Henry, Lucy and Patsy are the directors of Good Egg Limited (Good Egg). Lucy and Henry have been directors for a number of years. Patsy was appointed at the last Annual General Meeting (AGM). All appointments were validly made. The directors are all concerned that at the 2015 AGM they will be up for re-appointment and Good Egg has not been in a position to pay a dividend for the last two years and the shareholders are not happy. The directors have identified that sales of eggs at Good Egg Ltd have decreased recently. This is due to the release of a research study that found that eating more than one egg per week increased your chance of developing heart disease by 70%.
Henry is also a director and significant shareholder of Sunny Pty Ltd (Sunny). Sunny was in the business of manufacturing cardboard containers used to sell the eggs produced by Good Egg. Good Egg is the only client of Sunny and the supply contract is about to end. It has been the practice in past years that Good Egg automatically renews the contract with Sunny. However, this year, in an attempt to reduce costs, Good Egg is going to put the contract to competitive tender. To make sure that Sunny gets the contract, Henry incorporates another company (Boxes Pty Ltd) to put a higher tender in to supply egg cartons. Only Sunny and Boxes Pty Ltd put in tenders. Luckily, Sunny had the lowest tender and was awarded the contract.
Good Egg was the first company in which Patsy was appointed as a director. Prior to being a director of Good Egg Patsy was a research scientist. She had spent the last 10 years researching a cure for Cancer. Patsy did not really understand the company reports that she was signing off and certainly had no understanding of the financial accounts. Patsy always deferred to Henry and Lucy when it came to making decisions. The constitution of Good Egg provided that Patsy was to be appointed as a research scientist at Good Egg for life.
Lucy, who is a single parent has for a long time balanced the needs of her family with that of her responsibilities as a director of Good Egg. However, in the last few months her daughter has been extremely ill and Lucy has not been as focused on her director duties as she may have been in the past. At one of the directors meetings, Lucy agreed that the company should invest a significant amount of money into research on organic egg farming. Unfortunately this was as a bad investment decision and the company lost all of the money invested. If Lucy had been more focused the outcome would have been different.
One Monday morning, Lucy was particularly tired as she had been busy taking her kids to sporting events over the week-end. After the kids went to school, she went back to bed and put her phone on silent. Henry and Patsy thought it was important to have a meeting to discuss a business proposal. When Lucy did not answer her phone they held the meeting without her. Lucy was furious when she discovered this fact as she was not in agreement with the other directors who had decided to change food suppliers to a non-organic source. Neither Patsy nor Henry had adopted the role of chair in the meeting and neither of them kept any minutes of the meeting.
The directors of Good Egg knew they had to face the music and they validly called the 2015 AGM. The shareholders of the company were Ginger, Meg and Edwina. All shareholders attended the meeting. The meeting was heated with Lucy and Patsy arguing over a number of issues. Lucy was so infuriated that she immediately put a resolution to the members that the company constitution should be changed and the clause that guaranteed Patsy her life time position as a research scientist should be removed. All the shareholders voted in favour of this resolution. As a result of this decision, Patsy was infuriated and refused to count the votes of Meg and Edwina on all other resolutions at the meeting.
TASK 1 - PROBLEM SOLVING QUESTIONS:
1. Advise Good Egg Ltd whether Patsy has breached any director’s duties.
2. Advise Lucy if there is anything she can do about the Directors meeting that she did not attend.
3. Advise Patsy on whether she can bring an action against the company for the resolution put forward at the Annual General Meeting.
TASK 2 - DRAFTING COMPANY DOCUMENTS
Draft a resolution and the accompanying explanation in relation to modifying the constitution of Good Egg Ltd to remove the clause in relation to Patsy being a research scientist for Good Egg Ltd.