Corporate Law & Practice

Q (Members’ Remedies)
Problem Question

Colour Paints Ltd (“Paints”) is a public company of which Black, White and Brown are the directors. Each of these directors controls a 10% shareholding in Paints. No other single shareholder holds more than a 5% shareholding in the company.

Paints was established some time ago in order to improve the buying power of a number of smaller retailers of paints so that they might meet the competition of larger retail chains. For 6 years the company has actively pursued the object of purchasing paint from manufacturers on behalf of members at a price comparable to that paid by the large retail chains.

However, in the last year, the present directors, who are among the largest of the small retailer members of Paints, have considered introducing scaled benefits for members according to volume of purchases. They say that the smaller members of Paints will still remain better off than if they were to purchase alone, and that to meet increasing administrative costs, some recognition should be paid to the fact that a small number of Paints’ larger members have really been responsible for the benefits received by all members. At various meetings over the past year, directors have continually raised these points.

Last week, the board passed a resolution establishing a new members’ buying list, by which the larger members of Paints will continue to buy at prices comparable to those paid by the retail chains and the smaller purchasing members will pay 15% more. George Brush, a member holding a 2% shareholding wishes to challenge the directors’ actions.

On what legal grounds might Brush proceed?
Notes : 1 major problem solving question about the Members’ Remedies,You also need to know directors’ duties and company constitution to answer this question.
Please note the following when answering a legal problem question:
a) You should not re-state the question at the beginning of your answer. Go straight to identification of the main issues.

b) You need to provide authority for each legal principle you state in your answer. Wherever possible, you should rely on primary, rather than secondary, sources of law (i.e. cases and legislation.