Question 2 (15 marks) (1000 words maximum)
Lily and Morris are the directors and shareholders of Zap Graphic Pty Ltd. Recently, the company began to suffer cash flow problems and needed additional capital. Lil persuaded Rodney to invest $100,000 in the company. Lily and Morris held a directors’ meeting and decided to issue Rodney with two shares in the company. A general meeting of shareholders also appointed Rodney as a director of the company.
The company’s financial position improved as a result of Rodney’s $100,000 investment. Despite the company’s increased profits, Lily and Morris decided not to declare a dividend for the current year. Instead they gave themselves pay rises and arranged for the company to lease two new Mercedes-Benz cars for their personal use. At the board meetings, Rodney made a number of suggestions to improve the profitability of the business. He also questioned Lily and Morris about their pay rises. Lily and Morris resented these questions. According, Lily and Morris formed another company, LM Graphic Pty Ltd, in which Rodney was not involved, and diverted a valuable government design contract that they had been negotiating for Zap Graphic Pty Ltd to their new company. In addition, Lily and Morris also called a shareholders’ meeting at which it was resolved that Rodney would be removed from his position as a director.
Advise Rodney what legal remedy/remedies he has