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Ultra vires

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA LW Exams › Ultra vires

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • August 17, 2023 at 8:59 am #690074
    whydoyoucare
    Participant
    • Topics: 50
    • Replies: 46
    • ☆☆

    Five years ago Kim, Liz and Meg formed Orb Ltd in which Kim and Liz each hold 40% of the shares and Meg owns the remaining 20%. They are the only directors. The objects of Orb Ltd contained in its articles are restricted to research, production and marketing environmentally-friendly cleaning products.
    In the course of a research project for Orb Ltd, Kim discovered a new highly powerful industrial cleaner, but unfortunately it is extremely toxic and not at all environmentally-friendly. She persuaded Liz that Orb Ltd should sell the new product and the pair recently signed a contract with Zeeb Ltd to distribute it. The pair have started to market the product to other potential customers as well.
    Meg maintains that the contract is contrary to the restrictions stated in Orb Ltd’s articles and is not binding on the company.
    TASK C
    Can Meg may stop Kim and Liz marketing the new product to other potential customers?

    Yes – because shareholders owning over 15% of the shares may apply to the court to prevent the company carrying out ultra vires activities
    Yes – because Kim and Liz have acted in breach of their statutory duties as directors
    No – because Kim and Liz own sufficient voting rights to control the company
    No – because it is a matter for the Registrar of Companies to decide on

    MY QUESTION:
    1. Do the shareholders need a specific percentage to bring an ultra votes action/ can any member apply for an ultra votes action to court or going to court isn’t an option?
    2. I thought they acted in breach of duty so answer was B, but it was C. Why? They have a significant holding so control but it was still breach of statutory duty.

    August 17, 2023 at 4:50 pm #690089
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23303
    • ☆☆☆☆☆

    1. No. Where a wrong is being proposed that is contrary to the company’s constitution, any member may bring an action to prevent that ultra vires purpose progressing.

    2. Yes, it is a breach of the company’s constitution. But, with 80%, the two major shareholders could propose (and pass) a special resolution to amend the articles.

    OK?

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    Posts
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