QLD Commercial Law - Diluting Share Value After Sell Option is Exercised?

[steven hickey]

Under commercial law, can a new share offer be made, thereby diluting the value of shares after a sell option has been exercised for a company?

 

[Rod]

Is this homework?

If not, please provide more background.

 

[steven hickey]

I resigned as director and when presented with continued pressure about where and how I may be able to earn a living I decided to exercise my sell option. The remaining two directors have a few days later taken a resolution at a directors' (not shareholders meeting - I was not invited) to dilute my share holding though a raising capital action seeking to obtain injection of $60,000 but at a share price of just $0.02 each and in so doing also devalue the shares (120 shares for the entire company which was valued at approx $4.5million just 20 months ago).

My question is, can such an action be taken?

 

[Rob Legat - SBPL]

Ultimately it may come down to what is in the company constitution (assuming this a 'pty ltd' company).

Section 254D of the Corporations Act requires that the issue of a particular class of share must be offered to existing holders of that class of share in proportion. They can get around doing so by a resolution passed at a general meeting (ie a meeting of the shareholders).

However, s254D is a 'replaceable rule' which means the company constitution can displace or modify it.

You'll need to review the constitution and see what it says about share issues. You should also review the terms of your sell option to see what effect that may have.

 

[Rod]

You may have multiple grounds for complaint:

• breach of directors duties
• breach of company constitution
• breach of shareholders agreement (if one exists)
• improper purpose
• oppressive conduct

Vaguely remember some remedies have a countdown clock ticking away meaning you must take action in 30 days or remedy disappears.

Recommend you see a lawyer asap.