Company law

| April 8, 2014

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Alexander, Graeme and Rory have been members of the European golf tour for ten years. During this time, they have each learned how profitable running a golf course can be. In 2006, they started a golf course development company called Go Low Plc. Starting the business required £500,000. All three personally invested £100,000, and raised the remaining £200,000 by issuing shares to the public. Alexander, Graeme and Rory have 100,000 £1 shares each; the remaining 200,000 shares are dispersed among the remaining shareholders. The Constitution sets out the management structure of the company as follows: (1) a provision stating that the Directors may only borrow up to £50,000 without a special resolution from the shareholders; (2) the management of the company shall be primarily carried out by the board of directors; (3) the board shall have the power to appoint the company’s officers and managers to help perform the day-to-day functions of the company; and (4) the objects of the company shall be the development of new golf courses in the United Kingdom.
At the first general meeting, the board elected Graeme as the Managing Director, Rory as the Chief Financial Officer, and Alexander as Director of New Business and Marketing. As a result of the financial crisis in 2008, the company faced financial difficulties as the general public was spending less on playing golf. As a result, Graeme informed the board of the success of another company that he controls – PGA Ltd – that specializes in redesigning existing golf courses. This area has proved profitable for PGA Ltd because of the efforts of many golf clubs to redesign their existing golf courses to make these courses more attractive as a stop on the professional golf tour. The board decided to agree to a joint venture with PGA Ltd that would see both companies work together to redesign golf courses. Graeme signed the deal on behalf of PGA Ltd. The contract stipulated that Go Low Plc would contribute £20,000 per year for the next ten years to cover the cost of the business, and in return would receive 35% of any profits made annually, assuming there are any.
In order to enter into this venture with PGA Ltd, Go Low Plc needed additional funding. To obtain this funding, Alexander advised one of his middle managers, Sergio, to ask Kent Bank for a loan of £100,000. Sergio met with Percy, Alexander’s brother who is also the Loan Officer of Kent Bank, on a number of occasions to discuss the terms of the loan. After their first meeting, Percy, who is also a minority shareholder in Go Low Plc, decided to contact Alexander to verify that Sergio had the authority to enter into a contract for such a large sum of money. Alexander confirmed that Sergio had the requisite authority to bind the company.
The first golf courses that Go Low Plc and PGA Ltd attempted to redesign were left half complete and no profits were made. On account of this lack of success, Go Low Plc lost all of the money borrowed from Kent Bank and is now insolvent. Consequently, it has been unable to keep the terms of its agreement with PGA Ltd.
1. Graeme approaches your law firm to find out what options he has for recovering the money owed by Go Low Plc to PGA Ltd. Advise Graeme.
2. Kent Bank approaches your law firm to determine whether it can enforce the contract against Go Low Plc. Advise Kent Bank.
3. Monty, a minority shareholder in Go Low Plc, wants to know the legal options that are available to the shareholders who are unhappy with the contract entered into by Go Low Plc with Kent Bank. Advise Monty.
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