Monday 12 August 2024
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question: GreenEarth Ltd. is a company focused on renewable energy projects. The company recently held a shareholders’ meeting where a special resolution was proposed to amend the articles of association, allowing the company to enter into new ventures outside the renewable energy sector. A group of minority shareholders strongly opposed the amendment, arguing that it contradicts the company’s original mission and could expose the company to financial risks. Despite their objections, the resolution passed with the required majority. The minority shareholders are now considering legal action to challenge the amendment.
Which legal mechanism is available to the minority shareholders to challenge the amendment to the articles of association, and what must they prove to be successful?
1. A derivative action; they must prove that the directors breached their duties by proposing the amendment.
2. A petition for unfair prejudice under section 994 of the Companies Act 2006; they must prove that the amendment unfairly prejudices their interests as minority shareholders.
3. An application for judicial review; they must prove that the amendment was made in breach of public law principles.
4. An action for breach of contract; they must prove that the amendment violates the original terms of the shareholders’ agreement.
5. A claim for fraudulent misrepresentation; they must prove that the majority shareholders misled them about the purpose of the amendment.
Study Material: For more on the topic of this week’s question see the video linked here and if you are looking for a relevant* title, see here.
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Answer and feedback to last week’s question: David is the CEO of FutureTech Ltd., a publicly traded company. He becomes aware of confidential information that the company is about to announce a breakthrough technology, which is expected to significantly increase the company’s stock price. Before the information is made public, David shares this information with his friend, Laura, who buys a large number of FutureTech Ltd. shares. Following the public announcement, the stock price of FutureTech Ltd. soars, and Laura makes a substantial profit from her investment. The Financial Conduct Authority (FCA) investigates the trades as suspect. Which of the following best describes the legal implications for David and Laura under insider dealing laws?
1. David has breached his fiduciary duty but Laura has not committed any offense.
2. Both David and Laura can be prosecuted for insider dealing under the Criminal Justice Act 1993.
3. David can be prosecuted for insider dealing, but Laura is only liable if she knew the information was confidential.
4. Laura can be prosecuted for insider dealing, but David can only face civil penalties.
5. Both David and Laura can only be liable if FutureTech Ltd. suffers a financial loss as a result of their actions.
Correct Answer: 2: Both David and Laura can be prosecuted for insider dealing under the Criminal Justice Act 1993. Under the UK’s insider dealing laws, specifically the Criminal Justice Act 1993, insider dealing is a criminal offense. An insider is someone who possesses unpublished, price-sensitive information due to their position within a company. David, as the CEO, qualifies as an insider and breaches the law by disclosing this information to Laura before it is made public. Laura, who trades on this non-public information, also commits an offense by buying shares based on insider information. Both individuals can be prosecuted for insider dealing, which involves severe penalties including imprisonment and fines. David’s actions constitute a breach of his fiduciary duty to FutureTech Ltd., but more importantly, they constitute criminal conduct under insider dealing regulations. Laura’s liability arises from acting on the confidential information provided by David, knowing it was not yet public. The law does not require that FutureTech Ltd. suffer a financial loss for David and Laura to be prosecuted for insider dealing. Therefore, both David and Laura can face criminal prosecution under the Criminal Justice Act 1993.
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All the best
Dr Ioannis Glinavos
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