Spotless Ltd has been trading successfully for sometime now. Ahmed, Ali and Mark are the shareholders and directors of the company. Ahmed had helped his cousin, Ali to become a shareholder hence director of the company by granting him an interest free loan. In return, Ahmed had hoped that Ali would always vote as directed by him and that Ali would sell his shares to him after a period of five years at a price to be fixed by Ahmed. During the first two years of the after a period of five years at a price to be fixed by Ahmed. During the first two years of the business, Ali voted as directed by Ahmed. However, recently Ali started disagreeing with Ahmed on company matters and has repeatedly turned down Ahmed’s offer to buy his shares. Instead, Ali is trying to assume more control in the company as its profit margin has increased in recent years. Ahmed and Mark have also discovered that Ali is diverting part of the company’s business to a rival company in which he has an interest.
Ahmed now wishes to alter the company’s articles of association so as expel Ali from the company. The new articles would read as follows: “Any member who carries on business competing with the company shall be equired by the company, by ordinary resolution, to sell his shares to the other members at a fair price to be fixed by the directors.”
Ali is threatening to commence legal action preventing Spotless Ltd from altering its articles. You are a legal team summoned to attend a case-conference. Ahmed, who is also the managing director of the company, has asked your team to prepare a legal analysis of the relevant company law issues raised in the above scenario and advise whether:
a) Spotless Ltd can proceed with the proposed alteration. (70 marks)
b) What difference, if any, would it make to your answer if the alteration were to read as follows: “The company could by ordinary resolution require any member to sell his shares to the other members at a fair price to be fixed by the directors.” (30 marks)