Company law tutorial question year 3 Semester1. 1.

"Under the ordinary rules of law, apresent company and a subsidiary company, even a 100 per centsubsidiary company, are distinct legal entities and in the absence of an agency contract between thetwo companies, one cannot be said to be the agent of the other. This seems to be clearlyestablished by the rule inSalomon v. A. Salomon & Co. Ltd." Critically discuss.

2."The principle laid downinFoss v. Harbottlecontinues to create a significant obstacle to minorityshareholder action." Discuss.

3. Layton Co. Ltd., private company with Articles in the form of Table A, has in its memorandum, thefollowingclauses: "The objects for which the company is established are: (i) to manufacture, process and distribute computer software and CD Roms; (ii) to purchase and hold property, to borrow or to lend money, and todisposeof funds orproperty owned by the company; and (iii) to do anything that is in the opinion of the directors necessary to make profits from the useof the assets of the company." Geoff and Marcia, two of the directors of Layton Co. Ltd., own approximately 20 percent of theshares in Layton Co. Ltd. Stacy, a director, unbeknown to the board of directors, purports to enter into a contract with HighState Developers Ltd., "on behalf of Layton Co. Ltd.," for the construction of a health spa forstressed executives. In order to secure machinery, Stacy writes to Health Fanatic Inc., on Layton Co. Ltd.'s stationery,offering Health Fanatic Inc. the contract to provide technical training for any staff employed by thespa.Health Fanatic Inc. accepts the offer. Layton Co. Ltd., now refuses to build the health spa due to a depression in the market and isconsequently not in need of Health Fanatic Inc.'s services. Discuss.

4. Tamara and Kathy have been conducting business as artefact restorers for several years. In January, 1999, Tamara and Kathy decided to incorporate their business. In order to facilitate the buildingof the registered head office of the company, Tamara purchased land from her grandfather for$50,000. Meanwhile, Kathy executed a contract on behalf of Heritage Ltd., engaging the services of Sherry,a geology expert, to carry out a geological survey. Sherry submitted a report headed "subject toconfirmation" which stated that the land was suitable for building a multistoried complex and thatthere was evidence of mineral deposits. In June 2004, Heritage Ltd. was incorporated as a public company with Tamara, Kathy and Billas its directors.Tamara promptly sold the parcel of land to Heritage Ltd. for $2.2 million andsubmitted an invoice for $70,000 for services rendered prior to the incorporation of Heritage Ltd. In April 2005, Tamara, unbeknown to the board, enters into an agreement with Jump Up Inc. forthe acquisition of a fleet of trucks. It is customary for Heritage Ltd. to lease trucks as acquisitionis extremely costly. Advise. The capital of Bush Tea Co. Ltd. consists of fully paid up ordinary and preference shares. The governingregulations of Bush Tea Co Ltd. provide as follows: "17(a) Preference shareholders shall receive a cumulative preference dividend of 5% half yearly;and (b)Two votes shall be attached to each preference share issued." Due to an outbreak of the Pink Mealy bug disease, the production of bush tea has dramatically declined. The board of directors of Bush Tea Co. Ltd. proposes to alter clause 17(a) of the governing regulationsto reduce the preference dividend from 5% to 2% and to move a resolution to increase the votingrights of ordinary shareholders. Advise the preference shareholders.

5. In 2001, Mr. Ingenious decided to build condominiums on a parcel of beach front property which he hadpurchased in 1996 for $40,000. On March 26th, 2001, Mr. Ingenious instructed Mr. Safe Guard, anattorney-at-law, to incorporate a company to be called Beach Haven Ltd. to manage the condominiums.Immediately after leaving Mr. Safe Guard's office, Mr. Ingenious entered into an oral agreement on behalfof Beach Haven Ltd. with Fast Seal Cement Ltd. for the supply of building blocks for the constructionof the condominiums. The company, Beach Haven Ltd., was eventually incorporated, in January, 2002. Its board of directorsconsists of Mr. Ingenious, Mr. Deke, Ms. Peta-Gaye and Ms. Jayanti. At the directors' meeting ofFebruary, 2002, the board of directors resolved to purchase the beach front property from Mr. Ingeniousfor $1million.

Unfortunately, due to a slump in the real estate market Beach Haven Ltd.'s profits declined significantly.It has been discovered that, prior to incorporation, Mr. Ingenious contracted with Wire Steel Inc., signingon behalf of Beach Haven Ltd., for the supply of 12 tons of high-tension steel at a price well above themarket price. Mr. Deke, in March, 2003, hired his girlfriend, as a consultant, for $10,000 per month without boardapproval. The cement blocks purportedly purchased on Beach Haven Ltd.'s behalf are discovered to be of inferiorquality. Advise Beach Haven Ltd.

6.Sashawa Enterprises Ltd. (SE Ltd.) is a public company incorporated in Jambah. The Articles ofAssociation of SE Ltd. are in the form of Table A. The objects clause of the Memorandum ofAssociation contain the following provisions: (a)To carry on the business of the manufacture of textiles and clothing apparel; (b)To borrow money; (c)To do all such things which in the opinion of the directors may be conveniently carried out by thecompany. In January, 2001, Michael and Midge, two directors of SE Ltd., contracted with Caribbean ConstructionLtd. to build a coffee shop on premises adjacent to the corporate headquarters of SE Ltd. To financethis project SE Ltd. borrowed $5 million from Careless Bank Ltd. This loan was approved quickly, sinceCareless Bank Ltd. was a long standing customer of SE Ltd. and Careless Bank Ltd. was satisfied ofCaribbean Construction Ltd.'s credit worthiness. After the events of September 11th, 2001, the profits of SE Ltd. declined considerably. SE Ltd. is nolonger interested in constructing the coffee shop and is refusing topayboth Caribbean Construction Ltd.and Careless Bank Ltd.Nevertheless SE Ltd. is desirous of donating $12 million dollars to theInternationalWar Relief Fund.

Discuss.