[Solved] Advise Mark, a minority shareholder, of possible action against the directors.

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[Solved] Advise Mark, a minority shareholder, of possible action against the directors.

ASSIGNMENT QUESTION

Jupiter Publications Ltd was formed in 1998. The directors are May, Belinda, Harry

and Tim. Each director holds 15% of the shares of the Company. The rest of the

shares belong to five other investors who have largely remained passive.

Tim, who had inherited all his shares in the Company, was recently appointed to the

Board of Directors. Being young and inexperienced, Tim finds himself unable to cope

with the pressure of running the company and is extremely stressed.

In February 2016, Peter Higgins approached the Board. He wanted to sign a

publishing agreement with Jupiter Publications Ltd for a political thriller which he

was writing. Peter’s book featured interns in the White House being brain washed

into becoming political assassins. Peter wanted an advance fee for the book.

The Board rejected Peter’s proposal as they mistakenly believed that Peter had no

track record in publishing saleable stories. Belinda honestly felt that the market was

saturated with such novels and this would be an unprofitable move for the company.

May, however, knew that Peter had successfully published a few stories using

different pen names. She was convinced that Peter’s book would be a big hit but

kept all these facts to herself. Tim was simply happy to follow May’s advice.

May subsequently contacted Peter and persuaded him to sign a publishing

agreement with her instead. Peter’s book is now a major best seller resulting in

massive profits for Peter and May.

Harry, in the meantime, faced financial difficulties and was close to having to declare

himself bankrupt. To avoid potential problems for the company, the Board

unanimously agreed for the company to loan Harry £20,000. Harry was present but

did not vote when this Board resolution was approved.

Last week the printing press belonging to Jupiter Publications Ltd was burgled. Six

months earlier, Tim had been put in charge of insuring the Company’s assets.

Unfortunately, he had signed the insurance form without checking the content of the

policy. The insurance company claimed that the insurance policy did not cover

burglary and therefore refused to pay. As a result, the company suffered a loss of

£30,000.

Harry and Tim have now found out about May’s involvement with Peter. They

nonetheless decided against legal action after May produced evidence to show that

Peter would not have signed the publishing agreement with Jupiter Publications Ltd

once he discovered that Jupiter Publications Ltd had ending lawsuits over copyright

infringements. At the same time, the Board passed a resolution that no proceedings

should be taken against Tim. They also called a shareholders’ meeting, which

passed a resolution ratifying any breaches of duty on May and Tim’s part. May and

Tim voted in favour of the resolution.

Required:

Part (a)

In the context of UK  company law, advise May, Tim, Belinda and Harry whether

they have breached any of their administrative or fiduciary duties as

directors of Jupiter Publications Ltd.

Part b)

Advise Mark, a minority shareholder, of possible action against the directors.