Advise Edward and Rajah as to: Which director’s duties Addy has breached as a director of ABC Ltd; Whether Fletcher will be able to challenge the decision to divert business opportunities away from ABC Ltd; and if so explain the procedure with reference to the relevant sections of the Companies Act 2006 and Whether the resolution to ratify the purchase of the plots of land was valid.