On Aspects of the Company Law Arising
Most viable business laws treat The Look At Me plc television Media Company as discrete legal person managed through human beings (Directors). The duty imposed on every company director to act bona fide must be in the best interest of the enterprise, and any breach of this duty may attract legal claims or/and dismissals. Shareholders, such as Simon and Cheryl have vested interest in the Look At Me plc Company’s affairs and are right to be concerned about any potential loss on their investments (Kraakman, Reinier, Hyun, and Steven 10). Louis, as the Managing Director of Look At Me plc Company, has a statutory duty to promote its success. Similarly, Louis owes the company a duty to avoid any conflict of interest in service delivery and jib performances (Kraakman, Reinier, Hyun, and Steven 13). For instance, by taking up a job as a consultant to a rival company, a conflict of interest arises between Louis’s fiduciary duties and personal interests.
The company law act is very explicit on this; a corporation’s director must at all cost avoid such instances that directly or indirectly conflict with the company’s interests (Kraakman, Reinier, Hyun, and Steven 13). Simon and the sister Cheryl together with other minority shareholders are at liberty to constitute class litigation action against the errant director (Louis) and the company. A class litigation action against the Look At Me plc Company is deemed to have a collective legal force to make the company take legal actions against the errant director (Kraakman, Reinier, Hyun, and Steven 14). In the same way, Simon and Cheryl being minority shareholders may file a derivative action against the director for the ‘wrongdoing’ committed against the Look At Me plc Company (Kraakman, Reinier, Hyun, and Steven 15). By secretly engaging with a competing rival company, Louis is considered to be putting the company’s reputation and survival at risk. His act can be regarded as a ‘wrongdoing’ to the Look At Me plc Company and Simon has the right by law to constitute such legal claims and actions against Louis (Kraakman, Reinier, Hyun, and Steven 15). In pursuing such claims, Simon and Cheryl need not to show that the director (Louis) benefited personally from the deal, as the case is prima facie, but only need to prove that there was a breach of duty.
Louis being the Managing Director at Look At Me plc, a television production company, is legally bounded to some particular duties (Kraakman, Reinier, Hyun, and Steven 15). A breach of duties or terms of the employment contract as a director may constitute an immediate dismissal and legal suits when deemed appropriate (Kraakman, Reinier, Hyun, and Steven 16). By secretly taking up a post as a consultant at a rival television production company, Louis’ loyalty and commitment to serving Look At Me plc is placed under scrutiny. The Look At Me plc Company can bring a claim against Louis as the Managing Director if there is a prove that the Company suffered some losses because of Louis’ actions. In such an instance, any contract or agreement that Louis may have had with Look At Me plc Company is considered void (Kraakman, Reinier, Hyun, and Steven 17). Simon can encourage the Company’s top management to seek a legal injunction stopping Louis from further involvement in the rival company’s activities (Kraakman, Reinier, Hyun, and Steven 18). As a result of this breach of duty by the Look At Me plc Company Managing Director, negligent may be assumed, and damages, if any, pursued by the company against Louis. Similarly, the Company may rescind Louis’s secret contract with the competing television company to help restore any damage inflicted on the company’s image (Kraakman, Reinier, Hyun, and Steven 18).
Louis being a Managing Director, he owes his duties directly to the Look At Me plc Company, and only the Company can launch a protest in case of any breach of duty by the director (Kraakman, Reinier, Hyun, and Steven 20). Being shareholders at the Look At Me plc Company, Simon and the sister have no explicit claim against Louis as the director for any potential loss they might suffer as a result of the breach of duty (Kraakman, Reinier, Hyun, and Steven 21). The value of shares Simon and the sister hold may have dropped as a result of Louis’ actions, but the company is held responsible for such losses. Simon’s deal is with the Company and not the company’s employees and has limited options against Louis. In addition, very few companies globally will wish to constitute a legal claim against its own managers and will rather seek an out of court solution (Kraakman, Reinier, Hyun, and Steven 21).
Against these, most company laws have constituted well-developed mechanisms, allowing company shareholders to compel the company to seek legal redresses (Wang, Baoshu, and Jackie 230). Simon is therefore permitted by such law, and with an authorization from the courts to bring a claim against Louis in the company’s name (Wang, Baoshu, and Jackie 232). In case the company suffered any substantial loss in image and revenue from Louis’s breach of duty, the company is duly compensated in accordance with the law (Wang, Baoshu, and Jackie 234). The legal claim by Simon against Louis is quite distinct in the sense that being a shareholder, the claim is not in his own name for any potential loss, but on the Look At Me plc Company’s name for any possible loss. Therefore, any compensation or decision reached is a direct benefit to the company and only the board can decide to pass some benefits to Simon through dividends as a way of appreciating his efforts (Wang, Baoshu, and Jackie 235).
Incase Simon feels the company’s board are reluctant to act against the errant Look At Me plc Managing Director (Louis), he can issue a claim (but in the name of the company) against Louis with the Company footing the Attorney’s legal fees. The court permits such claims and has the discretion to adjourn the case to allow it collect enough evidence from the Look At Me plc Company on the extent of Louis breach of duty (Wang, Baoshu, and Jackie 235). Upon a decision that the director (Louis) has a prima facie case to answer, the court will grant Simon the go ahead to pursue the claim further. This permission by the tribunal is reached after determining whether it is in the best interest of the Look At Me plc Company to continue the matter to the court or if the shareholder (Simon) has ulterior motives (Wang, Baoshu, and Jackie 236). Similarly, the court determines whether Louis actions are in accordance with the company policies and duties in promoting the Look At Me plc Company. Correspondingly, Louis’s claimed breach of duty may be dismissed and relieved of any liability if he can prove to the court that his action is honest and reasonable given the circumstances (Wang, Baoshu, and Jack 240). However, if Louis’s action breached the duty he owes the Look At Me plc Company, he is liable to account for any loss in revenue ensuing, and should duly compensate the company (Wang, Baoshu, and Jackie 240).
Anotherissuethecourt will take into consideration before grantingtheclaim is whether Simon is acting in goodfaith in constitutingsuchclaims against Louis orjustvexations (Anderson, Craig, and Bingna 10). Simon must provethathe has nopersonalinterest in theapplication, oranyotherremediesstipulated in theshareholdersagreementformshestands to benefitfrom. Simon andthesister Cheryl havelimitedshares with the Look At Me plc Company at only 7.5% eachbut with votingrights (Anderson, Craig, and Bingna 11). However, since thepotentiallossthecompany will suffer will alsoaffect Simon’s Ultimate dividendsandtheissuedsharevalue, theamount of sharesheld in pursuingtheclaims, in thiscase, is irrelevant (Anderson, Craig, and Bingna 15).Currently, regardless of whether a companydirector has breached a dutyor not, mostbusinesses’ shareholders can dismissthedirector by ordinaryresolution in their annualgeneralmeetings (Anderson, Craig, and Bingna 15).Simon and Cheryl, beingshareholders at the Look At Me plc Company, may use their influence to convinceothershareholders to pass a resolutiondismissing Louis from thecompany (Anderson, Craig, and Bingna 17).
Notably, Louis employmentrightsremainunaffected in casetheshareholdersvotefor his dismissalandthecompany will be obliged to pay out thecontract as stipulated in Louis’s servicecontract. In addition to these, evenif Louis’s breach of contract is clearandproved, themajorityshareholders can consent after an ordinaryresolution to dismissthedirector (Louis) (Anderson, Craig, and Bingna 17).In a casewherethedelinquentdirector (Louis) is also a Look At Me plc Company shareholder, thevoting should still be in favor of a dismissalbecause in thelongrun, theyallstand to lose from the Director’s actions (Anderson, Craig, and Bingna 19).Aclaim in thecase of Simon and Cheryl versus Louis is treated as an asset of thecompany in a casewherethecorporation’s imageandrevenue is severelyaffectedasthecompensationderivedgoesdirectly to thecompany.
In conclusion, a company director is not permitted to initiate a contract or enter into any agreement with a rival company without due approval of the company’s shareholders (Anderson, Craig, and Bingna 23). All company directors should have this information. Louis stood to benefit personally from accepting a consultancy job at a rival television company, but he did not first seek the approval of the shareholders. In the case of Louis, he is liable to the Look At Me plc Company for any possible loss of revenue and reputation, and must indemnify the company for any damages suffered (Anderson, Craig, and Bingna 23).
Anderson, Craig, and Bingna Guo. “Corporate Governance under the New Company Law (Part 2): Shareholder Lawsuits and Enforcement.” China Law & Practice 20 (2006): 15.
Kraakman, Reinier, Hyun Park, and Steven Shavell. “When are shareholder suits in shareholder interests.” Geo. Lj 82 (2003): 1733.
Wang, Baoshu, and Jackie Yung “China’s new company law and securities law: An overview and assessment.” Australian Journal of Corporate Law 19.2 (2006): 229-242.