QUESTION 1: BUSINESS LAW AND PRACTICE

You are a trainee working in the corporate department and receive the following memo from your supervising partner. MEMORANDUM From: Maryam Akhtar To: [Trainee] Subject: Taffer-Down-Dilly Limited File no: BT/0003.94 Date: 2 August 2018 I have had a phone call from Bethan Tilling. She is a 24% shareholder in Taffer-DownDilly Limited (‘TDD’). She is not a Director. TDD’s directors are Mervyn Evans (Chair), Cerys Lewis, and Jonas Rutte. TDD has model articles with an amendment to the effect that Model Article 14 shall not apply to TDD. TDD is a supplier of new breeds of horticultural bulbs, which it imports from overseas and distributes around the United Kingdom and Ireland to garden centres as well as through mail-order catalogues to gardeners. A large proportion of the people in their consumer customer-base are over 60 years old. The increasing availability of bulbs through internet-based retailers and improved computer literacy of people over 60 has hit mail-order sales to consumers. Garden centres are also ordering lower quantities as a result of a similar decline in their own sales. Bethan is worried that TDD’s dependence on sales by mail order, without investing in an online shop, will result in the ultimate failure of the company. Bethan has discovered that Mervyn explained to the board of TDD that he has shares in a company that can provide an internet sales site and that the board agreed to enter into a contract with that company at a cost of £125,000, with on-going annual support costs of £15,000. Bethan cannot believe the cost of this dedicated website because she estimates that even sales through Amazon and eBay would cost less. To cover the costs of the first two years, TDD would have to sell £700,000 more bulbs than usual, which Bethan thinks is most unlikely. She discovered that, last Monday, Mervyn called a board meeting to take place at 8am on the following Friday, to approve the contract with the website company. Jonas was on a business trip to the Netherlands but received notification of the board meeting. Jonas did not attend the board meeting at 8am last Friday. At the meeting, Cerys objected, raising the need to explore running sales through Amazon and eBay as an alternative on the basis that it would have lower start-up costs. Mervyn used his casting vote to overrule Cerys’ objections, passing resolutions to accept the website production contract and to give him permission to sign the contract. He then signed the contract. Cerys believes he has not yet returned the contract to the internet company but he has a meeting to hand it over early next month. Initially, Bethan wants to know whether Mervyn has done anything wrong as a director, and what might be done to persuade him to change course. Eventually (but not yet) she might consider whether to seek changes to the composition of the board, and I 002112 Page 4 of 10 © The University of Law Limited 2017-18 may want to instruct counsel to obtain an opinion over her chances of success with an unfair prejudice action to help us decide whether threatening that could be worthwhile. Ready for me to advise Bethan, I need a memorandum from you to me setting out your view of whether Mervyn has breached the Companies Act 2006. You do not need to consider whether Bethan has grounds for an unfair prejudice action because we will obtain that advice from the barrister if it becomes necessary. Just cover whether Mervyn has done anything wrong as a director, and what might be done, or threatened, to persuade him to change course. I do not need any detail on court procedures. Please draft a memorandum setting out a summary of Bethan’s legal position for me. Do not use our research report format. I need it in a memorandum so that I can use it as the basis for my own full letter to Bethan. Include legal detail so that I can easily cut and paste parts into the request for a barrister’s written opinion, if that step is needed. Write the memorandum to Maryam as requested, covering any legal wrongdoing by Mervyn and what might be done or threatened to persuade him to change course. In your memorandum, you are not required to explain the details of the procedure for any formal legal action through court proceedings that Bethan may be able to pursue against Mervyn nor any such action she may be able to take against the company. 

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