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law-Decorate Ltd (Decorate) is a large office interior design company which has ordinary shares only,

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Question;Decorate Ltd (Decorate) is a large office interior design company which has ordinary shares only,listed on the Australian Stock Exchange. The majority of shares in Decorate are owned by Colour Ltd(Colour), who holds 85%. The remaining shares are held by Light Pty Ltd (Light)who holds 11%, BrightLtd (Bright) who holds 3% and Julie McMahon, who holds 1%.Decorate has a brief constitution which states that the company will employ Julie McMahon ascompany solicitor. The constitution states that all other matters are to be dealt with under thereplaceable rules in the Corporations Act.At a recent shareholder meeting, Colour indicated it would like to increase it?s shareholding inDecorate to 100%. The directors of Decorate agree and believe it will result in large tax andadministrative savings for Decorate. The directors of Decorate have also become aware that Light,originally an interior design company specialising in residential design, has recently established anew company, Office Design Pty Ltd (Office). Light owns 100% of the shares in Office and the newcompany specialises in interior design for offices. The directors of Decorate believe that Office is indirect competition to Decorate and are concerned.To assist Colour in gaining 100% ownership, the directors of Decorate propose a change toDecorates constitution as soon as possible, allowing the majority shareholder (Colour) tocompulsorily acquire the shares of the minority shareholders (Light, Bright and Julie). It is proposedthat Decorate will provide detailed information relating to the constitutional amendment to allshareholders. In addition, an independent valuer will assess a range of matters, including marketvalue, to ensure a fair share price for the minority shareholders.Bill, the managing and sole director of Light indicates that he will not support the amendment andLight will take legal action against Decorate to stop the amendment if necessary. He asks the otherminority shareholders (Bright & Julie) to join him in the legal action.Tony, the managing director of Bright tells Bill he and his board will not support the amendment tothe constitution and will join in the legal action. However, the shareholders of Bright disagree andhave repeatedly expressed their desire to sell the shares in Decorate and believe the amendment tothe constitution is a good opportunity to do so.Julie McMahon informs Bill she is not sure if she supports the amendment or not. She is havingfinancial difficulties and would like to sell her shares in Decorate but is concerned if she does, shecan no longer rely on the clause in the constitution stating she is the company solicitor.With reference to legal authority discuss the legal implications for Decorate Ltd, Colour Ltd, LightPty Ltd, Bright Ltd and Julie McMahon.The parties involved DO NOT require any information on statutory member remedies or takeovers.

 

Paper#59083 | Written in 18-Jul-2015

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