Decorate Ltd (Decorate) is a large office interior design company which has ordinary shares only,
listed on the Australian Stock Exchange. The majority of shares in Decorate are owned by Colour Ltd
(Colour), who holds 85%. The remaining shares are held by Light Pty Ltd (Light)who holds 11%, Bright
Ltd (Bright) who holds 3% and Julie McMahon, who holds 1%.
Decorate has a brief constitution which states that the company will employ Julie McMahon as
company solicitor. The constitution states that all other matters are to be dealt with under the
replaceable rules in the Corporations Act.
At a recent shareholder meeting, Colour indicated it would like to increase it’s shareholding in
Decorate to 100%. The directors of Decorate agree and believe it will result in large tax and
administrative savings for Decorate. The directors of Decorate have also become aware that Light,
originally an interior design company specialising in residential design, has recently established a
new company, Office Design Pty Ltd (Office). Light owns 100% of the shares in Office and the new
company specialises in interior design for offices. The directors of Decorate believe that Office is in
direct competition to Decorate and are concerned.
To assist Colour in gaining 100% ownership, the directors of Decorate propose a change to
Decorates constitution as soon as possible, allowing the majority shareholder (Colour) to
compulsorily acquire the shares of the minority shareholders (Light, Bright and Julie). It is proposed
that Decorate will provide detailed information relating to the constitutional amendment to all
shareholders. In addition, an independent valuer will assess a range of matters, including market
value, to ensure a fair share price for the minority shareholders.
Bill, the managing and sole director of Light indicates that he will not support the amendment and
Light will take legal action against Decorate to stop the amendment if necessary. He asks the other
minority shareholders (Bright & Julie) to join him in the legal action.
Tony, the managing director of Bright tells Bill he and his board will not support the amendment to
the constitution and will join in the legal action. However, the shareholders of Bright disagree and
have repeatedly expressed their desire to sell the shares in Decorate and believe the amendment to
the constitution is a good opportunity to do so.
Julie McMahon informs Bill she is not sure if she supports the amendment or not. She is having
financial difficulties and would like to sell her shares in Decorate but is concerned if she does, she
can no longer rely on the clause in the constitution stating she is the company solicitor.
With reference to legal authority discuss the legal implications for Decorate Ltd, Colour Ltd, Light
Pty Ltd, Bright Ltd and Julie McMahon.
The parties involved DO NOT require any information on statutory member remedies or takeovers.
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